FidelityConnects: After the Fed: Fixed income perspectives

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<b>Subtitles are AI Generated</b>

 

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Hello, and welcome to Fidelity Connects.

 

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I'm Pamela Ritchie. Happy Friday to you.

 

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Japan heads to the polls Sunday in a pivotal election for fiscal

 

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policy and for the yen.

 

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The yen remains in focus as ongoing weakness is putting renewed pressure

 

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on the carry trade.

 

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Is the official trade unwinding or is it officially over, for

 

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instance? What might the implications to bonds, Treasuries and other forms

 

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of fixed income be overall?

 

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Joining us here today to break it all down is fixed income institutional

 

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portfolio manager, Beau Coash.

 

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Warm welcome to you, Beau. How are you today?

 

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Hi, Pamela. All is good. We've got lots to do, there's so much going on

 

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out here. I looked at our research, our head of research

 

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puts out the most read, or most read research pieces

 

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of Fidelity, we have 15 pieces, that's 200

 

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pages of reading for me this weekend, everything

 

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from space to semiconductors to the AI spend, a

 

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little bit about the yen, not as much front and centre as some of these other

 

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topics, but looking forward to getting into all that.

 

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I'll come back to it again in a sec, actually, because there's more to say

 

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there. We'll come back to that.

 

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One of the things that is fascinating in sort of headlines, and we really

 

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need you to unpack this and help us understand the context behind it,

 

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as we all know, software has sold off.

 

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This is an AI discussion. There's a disruption within there.

 

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AI's future, essentially, has been questioned.

 

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Maybe it's overdone, maybe it's not.

 

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Mixed up in that as the sell-off happens it's not

 

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just shareholders, it's actually bondholders and there are questions around

 

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the bonds that these companies have issued over the years, software companies

 

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doing that. There's a rattle there.

 

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Tell us a bit about how concerning that is one way or the other.

 

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Just to give context, Mag-7 is

 

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in the high grade index.

 

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We've got almost all of them represented, not

 

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massive but they're building positions.

 

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They're issuing a lot of bonds, last year about $200 billion, this year

 

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expected to be close to $400 billion.

 

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Oracle already came out and did a $25 billion deal last week

 

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in multiple maturities across the curve.

 

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They could have done 100 billion just in that one issuance, they ended up doing

 

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only 25 billion. The deal came

 

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last week and it's probably two basis points wider, not a big deal

 

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from issuance.

 

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These big names are holding up okay in our market, they're high

 

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quality. They'll start coming under a little more pressure when they start

 

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bringing more issuance.

 

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Obviously, what you've

 

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seen over the last couple weeks the

 

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software names in the equity space have taken a bit of a drubbing from

 

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potential obsolescence risk from players like

 

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Anthropic and their Claude AI, which you

 

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could hypothetically do all your software on

 

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your own PC and create your own things.

 

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Now, it's a far reach to think that these companies are not going to be around

 

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but--

 

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It's overdone, maybe.

 

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--it did throw a little bit of a warning shot.

 

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In private credit

 

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and in high yield there's a decent software exposure in

 

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the indices there, believe it or not, because of the LBO and

 

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activity in that space, names that you would know like McAfee,

 

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Dun & Bradstreet, Athena Healthcare,

 

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there's a lot of names in that space.

 

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There's Citrix which I think it's on everybody's tech stack,

 

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I know it's on Fidelity's tech stack, Tibco and some of these other names that

 

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have been LBO'd. Some of those names were down 10

 

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points last week in private credit/syndicated

 

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loans. This is a small sector but

 

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it punched a little bit of a pack,

 

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a drawback in spreads.

 

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The single-B index last week was about 20 basis points wider, that's a pretty

 

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big move coming from just one sector, probably the biggest thing

 

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that I've seen really since April in terms of spread widening

 

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event. Now, that's come back a little bit but I'll stop there.

 

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In fact, one of the stories in exactly what you do

 

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has been credit spreads have been so tight.

 

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At certain points over the course of the last six, seven months the question

 

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has been, well, if they're that tight, there's only one direction for them to

 

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go, and that's widening. Then you see something like this.

 

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Again, I guess we just ask you for the context of how we should be thinking

 

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about this. This is one particular event but it's a big event

 

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because it's tied to AI.

