Bond Market Outlook: Jim Masturzo presents a contrarian bullish view on bonds, suggesting that the current market offers a rare setup for strong bond performance over the next 3 to 5 years, despite consensus caution.
Interest Rate Predictions: Masturzo anticipates that interest rates are more likely to decrease rather than increase, citing interventionist policies by the Fed to control the long end of the yield curve.
Economic Fragility: The discussion highlights signs of economic fragility, including impacts from tariffs, immigration reductions, and cracks in the labor force, suggesting a cautious approach to equity markets.
Investment Strategy: Masturzo advocates for diversification, emphasizing opportunities in emerging markets and suggesting that investors consider moving out in duration within the bond market.
Emerging Markets: Opportunities in emerging markets, particularly in Eastern Europe and Brazil, are highlighted as attractive due to favorable valuations compared to US equities.
Commodities Outlook: While cautious on passive commodity investments, Masturzo sees potential in active commodity strategies, separating gold as a distinct asset class with its own investment merits.
Private Markets Concerns: Concerns are raised about the retail market's exposure to private credit, suggesting a risk of reaching for yield in less liquid, potentially underperforming assets.
Investment Advice: The importance of self-education and prudent management of investment portfolios is emphasized, encouraging investors to leverage available tools and resources to make informed decisions.
Transcript
If there is no intervention, sure, rates can can go out on the long end. No doubt. But do you really believe that we're just going to sit by or the Fed in particular is going to sit by and let the and just lose the long end of the curve? I I don't see it. I think there are too many negatives for that happening. And so there's many many interventionist type policies that they can take on to control that. So, you know, again, if if nothing happens, we're very happy to clip coupons where they are, but the the um change in rates, from our opinion, is definitely skewed lower, not higher. [Music] Welcome to Fal Money. I'm its founder and your host, Adam Tagert. Today's guest has a contrarian bullish view on bonds, especially when looking out over the next 3 to 5 years. While consensus stolen's cautious, his take is that this moment offers a rare setup for strong bond performance. Why? Well, let's ask the man himself. Today, we've got the good fortune to welcome to the program Jim Murzo, CIO of multiasset strategies at Research Affiliates. Around 150 billion in assets are managed worldwide using investment strategies developed by research affiliates. So they have global impact. Jim, thanks so much for joining us today. Thanks for having me. Hey. Well, it's a real pleasure. It's your first time on the channel. Um, so thank you for joining us. Uh, I have had your colleague Chris Brightman on the program before. Very sharp guy. Uh, expect nothing less from you. So this should be fun. Um, but since it is your first time, if um, if I can just ask you an intentionally high level question to kick things off here, just so folks get a sense for how you see the world. What's your current assessment of the economy and financial markets? Sure. It's a it's a great question and um, I feel like this entire year there's been a lot going on. Sometimes you can ask this question and things are a little less volatile, a little less going on and the answer is it's a little more boring. But uh you know with everything that's been going on really daily uh for the last you know 9 10 months uh there's a lot to think about. So you know if you ask me this question you know six months ago um you know what were we seeing? Well tariffs were starting. We were starting to talk about tariffs. Um bond yields were kind of moving around. People were talking about the fact that you know bonds are risky. that the debt and deficit cycle had ramped up to an extent not just in the US but across developed markets where no one was going to want to hold sovereign debt anymore and so we're going to have to go to all these sort of you know crazy things to to manage that. Um but what did we see? Well, except for a blip in April, US equity markets have continued to, you know, to roll forward and and reaching new highs um in Q1 and it's really continued but mainly in Q1. We saw that in in developed markets as well and emerging markets. And so, you know, equities were doing well, but now we get to the point where, okay, now we're starting to feel the impacts of tariffs. And there's debates on how much of that is flowing through to inflation. And we can talk more about that. Um, but we're seeing impacts. We're seeing impacts from uh from immigration, uh reductions in immigration, uh cracks in the labor force, those sorts of things. And so, you know, I really think we're getting to a point of uh I don't want to call fragility is probably a word that's too strong, but definitely starting to, you know, see some cracks. And so, getting to that point where I think taking some risk off the table. Um, you know, not going full in. We're seeing it, you know, a little bit in equity markets over the last week or so. We're seeing it in crypto markets. The oil market obviously has has been uh you know selling off for quite some time. So I would say you know cautious to maybe slightly more than normal cautious. Okay. So this is a good segue then to bonds. So um my question want to ask you is is um okay so why do you think the market is currently too bearish on bonds? Um, and it could be because the market is still too focused or or has most of its focus on tariffs and what might happen inflation wise going forward. But one could also make the argument, you know, for entering a point of fragility, then the odds of a safety trade start building and maybe that's the core of your your your bond thesis. Don't want to put words in your mouth. So, why is the market too bearish on bonds right now from your perspective and why are you more bullish? Yeah. So, you know, it's funny. I think I think fed bashing is like a sport that people have. Um certainly the president's favorite sport. I didn't want to name names, but but you went there. So, uh yes, in particular the president, but but many others. And you know, I've actually been relatively supportive of the actions of the Fed. I think the the wait and see approach has been the right thing to do. So, you know, coming into the year to address your question directly and and again, we were talking about debt and deficits in particular. So, debt levels have gotten to a point where that are just so extreme that every time interest rates rose five basis points, 10 basis points, you know, the headlines would scream, "Okay, the Fed is losing control of the yield curve. Rates are going to spike. No one's going to want to own own bonds. Um, definitely not long bonds. stay out of that. And so, you know, as I've looked at it and said, well, first off, on the short end, why would we cut rates? The economy's been strong. Asset prices are, you know, we're rising. And again, I think this is more of a a retrospective of how we got to here now. I think we're actually at this inflection point where, you know, going forward, things should change. But um but essentially, you know, the 10-year yield hasn't moved since the beginning of the year. Actually, it's down a little bit from the beginning of the year. It's up from its lows in in April, but really hasn't moved. And so this idea that, you know, housing is going to crash because, you know, markets are too uh again rates are too high and too much of of all of the spending. I agree with that that premise that yes, deficits can't continue on the direction they're on, but this is a three to five to longer term problem. More of a secular even, you know, quote unquote super secular type problem. This is not a problem for 2025, 2026, 2027. Now, we get to the fragility that we just talked about. as we start to see this fragility, you know, increase. Well, there's a great reason for beginning to to lower rates. So, if you're a bond investor right now, you own short-term, you know, short-term T bills, you're making, you know, four and a quarter, four and a half, whatever the, you know, depending on where where you bought them. If things don't move, well, you know what? Enjoy your coupons. And if they do move down, well, then you're going to get some nice capital gains on top of it, especially as you start to move out the curve. We've been very bullish on the middle of the curve uh you know kind of the belly of the curve call it somewhere between the you know the two and the 10 focused on kind of 5 to sevenyear but even out to 10 years is perfectly fine now you mentioned inflation tariffs and what what does that mean absolutely are we starting to see impacts from inflation I believe so yes um and that could essentially move the uh you know increase the long end of the curve But then you have to ask the question to to how far if there is no intervention. Sure. Rates can can go out on the long end. No doubt. But do you really believe that we're just going to sit by or the Fed in particular is going to sit by and let the and just lose the long end of the curve? I I don't see it. I think there are too many negatives for that happening. And so there's many many interventionist type policies that they can take on to control that. So, you know, again, if if nothing happens, we're very happy to clip coupons where they are, but the the um change in rates from our opinion is definitely skewed lower, not higher. Okay. Um let me ask a question about inflation that I've asked some other guests of late. I'd like to get your opinion. Um you know, a lot of people's mind tariffs equals inflationary. Um, but aren't tariffs generally a one-time price shock? In other words, are tariffs really a sustained inflationary impulse or is it just a repricing that then equilibrates and potentially your inflation rate after that is zero because you've already had the price change. Yeah, I think uh you know by definition that's that's absolutely true. I think what we see though and what we'll feel will will feel a little more consistent because the impacts are not going to be one time pass through all the tariffs. Okay, we move the prices and everything is the same. What we're seeing is kind of in dribbs and drabs. So recently we saw the difference between uh you know PPI numbers being up a lot, CPI up a little bit. So the story being that some corporations are are eating the tariffs. Well, they're not going to eat the tariffs forever. They'll eventually pass through more and more of that. So, I think we're going to see incremental increases in inflation, not this one time, okay, everything went up, but hey, tariffs are good now, everything's going to be flat. And that consistent rise, although it'll be the same magnitude as if it happened at once, will feel worse, I think. And so I think there's a little bit of a of a um uh just behavioral impact that will uh that will drive um certain investor behaviors. Okay. So, um, don't let me be too simplistic here, but on the