Let me start with you about this so-called bull market, is it for real,
is it going to sustain I must say we have our elves here that follow these
things for Bloomberg, various security analyst, and they think we're end of the
year around 4000. We're now pushing 40, 300.
Is it real? Well, we're as what we call a skeptical
participant in the market, really with a neutral position on U.S.
equities. And really the reason why is you've got
a conflicting set of signals going on as far as what may happen with the stock
market. So on the one side, we certainly know
that fundamentals have been sighing, whether it's on the top down corporate
basis or on the bottom up top down macro basis or the bottom up corporate basis.
And we have headwinds of continued a tight policy in monetary factors.
On the other hand, however, we have seen some green shoots starting to come up
recently and technicals certainly have been pushing on a relative basis.
The U.S. equity market higher.
So are we in a new bull market? We think it still remains to be seen,
but certainly there is some momentum right now towards an upward trajectory.
Joel Weber, we hear from the Fed next week and we're told that tight monetary
policy is that one of the things that could actually take this bull market
back away from us again? Look, I think to at least as once I
think that the technicals have certainly been very supportive of this run.
People came into the air, very nervous, sort of concerned about the outlook for
earnings, earnings, surprise to the upside.
Thinks it's Danielli in Q1 and people are sitting there long.
A lot of cash. And I think you're going to see risk
assets continue to perform here because of the you know, the amount of amount of
cash still on sidelines looking to get invested.
You know, it's interesting that he talked about a bull market.
Yes. I guess it is now technically a bull
market up until, you know, just a few weeks ago is fairly concentrated bull
market. So it's it's, you know, with it, whether
it's the top seven, eight, nine stocks have driven a large amount of that.
But I'd say that's starting to become more broad based.
So, you know, I've seen small cap mid-cap industrials starting to catch
up. So it's starting to look like a slightly
healthy Iran as well. Then the very concentrated run we are
seeing just a few weeks ago. There are a lot of dry powder, Julian,
right now. We see over 5 trillion, I think now in
money market funds that could come back in the equities market.
Yeah, there's about five point two trillion in U.S.
money markets alone, around six point five trillion on a global basis.
It's interesting that, you know, the flow into those is still modestly
positive. Nowhere near the rate that we were
seeing money coming into this money market funds around the events of Vasily
SVP a few months ago, but it's still gradually trickling in.
You know, an interesting phenomena that there's a lot of stress in the money
market complex that of the debt ceiling without being resolved.
That's really kind of gone out of the system now.
You know, there's a lot of treasury issuance coming up the next few weeks
and expectations. You know, the money market funds are
going to take up a lot of that supply. Least a week, a week or two ago, we were
all concerned about the banks as we had that series of bank failures starting in
March. There's like some sort of liquidity
willingness to lend. I we through that at this point, do we
still have risks of a lack of liquidity, particularly as we have to issue all
those T bills to make up for what we drew down because that debt ceiling
broke? We are still really carefully watching
the liquidity, to your point, David, and the reason why is while we've had a
fortunate reprieve in what's going on with financial sector stresses,
certainly they are facing potential increased regulatory requirements as
well as really just dealing with general economic slowdown.
And so you've got some tightening conditions there.
In addition, as you mentioned, the Treasury general account really has to
rebuild. Because they were spending down all of
that money during the debt ceiling debate and they need to rebuild up their
reserves. So as they do that, they're going to
pull money out of the system. What's interesting is we did just have
some auctions are starting to rebuild that reserve this week.
And the good news is, as we monitored some of the yield activity around those
auctions, we didn't see any concerning signs at this point.
But it is very early days and there's almost about a trillion that's expected
to come into the TGA coffers and out of the market really over the next several
months. So that's something we'll just continue
to monitor. I think this part of the rally we've
seen in the last few weeks is people getting increasingly comfortable that
the banks to Asian seems have stabilized somewhat.
And that's certainly been true in the near-term.
I think that the short term liquidity issues have been somewhat put to that.
But I think it's it's not out of the woods yet.
I think there's still going to be continued pressure on the banks for a
whole variety levels. I think net interest margins will remain
under pressure. I think credit quality is going to
continue to become under pressure. We're still in the early innings.
Julie, you're just fresh back from Berlin.
Big Covid over there. It was more private oriented, I think.
What about private credit? Is it going to step in wherever we need
it for the banks? Look, I think a lot of questions around
this topic. Everyone, you know, as I go around the
world, not just in Berlin, but the Middle East, Far East has a lot of
interest in private credit. Of course, here in the U.S., questions
being asked about, you know, is that getting overinflated now?
Is that too much excitement, too much money going into that?
I would say, look, it's it's great that it's.
There is an alternative source of capital at a time like this when the
banks that broadly syndicated, broadly syndicated markets, Cielo markets.
Not really that to provide liquidity. So they're able to step in.
And I think there's still a long way to run.
I mean, it's still only about you know, about 7 percent of the fixed income
market is private credit. Only about 2 percent of global view and
only 17 percent even of alternatives. So we still think that private credit
market has an opportunity to continue compounding now 20 circa 20 percent plus
growth rates over the next few years, even a quarter of the private credit
market. Where do you see up to some fixed income
right now, particularly? Well, we think there's actually a number
of interesting opportunities in fixed income.
And while overall yields really are much higher than they were a year ago.
If you look into specific sectors, there really are some very additional
opportunities to pick up yield. So one area, for example, that we are
advocating heavily with our clients is an area called reinsurance, where
basically as an investor, you're really helping to pick up some of that
insurance risk and in turn get paid a hefty premium on the property and
casualty area. And what we're seeing right now is
really not only that nice incremental yield, but there's actually just a lot
of pressure for those prices to continue to be very attractive for investors
simply because there's a lack of capital in the sector.
So that's really one area we're interested in.
Another one really is an area called Don Agency Mortgages.
And so here what you have is actually still fairly strong fundamentals
underpinning some of these borrowers for very large mortgages that are not
necessarily guaranteed by the agencies, but again, very strong yields that are
supported by borrower repayments.