 

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A big event that has taken a lot of air time on

 

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all the financial news shows and a lot

 

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of excitement and big promise for cost savings down the

 

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road. In terms of the impact, the actual impact,

 

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if you just step back and focus on what we're

 

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really seeing, we were talking to our business cycle person this morning,

 

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we're still in mid cycle so that seems fine.

 

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That's the probably the biggest

 

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outcome, a 60% probability that we're in mid-cycle,

 

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a very low probability of recession.

 

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Check that box. Earnings for corporate America and

 

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around the world are going up double digits so companies seem

 

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to be doing fine. Check the box.

 

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It seems like we're better than we were at the beginning of the year when there

 

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was a lot of uncertainty about tariffs and spend and everything else.

 

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It seems like we bounced back a little bit from that little gap back

 

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in the first quarter, or after April.

 

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You've got all those things going for you and now earnings are coming out and

 

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they seem to be fine.

 

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You check all those boxes and you're like, we're pretty benign right

 

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now except we do have super high valuations for

 

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spread product, which means what you would charge

 

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to lend to a company is very tight

 

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so you're not getting a lot of cushion in case something goes wrong

 

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with those loans, if that makes sense.

 

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It does, and that's very interesting.

 

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It sort of extends to another piece of this of this story where

 

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we see just all kinds of issuance

 

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which has been well telegraphed for the hyperscalers.

 

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They've been doing it in different types of vehicles and it's been happening

 

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in different ways so it's not directly on their balance sheets, and we sort of

 

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know this story about it.

 

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It is the enormous pile that needs to be

 

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issued, it appears ...  well, supply is already pretty insane

 

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... how do we get there? Can we get there?

 

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I've heard 2028 being at $3 trillion is what needs to be raised in debt

 

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markets to make data centres happen...

 

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From now till 2028.

 

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--over time.

 

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That's sort of what ultimately needs to be hit and that's everything from

 

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energy to ...  it's the build-out essentially.

 

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Is that all going to be okay?

 

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That's a great question. We've done some work on how companies are

 

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paying for all this.

 

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You come to the bond market, which we've done, the bond market did 200 billion

 

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last year.

 

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We're thinking that the hyperscalers will come in for about 400 billion this

 

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year. We're also seeing a trend with companies where they're basically taking

 

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out operating expenses.

 

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Meta just announced a big layoff.

 

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I think those companies are really focused on making sure that they are

 

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disciplined through this CapEx process.

 

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It's OpEx for CapEx swap-off is what you're probably going to see from most of

 

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these companies just to have discipline.

 

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Then they have to just get used to talking to debt owners.

 

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How different is that? Just remind us how different that is because they're

 

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used to doing equity raises, right, and talking to investors about it.

 

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I think I mentioned briefly, back 30

 

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years ago one of the big med tech companies was doing a road show.

 

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That's when you still did road shows for big underwritings

 

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and debt. The company was asked, where do you want to be

 

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rated?

 

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They said, I don't know, somewhere around triple-B.

 

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There was a gasp from the audience.

 

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The next question was, well, how much do you really want to raise in

 

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this fundraising and they said, well, at these rates I would do as much as you

 

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gave me. There was a second gasp that came out.

 

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They got exactly no orders from

 

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the Boston visit and we had to call the bankers and say, you better clean up

 

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or teach this management team how to speak to bondholders because

 

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if they're going to write as much debt as the market will bear  then there's no

 

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price discipline whatsoever.

 

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If they don't know what the difference is between a low triple-B and a high

 

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triple-B it's going to be a non-starter for the bond market to

 

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really back this company and get confidence that they know what they're doing

 

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around bondholders.

 

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That's so interesting. There's a communication, almost a

 

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training situation that probably, not just hyperscalers but lots of companies

 

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who are in the business to make sure AI gets to where

 

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it needs to in terms of the build-out.

 

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It's a communication training but also they have to walk the walk.

 

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They have to then do what they say they're going to do.

 

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If they have a target in mind of leverage they have to start putting

 

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that out to the bond market to make sure that everyone knows what the game

 

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plan is going to be, and if there's a left or right turn what that means.

 

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Years ago in the financial crisis big banks,

 

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I think HSBC, I remember there was a headline, HSBC ended up

 

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... no one could pay, ultimately, their debt payments so HSBC and becoming

 

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the owner of chicken farms in India at one stage.

