What is different this time About a record pullback in bonds price Down Yield up Yes that's right And actually there hasn't been any place To hide as far as a safe haven if you Look at corporate bonds investment grade Junk bonds even treasuries everything is Down about 10 to 12 Total rate of return so almost to some Of the better equity sectors so it's Really been no place to hide so far How do you get optimism amid the stomach Churning volatility that you have been Seeing marky Well i think what's happened is the fed Having been sort of comatose when when Rates were low the danger signals are Starting has now talked very very tough About aggressively raising rates Aggressively selling down their Portfolio and it's really scared the Market to death they've only made 75 Basis points of rate increases in the Short end but if you look along the Curve uh bonds are up in in yield 120 to 150 or 60 basis points so the market has Raced ahead of the fed anticipating the Fed to be very aggressive in their Action that's starting to roll over into The real economy and certainly into the Equity market Margie there is a belief in markets that
Is pervasive that the fed will step in At some point that they will take notice Of the carnage in oh in some of these Equities and they will actually uh stop Some of their hiking you are one of Those people who does believe that but We have seen no signs of it what gives You such confidence on that front [Applause] I think reality will will Awaken them i think they've been maybe a Little bit too attuned to wall street Saying we need much higher rates and Ignoring what's going on in the real Economy as far as consumer inflation Signs that we're actually seeing Employment start to roll over and those Are worrying signs and i think the fed Will see them typically they lag the Reality the market but hopefully they Will see that they're beginning to do Damage to the real economy which is in Pretty good shape uh the excesses have Really been in the zero interest rate Part of the market the equity market the Housing market are the real asset Markets Margaret i want to talk about coupon Right now the coupon has changed the Yield of maturity has changed for our Audience on radio and tv what they're Gambling on is i'm getting a higher Yield now no question about that but i'm Worried about price decline how do you
Balance the greed of grabbing that Higher yield versus the fear of bonds Continuing south Well i think we're very near the peak in Interest rates frankly because of the i Think the economic status are going to Beginning to roll over and the fed will Stop what they're doing uh and really When you look at high-yield bonds Yielding six and a half to eight and a Half percent trading at 90 cents on the Dollar for a longer term investor Meaning a year or more that looks like a Pretty reasonable risk return Alternative frankly it may do as well as The equity market which we think will Just be mid single digit to low double Digit So to be clear here and let's be clear If margie patel has claimed worldwide Folks for a truly balanced outlook on Equities and bonds did i just hear you Say bigger appetite for yield and longer Duration yield versus buying a dividend Growth story Well i think there's always going to be More money to be made in equities over The long term but over the say the next Year or so especially if you're Interested in income not capital Appreciation Corporate bonds especially high yield i Think are really pretty attractive on a Risk-reward basis
Margie what do you have to see in order To actually achieve this in terms of a Downturn a lot of people baking in a Recession we are seeing that certainly Baked into a lot of valuations you're Basically suggesting that's off the Table and high yield is still the place To hide Well i'm assuming that is a big risk That the fed doesn't get the markets the Real economy signals and keep marching Along with a very aggressive tightening Program but if they look at the real World out there i think they'll see it's Time to take a big pause and i think at That point we will more or less Evaluate the market and perhaps be able To see a way through without a recession If the fed keeps doing what they're Doing We may very well have a recession at the End of this year or in 23 Precipitated by their actions as well as Global weakening there's a lot of Negative things going around in the World away from the u.s that could Really drag the u.s market down from Here so i hope the fed will Look around before they get too Aggressive Margie why haven't we seen more Substantial outflows in particular From bonds we have seen some but why Hasn't there been a stampede away from
An instrument that should be full faith In credit and should be rock solid I think one of the reasons is because if You look at the yield on money markets It's still very very low so it really Isn't a competitive place to hide it's Not as if you could get three or four Percent in money markets and say fine I'll stay there uh you're still looking At best something maybe approaching 25 Basis points so i think people are Inclined to say we've seen this Volatility before we're going to stay Where we are or those people who have Gotten obliterated in some of those Equity names that have blown up Or maybe don't have anything left to Sell or just sort of frozen not sure What to do in this market