argument for higher bond yields going forward is, um, uh, inflation that, uh, you know, maybe tariffs are more inflationary than is currently priced in um, and therefore bond investors demand more from that. um there is maybe continued deficit spending, right? Where if the deficit stays where it is or gets even worse, then bond investors say, "Okay, you know, I got to get compensated for that as well." So that's sort of on the the side for higher rates. Now, you said you think that the bias or the probabilities are more to the downside, right, with rates or yields. Um and a obviously Fed cutting will have some impact. um obviously much more on the short end of the curve, right? Um presumably your points of fragility um easy to interpret that as sort of an economic slowdown or whatnot, right? Less demand um and and potentially if there's concerns about um market integrity or economic integrity, well then the safety trade starts to kick in. That brings yields down as well. um why does the the in your mind a did I leave out anything else that's important on either side and why do you think the the um odds of lower yields outweigh the odds of higher yields right now? So maybe I'll add one thing on both sides uh before we're getting to the question. So on the uh upward pressure and you know we talked about inflation from tariffs there is some risk of wage inflation uh wage inflation particularly coming from reductions in immigration reductions in labor. Now fragility remaining US labor basically can demand higher wages. That's exactly right. Now the fragility that we're talking about which is economic fragility I think will offset some of that but all else being equal reductions in you know the supply of labor should push up you know uh should push up uh or give give existing labor more more um you know power to to ask for higher wages. But so that's on the on the one side. the other side. Um, when we think about reductions or or let's just say um well, let's just call it reductions in in bond yields is really around valuations. And so if we start to look at valuations in other asset classes, well, you know, the uh the PE ratio of US stocks and we tend to look at the the the cape ratio or the cycllically adjusted PE ratio. um you know we're getting back into those upper 30 levels. So let's call it you know 2.8 2 something somewhere 2 and a half to 3% uh you know earnings yield on US equities relative to you know four four and a half on bonds. So um so there's a trade-off there between equities and bonds. Now, US um obviously US uh equities are not the only game in town although they if you ask many investors they have been over the last you know 15 years where it didn't make sense to go you know go elsewhere. It does now. Um lowering rates on the short end. You talked about uh you know Fed reduction in rates will lower rates on the short end obviously. Uh the other thing that does is bring back foreign investors into US bonds particularly because the hedging cost of the currency becomes much cheaper. It's very expensive to hedge uh for foreign investors to hedge US currencies right now because the US short rate is so high relative to their local rates. So there's an increase in the investor pool as rates come down on the short end even to you know call it 10-year treasuries. And again that tradeoff I think is uh is really important that at some point the Magnificent 7 you know it's hard to believe now that they're going to be able to um achieve what is priced into um you know their current multiples. uh something like someone was telling me the other day and I'll I'll I'm going to take them at their word that you know Palunteer has to grow 40% a year for the next five years to be able to uh sort of justify their you know current multiples. Um I haven't checked that one because as value investors we try to you know avoid the things that are expensive anyways and don't spend a lot of time thinking about them. But this um you know it becomes very hard to want to continue to buy US equities where they are today. Okay. So um part of this is just sort of a a sector rotation where equities have just become so expensive. um that upside potential seems limited. Um uh the dividend yield is real low uh relative to what you can get paid today on on safe safe bonds, right? Um and so part of it just could be just simply that, right? Um and interesting point you say about um foreigners uh becoming increasingly interested in owning US debt as the the rates the yields start to go down. Um, you know, we've there's been a a lot of talk in recent years of how um foreign governments have reduced their purchases of US sovereign debt. Um, which is true and we've seen them, you know, on a relative basis increase purchases of things like gold as a as a potential alternative. Um, and some people have taken that as is the world is abandoning US treasuries and treasuries are are, you know, poised to end up in the dust bin of history. I think you're saying that's probably not the case. And to be honest, there'll probably will be, you know, a rotation back into treasuries by foreigners as those hedging costs go down, as as yields come down. That's absolutely right. I mean for anyone who makes that case of uh and I've heard it uh heard it many times as well as well as you have on treasuries are dead just look at global trade how much trade is done in dollars foreign governments need dollars they need dollars to protect their own currencies and they need dollars for for trade and those dollars are going to get reinvested into something of that reduction in US debt also went into US equities And so those governments were you know appreciating the returns of you know the US stock market which again as they start to think about some of these uh you know offsets of uh you know fragility in the equity markets can come back into bonds. So I don't put a lot of credence into again the the idea that US treasuries are dead over the next you know handful of years and really you know you we start getting into that conversation of you know yes the debt um situation is dirty but are we the cleanest dirty shirts? You can make arguments that that yes, um even though I for one hope that uh you know we address these situations, you know, before we get to that that obvious tipping point, although I tend to put no faith in politicians, so you know, we'll see what happens. But to your point, it it does beg the question, um okay, so the world starts getting into trouble again. I mean you talk about points of fragility here in the US economy. Um if the US starts stumbling odds are a lot of other countries are stumbling even worse than we. So the question is is is there another has another asset taken over the number one slot is the global safe haven uh you know harbor of safety in trouble and uh I I don't know. I mean as as as favorable as I am about gold just not a big enough market to absorb all that. I mean it it's it still seems when spooked people are going to turn to treasuries. Yeah, it's a I feel the same way and I'm a big proponent of gold. I think I think owning gold is is a great idea for most people. So, but you're right. The market isn't isn't isn't large enough. Um, I don't know what your feelings are on on the crypto markets, but they're not evolved enough to, you know, to take take the place of I mean, right now, right now, crypto seems to be acting much more as a risk on and not a riskoff asset. So, exactly. And, you know, even if you're even if you subscribe to the the theory that we'll get there, seems to be a long ways away. uh you know I don't see in you know next year the year after we're talking about you know Bitcoin being a safe haven asset or or anything even even close to that so or any any of the others. So yeah which sovereign debt are you going to pick over the treasury in time of trouble? I mean it's hard to point at anyone and say oh that's demonstrabably better. I think the uh you know I think a really interesting chart that I tend to look at is the Swiss Frank which is uh you know the Swiss Frank is at its uh you know I guess low or high depending on how you're thinking about the currency pair but let's just say it's strongest in the last 20 years. Well that's just not sustainable for for an economy of that size to have a currency that is that strong for so long. They're back into negative rates. So, you know, to your point, it's just in my mind impossibly hard to find any particular um you know, government debt market that is safer, deeper, large enough, all those sorts of things as the US market. So, you know, this idea that governments are just going to stop wanting to hold treasuries, I just think is is somewhat foolish. Okay. All right. So, a couple of things. Um, let me try to bank through them if I in in logical order here. So again, I I don't hear you saying, hey, the US is going into recession. I just hear you saying, hey, there's there's points of fragility. And as I said earlier, you know, I sort of interpret that as, okay, you know, we're seeing data that the economy is slowing. Um, you know, the the labor market is is starting not to look as healthy as it has, and that's using the official data. And I think we've gotten to the point in the story where kind of nobody believes the official data anymore meaning it's it's probably worse right than than what we're working with right now. Um so uh you know not even bringing up the word recession just slowing economy that is disinflationary right so to a certain extent that should assuage some of the inflation fears if you expect that at least in the near term the economy is going to going to slow here and you know let's say next quarter or two I'm not not not predicting much more than that. Um secondly, you said that the um uh if I heard you right that that you know there's there's a lot that the the central planners but the Fed can do here um that it it hasn't done and I'm not saying it's going to do this but to your point long into the curve starts getting away from it. I mean it could go back to Q8 right it could start buying longdated treasuries and start trying to pull that part of the curve down right. Um, third, you've got an administration that is very publicly committed for very obvious reasons to saying, "Look, we want a lower Treasury yield." You know, um, we we had our debt service costs spike as as yields went up during the Fed's hiking regime. Um, but now we got to get that down because it's eating a too big of a chunk of our our budget. Um, and uh, you know, Trump and uh, Secretary of Treasury Basant have been very very clear that that's their agenda. Now, you said earlier that it hasn't really moved all that much. And so, the skeptics could say, well, maybe they're just not going to be very successful at it, but there probably is, you know, there's a lot that they can continue to do policy-wise uh to try to wrestle that right down. Um, so those are kind of three big things. I'll take a beat here for a second, but are are those three of the big things in your argument for why you think the propensity is probably more for lower rates going forward? Yeah, I mean you you nailed it and you probably summarized it better than than I could have, but it really is those, you