 

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That was the collateral that had been put up and that's what they owned at the

 

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end of it. We're seeing now very well-backed

 

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and well-thought through pieces of collateral but it's different types of

 

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collateral, isn't it, It's things like GPU

 

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backing and chips.

 

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The H100s are actually the collateral for the loan.

 

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That's what you'd get, for instance, if things went south.

 

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It's just interesting.

 

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We had jingle mail back in the GFC.

 

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That's when residential owners that didn't have any equity

 

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left would put their keys in the mail, send it back to the bank because they

 

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had no equity, and they called it jingle mail, and then the banks didn't want

 

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it.

 

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You have these--

 

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Liquidators.

 

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--advantageous groups like KKR and Blackstone, they went out and started buying

 

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a bunch of single family homes and then they rented them and

 

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then eventually resold them. They're the ones who were buying up this

 

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opportunity. There's always savvy players in the market

 

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that will clean up the mess. Now, some of the issue with technology is

 

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some of that can get obsolete pretty quickly.

 

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You can get a chip, lend against a chip that's got

 

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X value today and what if it loses 70%

 

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of its value and can't cover the cost of that loan?

 

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Those are things that the underwriters and the people who

 

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buy those asset-back bonds ...

 

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a lot of that's getting done right now in the private credit space.

 

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That is in the private space not in the public markets.

 

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The public markets, there is some data centre activity securitized

 

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but it's very small as a percentage of exposure so you're

 

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not going to start seeing a lot of focus on that yet, although there is 30 to

 

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40 billion of paper that was done last year and

 

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that's supposed to be going up to 150 to

 

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300 billion at some point in time pretty quickly as

 

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another source of raising funds to do all these data centres.

 

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That's absolutely fascinating. Do we even talk about interest rates anymore?

 

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What is the boring but fascinating case for

 

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bonds right now? These are some of the big things that are going on in terms of

 

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debt origination but what else?

 

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You're so right. These are like the news headlines. It's

 

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causing some widening but if you looked at the performance year-to-date, I look

 

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at single-B performance is still doing pretty well even though

 

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single-Bs were off 20 basis points last week.

 

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I think single B's, I looked up today, they're still up 30 to 40 basis

 

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points on the year and we're only one month.

 

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We're not talking about writing things down to nothing, although private

 

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credit, there's a bunch of names that have lost 10 points

 

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so trading around par, syndicated loans and private credit

 

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should trade around par which is $1,000 per bond.

 

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There's a handful of names they're trading at 90 cents on the dollar right now

 

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as a trade-off.

 

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That's significant if you have to sell the bonds today.

 

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Most people don't have to sell the bonds today because it's an institutional

 

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space.

 

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Hello, investors. We'll be back to the show in just a moment.

 

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DialoguesFidelity podcasts available on Apple, Spotify, YouTube, or wherever

 

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else you get your podcasts. Now back to today's show.

 

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Let's go macro wide for a second here, the discussion, you know,

 

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interest rates, we'll talk about the Fed a little bit, but I think even

 

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more broadly the discussion that goes into currencies, which we don't need to

 

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stay into for too long, but it fits with this sort of sell America

 

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discussion. In a lot of cases it seems to be just simply incorrect

 

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and that foreign investors are not selling Treasuries at a

 

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clip that is notable.

 

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Take us there and to what extent it's important to

 

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listen to.

 

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Because we're bond investors ...

 

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there's other fixed income investors that use a lot of FX and

 

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the reason why we don't is because FX doing

 

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currency is a lot of risk.

 

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We're in a product that's about a 5%

 

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annualized risk a year, that's up or down 5%.

 

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When you add currency that can be 15%

 

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on most currencies so you're adding a lot more risk to the portfolio than

 

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your underlying product would give you.

 

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That's one of the main reasons why we don't use it.

 

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Now, there's other firms that made a lot of money last year on

 

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a relative basis using currency and they

 

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were the best performing asset manager out there

 

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last year. That happens once

 

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in a while. It's not a consistent source of alpha because of the volatility.

 

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That's our view.

 

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It doesn't mean that we shouldn't be paying attention.

 

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To your point, in terms of flows we have not

 

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seen any big sellers of

 

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US Treasuries. That was a narrative that was out there.

