There is a growing concern that the inflation we're looking at now could lead to something
worse like a 1970s style inflation eventually. We're starting to see wages creep even higher along with prices. What's your view.
So thanks so much for having me here this afternoon. You know my view is not that we're going to reach a 1970s style of
stagflation. I think that there have been a number of changes in terms of the structure of the global economy and the domestic
economy. The structure of the label labor force technology and kind of productivity gains that we've seen. So I'm not calling
for a stagflation area environment. Right now we're very focused on the inflationary pressures which are very acutely supply side
driven right now. Clearly there's been a bit of a deceleration in demand and some top line numbers. And in GDP growth in Q3
exacerbated by kind of the terrible spike in Corona virus and the Delta wave. But there's still a lot of pent up demand. And
so we're very focused on kind of how long it takes for that demand to play through the system and how quickly corporate
America can react to these supply chain factors. So what is your view then as we look at S&P. Forty six hundred now in terms of
how much room we have to run. If I for example had cash to invest right now. Would you suggest I buy stocks.
Well I am a credit strategist at heart so I'm not going to necessarily opine on that. S&P 500. What I will say is investors
are very focused on inflationary aligned or protected asset classes right now. We've seen a lot of interest in leveraged
loans to see a low market started to see a little bit of choppier flows in demand for US investment grade. But ultimately
it comes down to what is your investment mandate. Do you need a cash proxy. Do you need to put cash to work somewhere where
you're earning somewhat more than zero. And it feels like U.S. high yield does a pretty good bet. You have a shorter duration
improving fundamentals. But if you're really looking for the upside trade then maybe corporate credit is not necessarily
where you want to be in this current environment. Yeah we had a great story. I think last week Fin Bar Flynn from Bloomberg News
and I know you just gave us your take on inflation not as scared as everybody. But he wrote Global Bond and Face. Investors face
an old enemy inflation. And then he said the universe of fixed income assets doesn't look to offer much in the way of shelter.
It's really a concern for investors if you're looking into credit. Right.
It is absolutely a concern. I will say though there's still an awful lot of fixed income trading at negative yields right now.
And so the broader investor universe is so concerned about inflation then there's something wrong in the global fixed
income market. Given all of those negative yields and what we've seen in terms of the yield curve in the U.S. the flattening
that's gone on indicates to me that investors are much more concerned about some sort of policy error about really pulling
forward rate hike expectations to address the supply side inflationary pressure. And that night might not necessarily be
the course that actually goes through the market. So I'm a little skeptical of what we've seen in terms of the front end of
the market. But I also acknowledge that you know U.S. at 2 percent with inflation running at 3 to 5 percent depending on
the metric you're looking at doesn't feel like a wildly compelling trade at this stage. What do you say about the
flattening of the yield curve. It seems to be on everyone's mind although when I look at a it looks a little bit crazy when you
look at a one year chart. But if you if you pull out it's clearly not as flat as it had been pre pandemic.
Yes that's correct and I think that some of the flattening is kind of a readjustment of growth expectations. Everyone was
looking for this wild boom post Covid and getting the global economy back online and this kind of synchronized way.
Unfortunately we've seen some very specific idiosyncratic challenges be it China and the property market. There be some
other specific E.M. specific issues. So the recovery feels a little bit less globally synchronized which is just going to
slow things down. And then also you kind of add onto it the reality that some pandemic related restrictions have also kind
of slowed things down. So I think in the long end you have this combination of still kind of a yield starved industrial universe
looking for any sort of duration plus the realization that it's going to take you know baby steps to getting really out of kind
of the pandemic I say. So our control room has some really fast fingers. They just pulled up a three year chart of the two tens
which was great and now the five thirties. But I think last week the 20s 30s inverted. You have some weirdness going on at the
end of the curve. What's that all about. So I you know I'm a little bit less willing to kind of stick my
neck out on 20 30 as the heart of it is 20 is is still a relatively new tenor. And so having that kind of off the run
type dynamic does sometimes lead to some wonky valuations there. And the curve there is still inverted. Not by all that much. So
I think it has more to do with market technicals than any real call on kind of the long end of the market.
Let me just finally ask you if you're looking for a place to go if you had to pick a place Wendy. Where would you invest right
now. I mean even if it's not a great market for credit what would you what would you pick in terms of regions in terms of
industries. Sure. So we are still very constructive on high yield energy.
It's a little bit painful for me as a strategist given that energy has been a very challenging trade over the past seven
years. That being said we do have some pretty strong fundamentals. Hill wins that are back management teams who have
learned some really hard lessons over the past seven years and valuations that still look pretty attractive relative to all
other things. We'll be closely looking at the CAC plus meeting this week and kind of what comes out after that. But we're still
pretty constructive on high yield energy.