know, you've got these major forces that have said we don't want higher rates. And you know, you mentioned QE and, you know, some people remember operation operation twist. We've got explicit yield curve controls that they could do. We've done it here in the past. I I've read many stories that say, well, we won't do, you know, uh yield curve controls here in the US. you know, we did them after World War II. Japan's done them more recently. You know, when you start to get to that point, and I and I will say that if we start getting into explicit controls over the longer end of the curve, we're probably getting close to crossing the Rubicon. Um, but, you know, there's nothing that makes me believe that we have to do that in the short term. Uh, the market has been willing to step in and keep, you know, keep rates where they are. But as you say, there's a lot of uh um we used to call what the economic bazooka that uh the the central banks had and they were willing to fire. So there's a lot of bullets in that bazooka. Okay. Um uh all right. So, um, and again, you know, we we we don't know what the administration, um, its full bag of tricks is going to be at this point in time, but we get a pretty good sense of of what its main policy um, priorities are. Um, so let me ask you this. Um, first off, you know, I mentioned the recession word earlier. Um, I haven't heard you say it yet. Um, how much of a concern is any right now through the lens you look through at research affiliates? Is this something that you're you're warning clients about or is it just more a slower economy but not a not a contracting one? We're more in the slowing camp than the recession camp at this point. But as we talk to our clients, you know, as we always uh you know, we have for for quite some time, it's really around diversification. So yes, you own US stocks and a slowdown will, you know, impact US stocks. We're telling you all the reasons to buy US bonds. Well, let's not even worry about the recession because let's talk about outside of the US and what the opportunities are. So, in particular, you mentioned earlier, you know, emerging markets. It was actually very interesting that finally in the early part of this year, investors seem to remember that, hey, there's a lot of activity going on in in emerging markets. their um fiscal uh setup looks much better uh than developed markets and also better than emerging markets in the past and also their valuations are you know look quite attractive and we haven't talked about you know the dollar and the impact of the dollar obviously the strengthening dollar for the last you know 12 years or really through uh kind of through 2022 when we really hit the the strengthening of of the dollar which used to be you know a headwind for US investors investing outside the us. Well, hey, that's the weakening dollar is actually a tailwind now. So, as we talk to our clients and as we think about these things, making a recession call is, you know, is very, very difficult. Um, that's why it's usually done, you know, a year later. So, but if you're thinking about how to diversify your portfolio, how you're looking for, you know, all the uh value opportunities that are out there, then, you know, you can play offense instead of worrying about, you know, playing defense on, you know, is it a recession, isn't it a recession, you know, what's the cool off going to mean, um, you know, for asset prices, that sort of thing. Okay. So, I want to ask you in a second, um, you know, where in emerging markets are you seeing the most opportunity right now? And and presumably when you're talking emerging markets, you're talking mostly emerging markets equity. I'm guessing my guess is you're you're thinking that that US bonds probably better outlook than emerging market bonds as as yields start to come down in the US. Is that correct? Um you know, we're we like emerging market uh debt as well, in particular, local currency debt. We're not we're not bullish at all on uh hard currency debt or emerging market debt that's denominated in dollars. Um, okay. We like emerging market local debt, but you know, the US Treasury market is just so much larger and liquid and for most investors, I think much more comfortable. Um, you know, so yes, I mean, usually we're talking about equities or or at least focusing on equities. Okay. All right. Um, but before I ask you to to get specific there, let me just ask you this. So, we do have a bunch of policies that have been aggressively enacted early by this new administration that presumably will lead to uh increased economic growth um at some point, right? Um whether this is the additional tax relief from making the the Trump uh 2016 tax cuts permanent, whether it's the deregulation that they're going uh on, um whether it's, you know, the um reshoring of American manufacturing, whether it's these trade deals that are getting struck um that presumably are ending up with better deal terms from America than we had before. uh got lots of commitments from company uh countries and large multinational companies to put basically trillions you know to work inside the US that weren't pledged before right so um who knows if if all these you know will be enacted as as envisioned but it certainly seems that the administration is continuing to you know get the legislation passed that it wanted to get passed and is getting more and more of these types of deals so presumably and probably hopefully, you know, some some fair amount of them actually, you know, go in into an action the way that they're hoped to. Is that a cavalry that that you do think will ride to the rescue here in terms of the economy kind of slowing in the near term? Um, and if so, how material will it be? Well, as you say, I think we all hope that these things will materialize in the way that they're being described, but I think it's it's such an unknown. We don't have a lot of information on many of the trade deals. Um, you know, the promises of investment, we're not really sure what that means or what the timing looks like. Um, you know, the onoring of manufacturing, I think, is great, but not going to probably do a lot for the labor market. Um, considering much of that will be automated and and so forth, but still good for asset prices. So um I think we also need to think about the differences between you know the economic benefits and the you know benefits to the asset markets. So from an investor perspective and for the purpose of this conversation we're focused on the latter and that's great. Um but it's just unknown right it's uh these things that seem to be moving targets um and depending on which side you ask you know you get very different answers. um when we talk about you know the the the trade deals with you know pick your country and when they talk about them at least from the the stories I read it's you know it always seems to be a little bit different. So I mean I think you know in the longer term and and by the longer term look maybe we're talking about you know 18 months from now these things really did start to uh to take effect some of the deregulation takes effect and helps growth and so you know on a maybe optimistic um perspective you know end of 2026 we could be very optimistic that these things are happening but I think where I sit right now in 2025 I'm not banking on I think it's worth um again looking at other opportunities because I think there are a lot of opportunities out there particularly from a valuation perspective um relative to you know waiting and and seeing what's going to happen with you know some of these announcements and and do they actually you know mean shovels and and things like that. Okay. Um so again just to to make sure I'm sort of understanding your position um economy you know let's say next six to 12 months maybe more sluggish bumpier than we would like. Um US equity markets very richly priced meaning probably somewhat vulnerable to what's going to happen economically over the next 6 to 12 months meaning we could have some corrections in there as earnings estimates get forced to come down. um uh debt, US debt obviously looks attractive uh in that type of environment and um uh you know, hey there's option option value there that things could start getting materially better coming into the latter half of 2026 into 2027 from all these policies, but too early to tell and uh let's have you back on middle of next year to call an audible as to where things are. Does that sound fair? That's exactly fair. Okay. Exactly fair. Okay. Now, that being said, even though you think valuations, painting with a broad brush here, are uncomfortably high in US equities, you sounds like you've said, hey, there's lots of other places in the world where there's some really attractive valuations. So, specifically in the emerging market space, what what's kind of got your focus there at Research Affiliates? Yeah. So, in talking about, you know, if you had me on next year, what we talk about if we had this conversation a year ago, um, and I wrote about this a year ago, you know, Eastern Europe looked very, very attractive. Uh, Poland in particular, um, that being the largest and and easiest to access for most investors, but Czech Republic, Hungary, um, valuations were, you know, extremely cheap relative to, um, you know, to fundamentals. And so, you know, since then, and I think it's uh let's see, over the last year, I want to say uh you know, Poland's up about 50% uh similar to um you know, for the other countries. So, now we're seeing valuations that went in in those particular markets that went from, you know, very very cheap to kind of fair value. So, still not expensive. So, there are still some opportunities there. Um country that I actually think is really interesting and is getting nothing but negative headlines is Brazil. um in particular you know the tariff on Brazil I I think the last tariff because it seemed know tariffs change a lot but uh 50% on on Brazil um even though we have a trade surplus with them but Brazil you know is when I talk about playing offense is out you know they've they've signed a trade deal with China uh redirecting a lot of their you know trade to China and so we've seen the realale uh you know rally over the last month really since we we started talking about the tariff there So, you know, Brazil, just going to check the number here. Let's see. Brazil is trading at a a PE level of um just under nine. So, again, the US is trading at about 37, I believe, and Brazil's trading at nine, which is no reason and I always have to caveat this because I always get this push back that So, you're saying that the US and Brazil should trade at the same multiple? No, we're not saying that at all. There's there's a risk premium built into emerging markets. they should definitely trade it at lower multiples. In fact, our our fair value is somewhere around call it you know 11 or 12. So um but you know going from you know 9 to 12 you know is is is a nice benefit um uh in particular for for Brazil you know Turkey um you know another country uh trading at you know seven and a half relative to our fair value which is about nine and a half. Um so but it's important for you know many investors who say look you know I don't