 

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We track it from a technical perspective.

 

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We want to know kind of what direction Treasury yields are going, that's one

 

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of the technical ways of understanding where things are moving.

 

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We do keep our eye on it.

 

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We think that there is a movement towards being a

 

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non-US investor, people trending more to non-US

 

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versus US as a diversifier because everybody

 

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was in ... the crowded trade was US over the last five years

 

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so it feels like that could still have some legs to it.

 

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We're just not as focused on the valuations and

 

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the minute impacts that can happen because of it.

 

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That brings us nicely to the discussion of the Japanese election

 

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which is mostly hinged on whether the current prime minister,

 

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who sort of comes from the vein of Shinzo Abe, is going to

 

17:05.691 --> 17:10.029

continue raising rates, essentially, and therefore providing an

 

17:10.029 --> 17:14.666

interesting product for local Japanese investors to buy.

 

17:14.666 --> 17:20.272

They didn't have something interesting with actual interest,

 

17:20.272 --> 17:24.410

literally, that they could buy locally, they had to go abroad for

 

17:24.410 --> 17:28.614

it. For purely local reasons there could be a sell America

 

17:28.614 --> 17:32.051

trade just because you see those investors going home.

 

17:32.051 --> 17:33.752

The BoJ owned all the bonds.

 

17:33.752 --> 17:37.856

At zero interest rates the BoJ

 

17:37.856 --> 17:42.161

had to own all the bonds because there's no retail demand or global demand

 

17:42.161 --> 17:47.099

for that product. Once

 

17:47.099 --> 17:51.103

they get more attractive relative to competitor market

 

17:51.103 --> 17:56.108

yields they'll be able to get a home market started.

 

17:56.108 --> 18:00.112

Hopefully that behaviour fits the

 

18:00.112 --> 18:05.284

buyer and that it works. I

 

18:05.284 --> 18:09.421

think Japan is still one of the largest holders of US

 

18:09.421 --> 18:14.893

Treasuries, Germany is another large holder, China

 

18:14.893 --> 18:19.198

still holds a decent amount but I'd say Japan and Germany probably are the

 

18:19.198 --> 18:23.368

two biggest than China. There's

 

18:23.368 --> 18:27.739

those games that people play and hopefully the technicals can hold up and

 

18:27.739 --> 18:32.277

we'll be in good shape but those are things that

 

18:32.311 --> 18:34.847

can move a needle a little bit.

 

18:34.847 --> 18:38.951

We're not thinking that those are massive either value

 

18:38.951 --> 18:42.087

destructors or creators in the portfolio.

 

18:42.121 --> 18:45.991

When we look at something like the earnings story going forward, which looks

 

18:45.991 --> 18:50.429

bright and sunny, actually, for global companies

 

18:50.429 --> 18:55.334

in a lot of cases, the

 

18:55.334 --> 19:02.674

case for bonds right now is what?

 

19:02.674 --> 19:06.845

A couple years ago after rates rose dramatically we were pounding the table.

 

19:06.845 --> 19:10.015

We put out a white paper, if you don't like bonds now maybe you just don't like

 

19:10.015 --> 19:12.751

bonds. That got a lot of giggles.

 

19:12.751 --> 19:16.755

That's when the

 

19:16.755 --> 19:19.725

yield curve was inverted.

 

19:19.725 --> 19:23.862

We're now at 70 basis points steep, which means

 

19:23.862 --> 19:29.201

that we went from a negatively steep yield curve, an inverted

 

19:29.201 --> 19:31.136

yield curve, to now one that's 70 bps.

 

19:31.136 --> 19:35.474

On average our yield curve is about 100 basis points

 

19:35.474 --> 19:39.678

from 2 years to 10 years so we still have about 30 basis points

 

19:39.678 --> 19:43.749

to get to the average but many times the yield curve can go up to

 

19:43.749 --> 19:47.719

150 to 200 basis points on

 

19:47.719 --> 19:51.023

a big change.

 

19:51.023 --> 19:55.093

That's not our main bet but we still think there's some room to

 

19:55.093 --> 20:00.098

go on the steepening which should create some value in bonds.

 

20:00.098 --> 20:02.000

We think we're starting off at a very fair level.

 

20:02.000 --> 20:05.070

We're not super cheap.

