Given what's going on. Does a 60 40 portfolio make sense right now and should I have commodities in my portfolio given where
the prices are. You should absolutely have commodities in your portfolio. What's given us diversification in portfolios for the
last 40 years is not working now. We don't know if if bonds as a diverse fire are dead or in a coma. I think they're probably in
a coma. But the point is it could last for a while. And in the interim what are you going to do to have balance in your
portfolio. You need something that will protect you against inflation that's higher than expected for longer than expected.
And what we've found is when we look back at tightening cycles going back to the 1960s especially early in the tightening cycle
you see commodities consistently outperforming both stocks and bonds and giving you that balance that right now bonds just
can't do. So Greg and she just said the bonds are in a coma. I think them's fighting words for you here in fixed income. Do you
agree they're in a coma for the time being. Well I think starting point matter. So in retrospect with you
know 100 percent hindsight you know perhaps the 10 year 50 basis points wasn't the proper entry point but we reprice dramatically
since then. So the carry aspect the yield aspect is much better today. So maybe it's not right this second but it is
increasingly attractive here. And so at some point David you'll see this flip where investors want to shield themselves from
risk assets as the Fed hikes rates and slows down the economy and the bond portfolio really asserts itself. So it's a delicate
balance. But I will say bonds are increasingly attractive here not less attractive. I agree with you. As it sells off and the
yield rises that's certainly the case as it would be with any asset. The question I'm having is with real yields still
negative. How high do you need to see a nominal treasury yield to see that switch flip. Do you have a number in mind as at
timing in mind. What would make you put Patton pound your fist on the table and say time to get back in treasuries.
Yeah. Well Rebecca I wish I had that golden number so to speak. But history does tell you that you know when bond yields
approached three and a half percent it starts to assert itself PCV equity risk as the Fed is hiking rates. So I'm not sure it's
three and a half percent today. It might be a little lower. Just given us the starting point at zero Fed funds rate. Alternately
it could be a little higher just given the fact that the Fed has so much work to do to get inflation and growth in check here. So
I don't know what the exact number is per say but we're getting closer. And as we approach 3 percent I am increasingly bullish
on the bond market. Absolutely. And it takes me back to commodities again because one of the things that we're wrestling
with is can inflation get back to what the market's pricing in. And you know as Greg said earlier it has shifted a little bit.
But still within the next two years the market is discounting inflation back to around 3 percent. That could happen.
Absolutely. But then when you think about the commodity input to that fixing the supply we've lost from Russia and Ukraine across
a range of commodities not just energy but metals even agriculture it looks like it's going to take years not months
not quarters. And so you've seen a new supply equilibrium. So yes demand would come down if the economy slows. But with a new
supply equilibrium what is the price we settle at. And could that be inflationary longer as an input. And I think that also
bodes well for not counting on bonds coming back in your favor quickly but making sure as you balance your portfolio you're
also thinking about inflation sensitive assets. Again a diversified basket of commodities oil metals gold et cetera. So.
So Greg again to come back to fixed income for you. What are the inflation moves and bonds if any. I mean are there things you
can do. There are inflation protected in the bond the fixed income area.
I think so David. I'll tell you upfront it's not chips. So that provides little to no inflation protection notwithstanding the
name. But I think there's lots of value still in the credit markets to spread markets. So mining that risk premium
store solar is attractive to us. There's various parts of structured products that look really attractive to us. So being
a fixed income investor isn't just about buying yields and duration. There's so many complexities and aspects to it. And
honestly we're seeing more alpha opportunities today than we have in quite some time. So somewhat perversely we're we're
pretty excited about the outlook prospects in here. So Bridgewater obviously is very diversified and the things you
invest in. What are the other inflation related assets. Beyond commodities is it real estate. Where else do you go. Sure. So we
do like inflation linked bonds in our portfolios. But beyond that we're also looking for geographic diversification. So
there's going to be some economies that are benefiting from higher commodity prices and the global trends taking place. If
you look at equity markets year to date for example you are seeing positive returns from places like Brazil Mexico Australia
big commodity exporters. So that's one place to look. Also in the commodity linked currencies I know that might be getting a
little esoteric but things like the Canadian or Australian dollars they're posting strong gains against a strong dollar
this year. They're outperforming. I think the other thing we're looking for in diversification is economies that are in a
different place in their economic cycle. So Japan is a country. Whenever we write about Japanese equities we get we get stares
and yawns. But when you think about what's happening there the Bank of Japan wants a little inflation. They don't have it
nearly as badly as we do. And so they're keeping their yields extremely low. They're getting additional fiscal stimulus into
the system. And China as they stimulate to try to achieve their growth target especially with Covid hitting them again decent
nominal growth in the US improving growth in China a very weak yen. The Japanese yen has sold off tremendously against the
dollar this year and the Japanese are fine with it which helps all they're exporting companies. So they're in a position again
different place in the economic cycle geographic diversification. That also can be a way to play what's going on
right now. Greg we've been talking about protecting ourselves as an investor against inflation. What about protecting against a
recession as a fixed income investor. How concerned should we be right now that we're going to get paid.
We'll watch the yield curve. So the repricing as you mentioned this week I think is somewhat anomalous. So if the curve
continues to invert I think what that's telling you explicitly is that the Fed is hiking into a recession which de facto means
get out of risk assets like equities into bonds. So bonds will protect you as the economy slows and enters a recession. That's
a tried and true way to protect yourself from that recession risk. So Rebecca what about Bridgewater. What do you do if
you're concerned about recession to make sure that your hedge against that. Well it's interesting. We've been looking at how
our portfolio has been performing year to date. Equities obviously haven't done well.
We're basically neutral equities. We haven't made money in the first quarter by being short equities. We've made money in the
first quarter by positioning for higher interest rates higher commodity prices and a number of these currency markets that I
mentioned earlier. So there are ways to protect yourself without necessarily just
taking a view in equities. That said with equities we think that unfortunately investors
are not in a great starting place. The U.S. market today. We'd argue about 40 percent of U.S. stocks are highly sensitive to
liquidity conditions. That's gone up a lot in the last decade. And the U.S. is more vulnerable to a lift liquidity withdrawal
that is Europe or Japan let's say. And a lot of that are the tech stocks the companies that have long term cash flows. So as
the Fed pulls back and clearly they're going to May 4th their next meeting we're going to see the fireworks.
Those equities are vulnerable. And guess where everyone's got their money.
Over the last 10 years what's outperformed. And so where everyone has crowded over the last decade. That's the area that
probably is going to be most vulnerable as the Fed ramps up the tightening cycle. So we think you need to be super careful about
U.S. equities in particular going into the next several quarters.