want to buy you know Brazil or or Turkey that's just too much risk for me because obviously investing in any particular country is is risky. So, you know, the basket of EM uh whether you want the entire basket of emerging markets or you know you want to split it up by region and go with Latin America, relative to Eastern Europe, relative to Asia um you know all options and all you know again trading at cheap to fair value relative to um again relative to the US that's you know trading again in the upper 30s and the all-time high was you know 40 uh 44 on the Cape scale back in the in the tuck bubble. And when we think about again not to continue to harp on the US but the natural question I always get is what is the fair value of you know US equities what is the fair multiple um and my answer to that is well a nobody knows exactly but if we think about cape ratios and we go back to 1995 which was you know you can talk about the technology boom the internet age that's when it started if you look at the average cape ratio in the US from 1995 to today it's about 28 So, and people ask me what's my fair value for the US? I say it's about 28 on the Cape scale. So, we're trading at 37. And usually, um, reversions to the mean rarely stop at the mean, right? In other words, right, if if momentum starts swinging, it tends to sort of overshoot for a while too, right? So, you know, you may want to ride it even a little bit further even if it gets back to that 28. Yeah. Yeah, and as value investors, you know, we love that because you can start when you hit that fair value, you can start incrementally buying in and yes, things might get a little bit cheaper, but um but then by the time you hit the bottom, you you have a nice position for that rally. So that overshooting is, you know, something that we're, you know, constantly talking about and and look at as an opportunity. Okay. All right. And so in terms of playing these um these emerging market opportunities um you know I know research affiliates I mean your research is used by kind of everybody on Wall Street and a lot of the big institutions uh and a lot of those companies you know have staffs of analysts and the ability to really you know laser pinpoint specific securities on local exchanges and things like that for the average retail investor, do you have any any sort of general counsel is is the better way to play these? Is it is it a is it a country ETF? Is it a region ETF? Is it actually buying some of these stocks on the local exchanges if you're you know your your online brokerage lets you do that? Um do you have any general advice? I mean I we tend to tell investors particularly retail investors to stick to the ETFs. Um, and for those that aren't spending, you know, a lot of time diving into some of the numbers such that, you know, to your point on when things get cheap, they tend to get cheaper than, you know, and go past the mean, that can happen. So, if you, you know, if you don't have the stomach to hold a particular country ETF, which, you know, some of these emerging market countries have volatilities of, you know, in the 20s, um, you know, which is is significant. So if you don't have the stomach for that sort of a thing, then move to a region or to again the entire emerging markets basket. Now you're lowering the volatility into the, you know, into the high teens. And so that's a little bit easier to uh, you know, to hold through the down times for, you know, for the average investor. So you know, if you get all the way down into the individual companies, we usually say for retail, you know, don't do that. Leave that to the folks who do it all the time. If you don't want a passive ETF, there's, you know, there's many um, you know, active or quantactive strategies. We offer a number of them where we'll do all of that. You know, we're processing all the data to look at all the fundamentals and all the things that are happening with these companies and then building the portfolio off of that. So, you know, if you're interested in that sort of a strategy, uh, our partners, um, you know, offer those based on our strategies. For those that don't know, at Research Affiliates, we we design strategies and then we partner with other asset managers who actually launch funds based on those strategies. And you can find those at our website. Yeah. So, the easy way to think about it is you guys are kind of providing the intelligence and then the partners are actually putting it into execution. That's right. That that it allows us to, you know, have a relatively small firm. We don't need an army of of back office folks and accountants and uh you know sales folks going out trying to sell these things. We use our partners for those things and then we focus on uh designing the strategies and the portfolio construction and the things that you know we think that we're good at and the things honestly that we enjoy doing. Okay. All right. So Okay. So, um, in as we wrap up here in a few minutes, uh, Jim, I'll I'll let you direct people who want to learn more about your strategies, whether it's to your specific websites or some of your partners or whatever. Um, but just getting back to to treasuries for a moment. Um, so obviously you think that duration will be your friend here over the foreseeable future in bonds as the forces you talk about start bringing yields down. Um, let me ask you this. So, there is a lot of capital over the past couple years, uh, and a fair amount from the folks watching this channel, I know from talking to them, uh, that has made its way into the T- bill and chill trade. Um, I guess first question for you is is do you have a a projection in terms of how much you think the Fed will bring its policy rate down? you know, are we are we going to you know, some people, not too many these days, but some are like, "Oh my gosh, we're going to go back to the old Zer days." Um I don't get that vibe from you, but don't let me put words in your mouth. You know, I think uh through the end of the year, and I know this is somewhat the consensus view of, you know, call it 25 to 50 basis points. I I guess I of those two I I'm more leaning towards 50. Think that's where we'll get by the end of the year. And then it really depends on how bad does the economy get, how slow things get. Yeah. And we'll see what happens next year. Um now once we get a new Fed chair, who knows? Um that might be where we start to see, you know, larger moves, but at this point, you know, even in, you know, let's call it your normal run-of-the-mill recession. Let's just say that happens. We're not talking about a financial crisis, but just your normal run-of-the-mill mill recession. You know, I could see us getting down to one and a half or 2%. Okay. I think they learned and they're trying very hard to avoid going back sub 1% down towards zero. Um doesn't mean it won't happen. doesn't mean that that forces might you know require that but I think that's a a very low probability um given what we're expecting to happen over the next you know year or so in the economy. Okay. So let's let's just assume for a moment throughout 2026 we're we're on that trajectory where the Fed is meeting and you know at least ticking off a quarter point every time. Right. So such that so that the T bill and chill trade goes away. Right. Where do you think that capital is likely to go or do you have an opinion on where you think it should go? You know is people who have enjoying a nice safe 4 plus percent on the short end of the curve have to start putting that somewhere else. Is it just going out in duration on you know the same instrument or is it going into other types of asset classes where I think it will go is moving out in duration. I think you know the T bill folks will move out to the 2-year and the fiveyear and they'll start to take on more duration wi within uh you know within reason and I don't think there's anything wrong with that. I think that's perfectly fine based on all the things we've talked about. um you know where I think there's actually bigger risk is really you know we haven't talked a lot about you know private markets or p you know private credit which is sort of moved its way into the retail market um I would say unfortunately uh I'm I'm not a big supporter of not that there's anything wrong with private credit for you know institutional investors and those that understand what they're what they're getting and have the liquidity uh you know avail availability to to make those investments. But as we start seeing or if we start seeing fragility in in private markets from retail, well, you know, the the liquidity premium starts to hurt in the wrong way. Um, you know, we start seeing forced selling. So, um, you know, it's I I bring that up because I think the the nexus of your question is essentially, you know, will people reach for yield? Um, which is usually what happens. they're not getting it on T bills. So, okay, now how where can I get that yield? I'm going to start, you know, stretching forward a little bit. Um, so, uh, yeah, I think maybe to answer your question of where it should go, I think taking on some duration is perfectly fine. You're getting the same, especially again for retail investors because you're getting a similar um, you know, risk profile that you're getting with T bills. Obviously, you're taking on more duration risk, but you know, it's the same issuer. You don't you're not worrying about those sorts of things. Highly liquid markets, deep markets, all those sorts of things that um you know, if you're not doing this every day for a living, it's not a bad place to stay. Okay. So, um, is it would your general counsel, not specific financial advice obviously because you don't know any of the people watching independently, um, or individually, um, but should people who are currently sort of heavily invested in the T- bill and chill trade, should they start taking some of that now out further on the curve? Like if you're sitting here in say, you know, 1 month, 3 month, 6 month T bills, maybe start moving some of that to a 2-year T bill. Um just because if you know you like 4%, you know, why not lock in that for at least a percentage of your portfolio for the next couple years. Uh and no matter what happens with the rates, whether they go down or stay where they are, you're still getting what you, you know, determine you kind of need or or really value. Yeah. And again, not not offering any particular advice to anyone, but as I think about it, if someone offered me, you know, a three-month T bill or, you know, a 3 to fiveyear, you know, Treasury bond, I'm probably buying the three to fiveyear bond because I'm not as worried. I'm not that worried about the duration risk as we talked about and I'd rather lock that in. So well and if you are worried about the duration risk I mean unless you need the money personally if you're not getting paid back on your treasury bill in three years because the US government is default like we've got way bigger problems. Yes. Exactly. If uh I have that conversation with uh some folks in my family who are convinced that the US is going to default on its debt and I say when that happens we're talking about wars and other sorts of things. that's not something