 

20:05.070 --> 20:09.608

I think if you look at the Treasury yields right now

 

20:09.608 --> 20:12.611

look like they're at the 70th percentile.

 

20:12.611 --> 20:15.781

Two years, three or four years ago they're up near the 100th percentiles in

 

20:15.781 --> 20:19.651

terms of cheap. Today they're at the 70s, still cheap.

 

20:19.651 --> 20:24.089

You compare that to credit, high grade credit, we're in the first percentile

 

20:24.089 --> 20:28.460

in spreads. We've never been tighter and that's not even doing adjustments

 

20:28.460 --> 20:32.764

for duration and quality which would then make it

 

20:32.764 --> 20:36.702

the absolute richest that we've ever had in the

 

20:36.702 --> 20:41.340

history that we followed spread product in high grade.

 

20:41.340 --> 20:45.410

We're at the very tights in that space but we still

 

20:45.410 --> 20:49.381

have very attractive yields, which is why we still have good yield, and we've

 

20:49.381 --> 20:53.585

got about a 5% yield right now in

 

20:53.585 --> 20:56.922

US fixed income, high grade fixed income.

 

20:56.922 --> 20:58.290

Do you like the high yield as well?

 

20:58.290 --> 21:04.896

In core products, core plus products and the [indecipherable], roughly 5%.

 

21:04.896 --> 21:08.333

That speaks to the positioning ultimately, if you're going to talk about what

 

21:08.333 --> 21:11.837

it is it comes across as 5%.

 

21:11.837 --> 21:16.041

Yes. We've got an underlying base, let's

 

21:16.041 --> 21:20.178

say the 10-year Treasury is at 4,20, and you've got about 70

 

21:20.178 --> 21:24.349

to 100 basis points in spread on average,

 

21:24.349 --> 21:30.455

that gets you to that

 

21:30.455 --> 21:34.493

5 to 5.20%. That is your starting yield and you've got, hopefully, some fiscal

 

21:34.493 --> 21:38.597

discipline coming at some point so we're not going to be writing

 

21:38.597 --> 21:42.634

gobs and gobs and gobs more Treasuries, we'll be very savvy about where

 

21:42.634 --> 21:46.338

we do it, maybe at the very front of the curve.

 

21:46.338 --> 21:49.241

These are all things that still have to play out but we still think there's

 

21:49.241 --> 21:53.779

some value in fixed income, especially when you think about

 

21:53.779 --> 21:57.215

equities. I don't think we're in a bubble either in equities anymore.

 

21:57.215 --> 22:01.420

I felt a little more bubblish just a month or so ago but

 

22:01.420 --> 22:06.391

I think starting in October, November

 

22:06.391 --> 22:08.260

that trade has come off a bit.

 

22:08.260 --> 22:12.230

Now, you can say that we're pretty neutral-ish, it's pretty fair

 

22:12.230 --> 22:16.368

now. There's been a redistribution out of the Mag-7 into the rest of

 

22:16.368 --> 22:20.405

equities. S&P's not dropping like a stone which means that there

 

22:20.405 --> 22:24.376

has been a re-distribution, a broadening of the rally.

 

22:24.376 --> 22:28.714

We're not down, the S&Ps not down 10, 20%,

 

22:28.714 --> 22:33.318

even though some of the software names and some of tech names are down

 

22:33.318 --> 22:37.556

10, 20, 30% over the last couple, three months.

 

22:37.556 --> 22:41.626

There's been a ... some people like the word rotation, some people don't,

 

22:41.626 --> 22:45.163

but there is sort of a collective whew, it didn't take everything else down

 

22:45.163 --> 22:45.297

with it.

 

22:45.297 --> 22:52.170

But there's not a massive sell, there's

 

22:52.170 --> 22:54.206

not a massive sell in the Mag-7.

 

22:54.206 --> 22:57.008

There's a sell but not a massive sell that ruins the S&P. That's the important

 

22:57.008 --> 22:58.076

part for now.

 

22:58.076 --> 23:00.045

That's the important part for now.

 

23:00.045 --> 23:04.616

To the extent that the AI theme is

 

23:04.616 --> 23:09.955

indisputable and it's where everything is going, it's where we're going,

 

23:09.955 --> 23:13.892

what is the correlation or lack of correlation between stocks

 

23:13.892 --> 23:17.963

and bonds with this big theme in the market?