that that's taken on lightly. Um maybe I'll just throw in, you know, real quick is, you know, for folks who who are thinking, yeah, okay, I'm I'm ready to take on some duration risk. Um but are worried about inflation, you know, the the TIPS markets are a great opportunity as well. Have asked about that. Yeah. Um you should definitely, you know, consider those particularly again if you're if you're worried about, you know, short-term inflation. Okay. All right. Yeah. Um I'm glad you brought that up. Okay. And then you you mentioned private equity, private credit. Um, and that's a whole I mean we could do a whole interview just on that. Jim, let me ask you this. Um, I have a hard time looking at the move to bring private equity to the retail market, which there's a big, you know, I'm sure you probably know this more than I, right? But I have a hard time looking at that not as just a godsend to the private equity industry to just dump all of its illquid underperforming junk that it doesn't want to have on its books onto an unsuspecting retail, you know, public. Uh, am I wrong to think that way? I don't know if you're wrong, but I completely agree with you. I think these the stuff that makes it just historically, we've seen this in in you know many different markets that once they eventually make it to retail, what makes it to retail is the the underperforming junk, right? Um and so I just it bothers me when this happens. Uh but I I won't get into that. But uh yes, I'm not I'm not a fan of selling these types of products to retail uh retail investors who, you know, just they're not doing this every day. They have day jobs and they're worried about other things and they're not understanding or paying attention to the risks. Yeah. And I just I just can't see that the private equity guys resisting the obvious incentive to just say, "All right, look, we're going to let you sell whatever you want to sell to the private to the public markets." Well, you're going to keep the things that are on in your portfolio that you're the most excited about and you're going to happily dump the stuff that up until yesterday you weren't sure you were ever going to be able to get out from under. Right. Yeah. I I think I think that's exactly right. So, uh I think you and I think about this problem exactly the same way. Okay. All right. Well, that's a big compliment to me. So, thank you. Um All right. Well, look, um this has been a great conversation, Jim. I've really enjoyed meeting you. I talked about having you on, you know, a year from now to give us an an audible, but uh if you would like to come on a lot sooner and uh you know, call some additional balls and strikes as they start coming in, we'd love to have you be able to do that. Um so for folks that have enjoyed this conversation, maybe this is the first time that they've uh you know, heard you talk. Um if they want to follow you, your work, or more about what's going on at Research Affiliates, where should they go? Uh so if you go to our website researchaffaffffiliates.com you can learn all about the firm. Um we do a lot of writing about what's happening in markets uh particularly you know quant markets and things that we're looking at. So a lot of great information there. We also on our website have a link to what we call our asset allocation interactive where we actually publish our long-term expected returns for 150 different assets. So everything from you know gold and name your commodity to individual you know equity markets uh all the emerging markets that we talked about before as well as developed markets and so that it's it's free to use. We just ask that you give us you know your email address and sign up with a password and that just allows us to know that you're a real person and not a you know a bot that's uh you know trying to troll our our website. So all that stuff is is free to use again and and provided there. So hopefully provides um you know investors with a way to think about where are valuations for various asset classes. So uh again that's our asset allocation interactive from our our research affiliates website. And you can also maybe most importantly um as I mentioned we license our strategies to other uh other firms who actually launch the funds. So sometimes you'll you'll invest in a fund and not even know it's our strategy. Well, we have links on our website to all of our strategies and what they do and and the various partners who uh you know offer those strategies. All right, great. So, if I'm working with a firm, I can see if they're on your partner list. Yeah, absolutely. Okay, great. All right. Well, Jim, when I edit this, I will put up uh the URL to research affiliates there on the screen so folks know exactly where to go. Folks, that link will be in the description below this video as well. Um, you made me think of one, um, asset question I didn't ask you that I'll try to squeeze in right now, which is just in general your thoughts on commodities. Um, one could make the argument that if the economy is starting to slow, that's going to have less demand for commodities. Um, on the flip side, uh, you're talking about equity valuations, general equities. Um, the ratio of the S&P to the general commodities index, I think, still remains at pretty much near an all-time high. And there's a lot of people that have been saying, you know, we're going to see uh some sort of reversion to the mean in that. Um obviously the world has become a more competitive place for commodities as countries are deciding to start to, you know, reshore their supply chains and stuff like that. So I'm curious what what is what is your general outlook on commodities, you know, over the next couple years concurrent with what you're seeing with the um your your outlook for the bonds? So um great question. I'll answer it in two ways. I think let me separate gold from commodities. Yeah. I think for investors who want to have a gold allocation, there's a lot of ETFs out there that you can go buy um that invest in gold and in particular a lot of them own, you know, physical gold. So, you know, that's perfectly fine. When we think about broad baskets of commodities and broad indices, I am not a big fan of most of the passive commodity products that are out there. Those that track the Bloomberg Commodity Index or the S&P GSCI, um, if you look over the last, you know, 25 years, they haven't even kept up with inflation. So, they they tend to not do very well. where I'm very bullish on commodities and where I think commodities add a huge opportunity for portfolios is really in the active space. So most of these commodities as we talked about you're buying commodity futures. So if you're buying derivatives the ability to go long and the ability to go short um you know is basically the same. It's no it's no more expensive to take a direction on and a you know derivative like that. uh there's also the opportunity to take leverage and so leverage and shorting are things that you know professional investment managers know how to do and so for somebody who's looking for a commodity investment I would look for I would look at active funds um look at some of their exposures there's a lot of quantitative factor exposures that are out there that make a lot of sense in commodity investing and so you know maybe just short short way to sum it up is I believe everyone should have an allocation to commodities in their portfolio. I think it's a, you know, I think there's a lot of benefits to that, but I would lean more towards active over passive and active management. Okay, great. Um, all right. And you probably didn't know this, Jim, but uh I have these financial adviserss who appear on this channel uh every week and um you know, a lot of these guys actually do have actively managed portfolios and commodities. So, folks, if you if you want to talk to a manager about it, uh feel free to have one of the free conversations with one of the firms that come on this channel. Um all right, Jim. Well, look, um, it has been fantastic. Thank you. Um, folks, if you've enjoyed having Jim on as much as I have, please let them know that by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. Um, definitely go check out Research Affiliates and uh, avail yourself of all the resources that are there that Jim mentioned. Um, as I said, if you want to talk to um, an adviser about um, you know, uh, if you're not already working with an adviser, that's a partner of theirs. Um, if you want to get, um, uh, you know, some, uh, free, uh, counsel from a financial adviser about how you might be able to put some of these things into practice in your own portfolio. Feel free to talk to one of the financial adviserss that Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out. to set up one of those free consultations. Just fill out the very short form at thoughtfulmoney.com. Again, those discussions totally free. There's no commitment to work with those firms. It's just a free service they offer to be as helpful as possible to folks. Um, all right, Jim. Well, look, um, thank you. This has been great. uh as we wrap this up, you know, the vast majority of people, we do have actually a number of professional investors who watch these videos, but the vast majority are just regular people that are, you know, here online to self-educate, make themselves more informed investors. Um hopefully um I think most cases what they don't want to do is lose their money uh by making poor decisions um or get caught by surprise maybe by a slowing economy. Um and then above and beyond that if possible they want to prudently grow their wealth from here. So um given everything we've talked about um do you have any sort of parting bits of counsel for that cohort? Yeah. I would just say that you know I'm always excited to hear about those the people who say look I just want to learn a little bit more. You don't have to be an expert to prudently manage your money and to understand the risk return tradeoff. uh and when you if you are working with someone else who's helping you to be able to understand uh you know all the things they're talking about and how they're thinking about the world. So I'm always excited to you know do shows like this where we can talk to real people uh who are just hey it's it's a problem. I have money I need to manage it and I just want to know how to do it. So maybe you know uh forgetting investment advice for I think we've talked a lot about that over the last hour. I would just say you know keep at it. Um, the tools today are so much easier than they were, you know, five years ago. You can use your, you know, your favorite AI tool to ask these questions and start to understand some of these concepts that, uh, you know, maybe you don't understand. So, uh, hats off to you as well for, you know, for providing this service for people. Well, thanks. Absolutely. Hats off to you for coming on and like I said, Jim, it's been a really good discussion and uh doors open here. Anytime you see something on the horizon that starts shifting, you know, the outlook that you share with us here, we'd love to have you come back on and give us an update. Sounds great. All right. Thanks so much, Jim, and everybody else. Thanks so much for watching.
Time To Buy Bonds? | Jim Masturzo
Summary
Transcript
If there is no intervention, sure, rates can can go out on the long end. No doubt. But do you really believe that we're just going to sit by or the Fed in particular is going to sit by and let the and just lose the long end of the curve? I I don't see it. I think there are too many negatives for that happening. And so there's many many interventionist type policies that they can take on to control that. So, you know, again, if if nothing happens, we're very happy to clip coupons where they are, but the the um change in rates, from our opinion, is definitely skewed lower, not higher. [Music] Welcome to Fal Money. I'm its founder and your host, Adam Tagert. Today's guest has a contrarian bullish view on bonds, especially when looking out over the next 3 to 5 years. While consensus stolen's cautious, his take is that this moment offers a rare setup for strong bond performance. Why? Well, let's ask the man himself. Today, we've got the good fortune to welcome to the program Jim Murzo, CIO of multiasset strategies at Research Affiliates. Around 150 billion in assets are managed worldwide using investment strategies developed by research affiliates. So they have global impact. Jim, thanks so much for joining us today. Thanks for having me. Hey. Well, it's a real pleasure. It's your first time on the channel. Um, so thank you for joining us. Uh, I have had your colleague Chris Brightman on the program before. Very sharp guy. Uh, expect nothing less from you. So this should be fun. Um, but since it is your first time, if um, if I can just ask you an intentionally high level question to kick things off here, just so folks get a sense for how you see the world. What's your current assessment of the economy and financial markets? Sure. It's a it's a great question and um, I feel like this entire year there's been a lot going on. Sometimes you can ask this question and things are a little less volatile, a little less going on and the answer is it's a little more boring. But uh you know with everything that's been going on really daily uh for the last you know 9 10 months uh there's a lot to think about. So you know if you ask me this question you know six months ago um you know what were we seeing? Well tariffs were starting. We were starting to talk about tariffs. Um bond yields were kind of moving around. People were talking about the fact that you know bonds are risky. that the debt and deficit cycle had ramped up to an extent not just in the US but across developed markets where no one was going to want to hold sovereign debt anymore and so we're going to have to go to all these sort of you know crazy things to to manage that. Um but what did we see? Well, except for a blip in April, US equity markets have continued to, you know, to roll forward and and reaching new highs um in Q1 and it's really continued but mainly in Q1. We saw that in in developed markets as well and emerging markets. And so, you know, equities were doing well, but now we get to the point where, okay, now we're starting to feel the impacts of tariffs. And there's debates on how much of that is flowing through to inflation. And we can talk more about that. Um, but we're seeing impacts. We're seeing impacts from uh from immigration, uh reductions in immigration, uh cracks in the labor force, those sorts of things. And so, you know, I really think we're getting to a point of uh I don't want to call fragility is probably a word that's too strong, but definitely starting to, you know, see some cracks. And so, getting to that point where I think taking some risk off the table. Um, you know, not going full in. We're seeing it, you know, a little bit in equity markets over the last week or so. We're seeing it in crypto markets. The oil market obviously has has been uh you know selling off for quite some time. So I would say you know cautious to maybe slightly more than normal cautious. Okay. So this is a good segue then to bonds. So um my question want to ask you is is um okay so why do you think the market is currently too bearish on bonds? Um, and it could be because the market is still too focused or or has most of its focus on tariffs and what might happen inflation wise going forward. But one could also make the argument, you know, for entering a point of fragility, then the odds of a safety trade start building and maybe that's the core of your your your bond thesis. Don't want to put words in your mouth. So, why is the market too bearish on bonds right now from your perspective and why are you more bullish? Yeah. So, you know, it's funny. I think I think fed bashing is like a sport that people have. Um certainly the president's favorite sport. I didn't want to name names, but but you went there. So, uh yes, in particular the president, but but many others. And you know, I've actually been relatively supportive of the actions of the Fed. I think the the wait and see approach has been the right thing to do. So, you know, coming into the year to address your question directly and and again, we were talking about debt and deficits in particular. So, debt levels have gotten to a point where that are just so extreme that every time interest rates rose five basis points, 10 basis points, you know, the headlines would scream, "Okay, the Fed is losing control of the yield curve. Rates are going to spike. No one's going to want to own own bonds. Um, definitely not long bonds. stay out of that. And so, you know, as I've looked at it and said, well, first off, on the short end, why would we cut rates? The economy's been strong. Asset prices are, you know, we're rising. And again, I think this is more of a a retrospective of how we got to here now. I think we're actually at this inflection point where, you know, going forward, things should change. But um but essentially, you know, the 10-year yield hasn't moved since the beginning of the year. Actually, it's down a little bit from the beginning of the year. It's up from its lows in in April, but really hasn't moved. And so this idea that, you know, housing is going to crash because, you know, markets are too uh again rates are too high and too much of of all of the spending. I agree with that that premise that yes, deficits can't continue on the direction they're on, but this is a three to five to longer term problem. More of a secular even, you know, quote unquote super secular type problem. This is not a problem for 2025, 2026, 2027. Now, we get to the fragility that we just talked about. as we start to see this fragility, you know, increase. Well, there's a great reason for beginning to to lower rates. So, if you're a bond investor right now, you own short-term, you know, short-term T bills, you're making, you know, four and a quarter, four and a half, whatever the, you know, depending on where where you bought them. If things don't move, well, you know what? Enjoy your coupons. And if they do move down, well, then you're going to get some nice capital gains on top of it, especially as you start to move out the curve. We've been very bullish on the middle of the curve uh you know kind of the belly of the curve call it somewhere between the you know the two and the 10 focused on kind of 5 to sevenyear but even out to 10 years is perfectly fine now you mentioned inflation tariffs and what what does that mean absolutely are we starting to see impacts from inflation I believe so yes um and that could essentially move the uh you know increase the long end of the curve But then you have to ask the question to to how far if there is no intervention. Sure. Rates can can go out on the long end. No doubt. But do you really believe that we're just going to sit by or the Fed in particular is going to sit by and let the and just lose the long end of the curve? I I don't see it. I think there are too many negatives for that happening. And so there's many many interventionist type policies that they can take on to control that. So, you know, again, if if nothing happens, we're very happy to clip coupons where they are, but the the um change in rates from our opinion is definitely skewed lower, not higher. Okay. Um let me ask a question about inflation that I've asked some other guests of late. I'd like to get your opinion. Um you know, a lot of people's mind tariffs equals inflationary. Um, but aren't tariffs generally a one-time price shock? In other words, are tariffs really a sustained inflationary impulse or is it just a repricing that then equilibrates and potentially your inflation rate after that is zero because you've already had the price change. Yeah, I think uh you know by definition that's that's absolutely true. I think what we see though and what we'll feel will will feel a little more consistent because the impacts are not going to be one time pass through all the tariffs. Okay, we move the prices and everything is the same. What we're seeing is kind of in dribbs and drabs. So recently we saw the difference between uh you know PPI numbers being up a lot, CPI up a little bit. So the story being that some corporations are are eating the tariffs. Well, they're not going to eat the tariffs forever. They'll eventually pass through more and more of that. So, I think we're going to see incremental increases in inflation, not this one time, okay, everything went up, but hey, tariffs are good now, everything's going to be flat. And that consistent rise, although it'll be the same magnitude as if it happened at once, will feel worse, I think. And so I think there's a little bit of a of a um uh just behavioral impact that will uh that will drive um certain investor behaviors. Okay. So, um, don't let me be too simplistic here, but on the argument for higher bond yields going forward is, um, uh, inflation that, uh, you know, maybe tariffs are more inflationary than is currently priced in um, and therefore bond investors demand more from that. um there is maybe continued deficit spending, right? Where if the deficit stays where it is or gets even worse, then bond investors say, "Okay, you know, I got to get compensated for that as well." So that's sort of on the the side for higher rates. Now, you said you think that the bias or the probabilities are more to the downside, right, with rates or yields. Um and a obviously Fed cutting will have some impact. um obviously much more on the short end of the curve, right? Um presumably your points of fragility um easy to interpret that as sort of an economic slowdown or whatnot, right? Less demand um and and potentially if there's concerns about um market integrity or economic integrity, well then the safety trade starts to kick in. That brings yields down as well. um why does the the in your mind a did I leave out anything else that's important on either side and why do you think the the um odds of lower yields outweigh the odds of higher yields right now? So maybe I'll add one thing on both sides uh before we're getting to the question. So on the uh upward pressure and you know we talked about inflation from tariffs there is some risk of wage inflation uh wage inflation particularly coming from reductions in immigration reductions in labor. Now fragility remaining US labor basically can demand higher wages. That's exactly right. Now the fragility that we're talking about which is economic fragility I think will offset some of that but all else being equal reductions in you know the supply of labor should push up you know uh should push up uh or give give existing labor more more um you know power to to ask for higher wages. But so that's on the on the one side. the other side. Um, when we think about reductions or or let's just say um well, let's just call it reductions in in bond yields is really around valuations. And so if we start to look at valuations in other asset classes, well, you know, the uh the PE ratio of US stocks and we tend to look at the the the cape ratio or the cycllically adjusted PE ratio. um you know we're getting back into those upper 30 levels. So let's call it you know 2.8 2 something somewhere 2 and a half to 3% uh you know earnings yield on US equities relative to you know four four and a half on bonds. So um so there's a trade-off there between equities and bonds. Now, US um obviously US uh equities are not the