 

23:17.963 --> 23:22.401

We've been debating is 60/40 dead,

 

23:22.401 --> 23:25.737

is everything correlated to equities now?

 

23:25.737 --> 23:28.039

It's all about the starting yield.

 

23:28.039 --> 23:32.043

If we had very low yields, which means

 

23:32.043 --> 23:36.448

no cushion against an

 

23:36.448 --> 23:40.419

economic problem, or let's just say

 

23:40.419 --> 23:45.257

a new regime comes in and wants to raise rates again,

 

23:45.257 --> 23:49.327

or we get another spike in inflation, or earnings is

 

23:49.327 --> 23:53.899

really good so consumption pops and we need to slow things down, those

 

23:53.899 --> 23:58.570

are all things that you look for where you'll lose correlation.

 

23:58.570 --> 24:03.508

You'll keep correlation if we don't have any of those pop and

 

24:03.508 --> 24:07.479

we're at 5% and it's mostly Treasury yields

 

24:07.479 --> 24:11.716

so people should feel pretty good about having that big base

 

24:11.716 --> 24:14.753

of yield coming from Treasuries.

 

24:14.753 --> 24:18.790

We're hoping at some point in time we get a spread widening event where we

 

24:18.790 --> 24:23.795

can take some of our Treasuries and buy risk assets much

 

24:23.795 --> 24:27.899

cheaper, which happens once every couple, three, four

 

24:27.899 --> 24:28.333

years.

 

24:28.333 --> 24:33.905

That's more of a bump in the night rather than an interest rate cut.

 

24:33.905 --> 24:36.041

It would have to be a credit bump in the night.

 

24:36.041 --> 24:40.111

Interest rate cuts will be positive for the bond market in general

 

24:40.111 --> 24:44.182

unless the cut is coming from something that we don't see coming

 

24:44.182 --> 24:48.687

right now, a big downturn in the economy, a big unemployment

 

24:48.687 --> 24:52.891

rush, something that will undo the benign

 

24:52.891 --> 24:55.327

environment that I kind of laid out.

 

24:55.327 --> 24:59.331

Big, big misses on earnings,

 

24:59.331 --> 25:03.335

huge unemployment numbers, reasons

 

25:03.335 --> 25:07.639

to make things more easy in terms of

 

25:07.639 --> 25:11.276

the Financial Conditions Index. Right now Financial Conditions Index, they're

 

25:11.276 --> 25:15.247

fair, we're

 

25:15.247 --> 25:19.651

on the easier side, but if we get really tight and

 

25:19.651 --> 25:23.588

things get tougher for people to buy groceries

 

25:23.588 --> 25:27.692

and things like that then we get into recessionary

 

25:27.692 --> 25:31.630

type levels and then we have to drop rates dramatically to

 

25:31.630 --> 25:33.532

get things moving again.

 

25:33.532 --> 25:38.003

You don't see anything in unemployment or the employment story that

 

25:38.003 --> 25:40.639

rattles you? There have been some numbers out in the last couple of days.

 

25:40.639 --> 25:44.042

No? Okay. That's good to know.

 

25:44.042 --> 25:48.680

The numbers are shifting lower, they're not dropping off.

 

25:48.680 --> 25:52.651

I think we talked before, we were on 401k or the

 

25:52.651 --> 25:57.556

DC plans for 14% of all

 

25:57.556 --> 26:01.526

US companies, 40% of industrial companies, we're

 

26:01.526 --> 26:08.199

seeing it rolling lower but not dropping like a stone.

 

26:08.199 --> 26:11.570

You'd look at the chart and say, yeah, things are definitely not what they were

 

26:11.570 --> 26:15.807

a couple years ago but they're not dropping off the map, so you can't

 

26:15.807 --> 26:19.377

look at that and say, we have an unemployment problem.

 

26:19.377 --> 26:23.548

That's in the face of all the

 

26:23.548 --> 26:30.689

craziness that we've seen in basically stopping immigration

 

26:30.689 --> 26:34.626

and having people sent back, that's in light of

 

26:34.626 --> 26:36.528

all that.

 

26:36.528 --> 26:40.899

I think it feels like employment is

 

26:40.899 --> 26:45.670

okay. It's completely benign but it's not terrible.