only game in town although they if you ask many investors they have been over the last you know 15 years where it didn't make sense to go you know go elsewhere. It does now. Um lowering rates on the short end. You talked about uh you know Fed reduction in rates will lower rates on the short end obviously. Uh the other thing that does is bring back foreign investors into US bonds particularly because the hedging cost of the currency becomes much cheaper. It's very expensive to hedge uh for foreign investors to hedge US currencies right now because the US short rate is so high relative to their local rates. So there's an increase in the investor pool as rates come down on the short end even to you know call it 10-year treasuries. And again that tradeoff I think is uh is really important that at some point the Magnificent 7 you know it's hard to believe now that they're going to be able to um achieve what is priced into um you know their current multiples. uh something like someone was telling me the other day and I'll I'll I'm going to take them at their word that you know Palunteer has to grow 40% a year for the next five years to be able to uh sort of justify their you know current multiples. Um I haven't checked that one because as value investors we try to you know avoid the things that are expensive anyways and don't spend a lot of time thinking about them. But this um you know it becomes very hard to want to continue to buy US equities where they are today. Okay. So um part of this is just sort of a a sector rotation where equities have just become so expensive. um that upside potential seems limited. Um uh the dividend yield is real low uh relative to what you can get paid today on on safe safe bonds, right? Um and so part of it just could be just simply that, right? Um and interesting point you say about um foreigners uh becoming increasingly interested in owning US debt as the the rates the yields start to go down. Um, you know, we've there's been a a lot of talk in recent years of how um foreign governments have reduced their purchases of US sovereign debt. Um, which is true and we've seen them, you know, on a relative basis increase purchases of things like gold as a as a potential alternative. Um, and some people have taken that as is the world is abandoning US treasuries and treasuries are are, you know, poised to end up in the dust bin of history. I think you're saying that's probably not the case. And to be honest, there'll probably will be, you know, a rotation back into treasuries by foreigners as those hedging costs go down, as as yields come down. That's absolutely right. I mean for anyone who makes that case of uh and I've heard it uh heard it many times as well as well as you have on treasuries are dead just look at global trade how much trade is done in dollars foreign governments need dollars they need dollars to protect their own currencies and they need dollars for for trade and those dollars are going to get reinvested into something of that reduction in US debt also went into US equities And so those governments were you know appreciating the returns of you know the US stock market which again as they start to think about some of these uh you know offsets of uh you know fragility in the equity markets can come back into bonds. So I don't put a lot of credence into again the the idea that US treasuries are dead over the next you know handful of years and really you know you we start getting into that conversation of you know yes the debt um situation is dirty but are we the cleanest dirty shirts? You can make arguments that that yes, um even though I for one hope that uh you know we address these situations, you know, before we get to that that obvious tipping point, although I tend to put no faith in politicians, so you know, we'll see what happens. But to your point, it it does beg the question, um okay, so the world starts getting into trouble again. I mean you talk about points of fragility here in the US economy. Um if the US starts stumbling odds are a lot of other countries are stumbling even worse than we. So the question is is is there another has another asset taken over the number one slot is the global safe haven uh you know harbor of safety in trouble and uh I I don't know. I mean as as as favorable as I am about gold just not a big enough market to absorb all that. I mean it it's it still seems when spooked people are going to turn to treasuries. Yeah, it's a I feel the same way and I'm a big proponent of gold. I think I think owning gold is is a great idea for most people. So, but you're right. The market isn't isn't isn't large enough. Um, I don't know what your feelings are on on the crypto markets, but they're not evolved enough to, you know, to take take the place of I mean, right now, right now, crypto seems to be acting much more as a risk on and not a riskoff asset. So, exactly. And, you know, even if you're even if you subscribe to the the theory that we'll get there, seems to be a long ways away. uh you know I don't see in you know next year the year after we're talking about you know Bitcoin being a safe haven asset or or anything even even close to that so or any any of the others. So yeah which sovereign debt are you going to pick over the treasury in time of trouble? I mean it's hard to point at anyone and say oh that's demonstrabably better. I think the uh you know I think a really interesting chart that I tend to look at is the Swiss Frank which is uh you know the Swiss Frank is at its uh you know I guess low or high depending on how you're thinking about the currency pair but let's just say it's strongest in the last 20 years. Well that's just not sustainable for for an economy of that size to have a currency that is that strong for so long. They're back into negative rates. So, you know, to your point, it's just in my mind impossibly hard to find any particular um you know, government debt market that is safer, deeper, large enough, all those sorts of things as the US market. So, you know, this idea that governments are just going to stop wanting to hold treasuries, I just think is is somewhat foolish. Okay. All right. So, a couple of things. Um, let me try to bank through them if I in in logical order here. So again, I I don't hear you saying, hey, the US is going into recession. I just hear you saying, hey, there's there's points of fragility. And as I said earlier, you know, I sort of interpret that as, okay, you know, we're seeing data that the economy is slowing. Um, you know, the the labor market is is starting not to look as healthy as it has, and that's using the official data. And I think we've gotten to the point in the story where kind of nobody believes the official data anymore meaning it's it's probably worse right than than what we're working with right now. Um so uh you know not even bringing up the word recession just slowing economy that is disinflationary right so to a certain extent that should assuage some of the inflation fears if you expect that at least in the near term the economy is going to going to slow here and you know let's say next quarter or two I'm not not not predicting much more than that. Um secondly, you said that the um uh if I heard you right that that you know there's there's a lot that the the central planners but the Fed can do here um that it it hasn't done and I'm not saying it's going to do this but to your point long into the curve starts getting away from it. I mean it could go back to Q8 right it could start buying longdated treasuries and start trying to pull that part of the curve down right. Um, third, you've got an administration that is very publicly committed for very obvious reasons to saying, "Look, we want a lower Treasury yield." You know, um, we we had our debt service costs spike as as yields went up during the Fed's hiking regime. Um, but now we got to get that down because it's eating a too big of a chunk of our our budget. Um, and uh, you know, Trump and uh, Secretary of Treasury Basant have been very very clear that that's their agenda. Now, you said earlier that it hasn't really moved all that much. And so, the skeptics could say, well, maybe they're just not going to be very successful at it, but there probably is, you know, there's a lot that they can continue to do policy-wise uh to try to wrestle that right down. Um, so those are kind of three big things. I'll take a beat here for a second, but are are those three of the big things in your argument for why you think the propensity is probably more for lower rates going forward? Yeah, I mean you you nailed it and you probably summarized it better than than I could have, but it really is those, you know, you've got these major forces that have said we don't want higher rates. And you know, you mentioned QE and, you know, some people remember operation operation twist. We've got explicit yield curve controls that they could do. We've done it here in the past. I I've read many stories that say, well, we won't do, you know, uh yield curve controls here in the US. you know, we did them after World War II. Japan's done them more recently. You know, when you start to get to that point, and I and I will say that if we start getting into explicit controls over the longer end of the curve, we're probably getting close to crossing the Rubicon. Um, but, you know, there's nothing that makes me believe that we have to do that in the short term. Uh, the market has been willing to step in and keep, you know, keep rates where they are. But as you say, there's a lot of uh um we used to call what the economic bazooka that uh the the central banks had and they were willing to fire. So there's a lot of bullets in that bazooka. Okay. Um uh all right. So, um, and again, you know, we we we don't know what the administration, um, its full bag of tricks is going to be at this point in time, but we get a pretty good sense of of what its main policy um, priorities are. Um, so let me ask you this. Um, first off, you know, I mentioned the recession word earlier. Um, I haven't heard you say it yet. Um, how much of a concern is any right now through the lens you look through at research affiliates? Is this something that you're you're warning clients about or is it just more a slower economy but not a not a contracting one? We're more in the slowing camp than the recession camp at this point. But as we talk to our clients, you know, as we always uh you know, we have for for quite some time, it's really around diversification. So yes, you own US stocks and a slowdown will, you know, impact US stocks. We're telling you all the reasons to buy US bonds. Well, let's not even worry about the recession because let's talk about outside of the US and what the opportunities are. So, in particular, you mentioned earlier, you know, emerging markets. It was actually very interesting that finally in the early part of this year, investors seem to remember that, hey, there's a lot of activity going on in in emerging markets. their um fiscal uh setup looks much better uh than developed markets and also better than emerging markets in the past and also their valuations are you know look quite attractive and we haven't talked about you know the dollar and the impact of the dollar obviously the strengthening dollar for the last you know 12 years or really through uh kind of through 2022 when we really hit the the strengthening of of the dollar which used to be you know a headwind for US investors investing outside the us. Well, hey, that's the weakening dollar is actually a tailwind now. So, as we talk to our clients and as we think about these things, making a recession call is, you know, is very, very difficult. Um, that's why it's usually done, you know, a year later. So, but if you're thinking about how to diversify your portfolio, how you're looking for, you know, all the uh value opportunities that are out there, then, you know, you can play offense instead of worrying about, you know, playing defense on, you know, is it a recession, isn't it a recession, you know, what's the cool off going to mean, um, you know, for asset prices, that sort of thing. Okay. So, I want to ask you in a second, um, you know, where in emerging markets are you seeing the most opportunity right now? And and presumably