 

26:45.670 --> 26:49.608

Tell us a little bit, if you don't mind, about the

 

26:49.608 --> 26:54.446

nominated new chair for the Fed, Kevin Warsh.

 

26:54.446 --> 26:56.881

Love to know your thoughts.

 

26:56.881 --> 27:00.885

Do you know of his work? Just share with us your

 

27:00.885 --> 27:01.119

thoughts.

 

27:01.119 --> 27:08.226

We had Jurrien talking this morning,

 

27:08.226 --> 27:11.429

[indecipherable] asset allocation. We know Kevin Warsh really well.

 

27:11.429 --> 27:15.734

He's been complaining about the Fed for a long time.

 

27:15.734 --> 27:19.537

We've talked to him many times before this.

 

27:19.571 --> 27:23.942

We also knew Rick Reeder. I worked for Rick at Lehman Brothers so I knew

 

27:23.942 --> 27:26.311

Rick really well. We were kind of rooting for that.

 

27:26.311 --> 27:30.682

At the end of the day it's all about can the Fed maintain

 

27:30.682 --> 27:34.819

their independence and will this head of the Fed

 

27:34.819 --> 27:39.357

be able to maintain, or will say that

 

27:39.357 --> 27:44.062

this Fed is independent, even though Kevin

 

27:44.062 --> 27:46.931

has been lobbying for lower rates for a long time.

 

27:46.931 --> 27:50.835

Apparently, he was all over the fact that

 

27:50.835 --> 27:54.839

he blamed the Fed for the GFC and keeping

 

27:54.839 --> 27:58.843

rates very low. We'll see kind of how it

 

27:58.843 --> 28:02.814

goes when he gets in the seat. It seems like everyone

 

28:02.814 --> 28:06.785

seems to really

 

28:06.785 --> 28:10.755

adopt the administration's views once they join it so

 

28:10.755 --> 28:14.726

we'll see, we'll see what happens.

 

28:14.726 --> 28:19.898

It's a hard thing to forecast. You would have thought Scott

 

28:19.898 --> 28:24.169

Bessent would have really had his own, you now, he really followed

 

28:24.169 --> 28:26.705

the lead of our president.

 

28:26.705 --> 28:31.009

He wasn't as individualistic as he

 

28:31.009 --> 28:34.245

has been in the past. It's just a fun ...

 

28:34.245 --> 28:38.283

it's an interesting thing to watch people go and

 

28:38.283 --> 28:42.454

tow the party line instead of saying things that maybe

 

28:42.454 --> 28:45.056

are good for that position. We'll see what happens.

 

28:45.056 --> 28:49.928

Do you think once he gets into the role and is then running the show

 

28:49.928 --> 28:51.796

he's able to maintain the independence?

 

28:51.796 --> 28:55.967

I mean, it's sometimes different when you're still getting nominated to

 

28:55.967 --> 28:58.570

when you are actually driving the bus. I mean, I'm just curious if you think

 

28:58.570 --> 29:01.639

there's a difference there. You don't know.

 

29:01.639 --> 29:04.309

Our President said similar things.

 

29:04.309 --> 29:08.379

He said everyone wants to tell me these things beforehand and they change when

 

29:08.379 --> 29:12.484

they join. That's why it's impossible

 

29:12.484 --> 29:16.588

to kind of predict what Kevin Warsh will do once

 

29:16.588 --> 29:20.558

he goes in and sees the sausage, how it's getting

 

29:20.558 --> 29:24.629

made, the decisions they have to make, what he

 

29:24.629 --> 29:29.200

wants his legacy to be there.

 

29:29.200 --> 29:31.536

It all is in the cooking and what goes into the pot.

 

29:31.536 --> 29:33.571

We'll see what happens.

 

29:33.571 --> 29:37.809

We're excited to have you running the ship here and

 

29:37.809 --> 29:41.079

having the steady hand at it. Thank you for bringing us up to date and taking

 

29:41.079 --> 29:43.715

us where the story for bonds is.

 

29:43.715 --> 29:46.050

It's fascinating, this expanding economy.

 

29:46.050 --> 29:47.352

Thanks for your time, Beau.

 

29:47.352 --> 29:49.988

Thanks for watching or listening to the Fidelity Connects

 

29:49.988 --> 29:54.292

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