when you're talking emerging markets, you're talking mostly emerging markets equity. I'm guessing my guess is you're you're thinking that that US bonds probably better outlook than emerging market bonds as as yields start to come down in the US. Is that correct? Um you know, we're we like emerging market uh debt as well, in particular, local currency debt. We're not we're not bullish at all on uh hard currency debt or emerging market debt that's denominated in dollars. Um, okay. We like emerging market local debt, but you know, the US Treasury market is just so much larger and liquid and for most investors, I think much more comfortable. Um, you know, so yes, I mean, usually we're talking about equities or or at least focusing on equities. Okay. All right. Um, but before I ask you to to get specific there, let me just ask you this. So, we do have a bunch of policies that have been aggressively enacted early by this new administration that presumably will lead to uh increased economic growth um at some point, right? Um whether this is the additional tax relief from making the the Trump uh 2016 tax cuts permanent, whether it's the deregulation that they're going uh on, um whether it's, you know, the um reshoring of American manufacturing, whether it's these trade deals that are getting struck um that presumably are ending up with better deal terms from America than we had before. uh got lots of commitments from company uh countries and large multinational companies to put basically trillions you know to work inside the US that weren't pledged before right so um who knows if if all these you know will be enacted as as envisioned but it certainly seems that the administration is continuing to you know get the legislation passed that it wanted to get passed and is getting more and more of these types of deals so presumably and probably hopefully, you know, some some fair amount of them actually, you know, go in into an action the way that they're hoped to. Is that a cavalry that that you do think will ride to the rescue here in terms of the economy kind of slowing in the near term? Um, and if so, how material will it be? Well, as you say, I think we all hope that these things will materialize in the way that they're being described, but I think it's it's such an unknown. We don't have a lot of information on many of the trade deals. Um, you know, the promises of investment, we're not really sure what that means or what the timing looks like. Um, you know, the onoring of manufacturing, I think, is great, but not going to probably do a lot for the labor market. Um, considering much of that will be automated and and so forth, but still good for asset prices. So um I think we also need to think about the differences between you know the economic benefits and the you know benefits to the asset markets. So from an investor perspective and for the purpose of this conversation we're focused on the latter and that's great. Um but it's just unknown right it's uh these things that seem to be moving targets um and depending on which side you ask you know you get very different answers. um when we talk about you know the the the trade deals with you know pick your country and when they talk about them at least from the the stories I read it's you know it always seems to be a little bit different. So I mean I think you know in the longer term and and by the longer term look maybe we're talking about you know 18 months from now these things really did start to uh to take effect some of the deregulation takes effect and helps growth and so you know on a maybe optimistic um perspective you know end of 2026 we could be very optimistic that these things are happening but I think where I sit right now in 2025 I'm not banking on I think it's worth um again looking at other opportunities because I think there are a lot of opportunities out there particularly from a valuation perspective um relative to you know waiting and and seeing what's going to happen with you know some of these announcements and and do they actually you know mean shovels and and things like that. Okay. Um so again just to to make sure I'm sort of understanding your position um economy you know let's say next six to 12 months maybe more sluggish bumpier than we would like. Um US equity markets very richly priced meaning probably somewhat vulnerable to what's going to happen economically over the next 6 to 12 months meaning we could have some corrections in there as earnings estimates get forced to come down. um uh debt, US debt obviously looks attractive uh in that type of environment and um uh you know, hey there's option option value there that things could start getting materially better coming into the latter half of 2026 into 2027 from all these policies, but too early to tell and uh let's have you back on middle of next year to call an audible as to where things are. Does that sound fair? That's exactly fair. Okay. Exactly fair. Okay. Now, that being said, even though you think valuations, painting with a broad brush here, are uncomfortably high in US equities, you sounds like you've said, hey, there's lots of other places in the world where there's some really attractive valuations. So, specifically in the emerging market space, what what's kind of got your focus there at Research Affiliates? Yeah. So, in talking about, you know, if you had me on next year, what we talk about if we had this conversation a year ago, um, and I wrote about this a year ago, you know, Eastern Europe looked very, very attractive. Uh, Poland in particular, um, that being the largest and and easiest to access for most investors, but Czech Republic, Hungary, um, valuations were, you know, extremely cheap relative to, um, you know, to fundamentals. And so, you know, since then, and I think it's uh let's see, over the last year, I want to say uh you know, Poland's up about 50% uh similar to um you know, for the other countries. So, now we're seeing valuations that went in in those particular markets that went from, you know, very very cheap to kind of fair value. So, still not expensive. So, there are still some opportunities there. Um country that I actually think is really interesting and is getting nothing but negative headlines is Brazil. um in particular you know the tariff on Brazil I I think the last tariff because it seemed know tariffs change a lot but uh 50% on on Brazil um even though we have a trade surplus with them but Brazil you know is when I talk about playing offense is out you know they've they've signed a trade deal with China uh redirecting a lot of their you know trade to China and so we've seen the realale uh you know rally over the last month really since we we started talking about the tariff there So, you know, Brazil, just going to check the number here. Let's see. Brazil is trading at a a PE level of um just under nine. So, again, the US is trading at about 37, I believe, and Brazil's trading at nine, which is no reason and I always have to caveat this because I always get this push back that So, you're saying that the US and Brazil should trade at the same multiple? No, we're not saying that at all. There's there's a risk premium built into emerging markets. they should definitely trade it at lower multiples. In fact, our our fair value is somewhere around call it you know 11 or 12. So um but you know going from you know 9 to 12 you know is is is a nice benefit um uh in particular for for Brazil you know Turkey um you know another country uh trading at you know seven and a half relative to our fair value which is about nine and a half. Um so but it's important for you know many investors who say look you know I don't want to buy you know Brazil or or Turkey that's just too much risk for me because obviously investing in any particular country is is risky. So, you know, the basket of EM uh whether you want the entire basket of emerging markets or you know you want to split it up by region and go with Latin America, relative to Eastern Europe, relative to Asia um you know all options and all you know again trading at cheap to fair value relative to um again relative to the US that's you know trading again in the upper 30s and the all-time high was you know 40 uh 44 on the Cape scale back in the in the tuck bubble. And when we think about again not to continue to harp on the US but the natural question I always get is what is the fair value of you know US equities what is the fair multiple um and my answer to that is well a nobody knows exactly but if we think about cape ratios and we go back to 1995 which was you know you can talk about the technology boom the internet age that's when it started if you look at the average cape ratio in the US from 1995 to today it's about 28 So, and people ask me what's my fair value for the US? I say it's about 28 on the Cape scale. So, we're trading at 37. And usually, um, reversions to the mean rarely stop at the mean, right? In other words, right, if if momentum starts swinging, it tends to sort of overshoot for a while too, right? So, you know, you may want to ride it even a little bit further even if it gets back to that 28. Yeah. Yeah, and as value investors, you know, we love that because you can start when you hit that fair value, you can start incrementally buying in and yes, things might get a little bit cheaper, but um but then by the time you hit the bottom, you you have a nice position for that rally. So that overshooting is, you know, something that we're, you know, constantly talking about and and look at as an opportunity. Okay. All right. And so in terms of playing these um these emerging market opportunities um you know I know research affiliates I mean your research is used by kind of everybody on Wall Street and a lot of the big institutions uh and a lot of those companies you know have staffs of analysts and the ability to really you know laser pinpoint specific securities on local exchanges and things like that for the average retail investor, do you have any any sort of general counsel is is the better way to play these? Is it is it a is it a country ETF? Is it a region ETF? Is it actually buying some of these stocks on the local exchanges if you're you know your your online brokerage lets you do that? Um do you have any general advice? I mean I we tend to tell investors particularly retail investors to stick to the ETFs. Um, and for those that aren't spending, you know, a lot of time diving into some of the numbers such that, you know, to your point on when things get cheap, they tend to get cheaper than, you know, and go past the mean, that can happen. So, if you, you know, if you don't have the stomach to hold a particular country ETF, which, you know, some of these emerging market countries have volatilities of, you know, in the 20s, um, you know, which is is significant. So if you don't have the stomach for that sort of a thing, then move to a region or to again the entire emerging markets basket. Now you're lowering the volatility into the, you know, into the high teens. And so that's a little bit easier to uh, you know, to hold through the down times for, you know, for the average investor. So you know, if you get all the way down into the individual companies, we usually say for retail, you know, don't do that. Leave that to the folks who do it all the time. If you don't want a passive ETF, there's, you know, there's many um, you know, active or quantactive strategies. We offer a number of them where we'll do all of that. You know, we're processing all the data to look at all the fundamentals and all the things that are happening with these companies and then building the portfolio off of that. So, you know, if you're interested in that sort of a strategy, uh, our partners, um, you know, offer those based on our strategies. For those that don't know, at Research Affiliates, we we design strategies and then we partner with other asset managers who actually launch funds based on those strategies. And you can find those at our website. Yeah. So, the easy way to think about it is you guys are kind of providing the intelligence and then the partners are actually putting it into execution. That's right. That that it allows us to, you know, have a relatively small firm. We don't need an army of of back office folks and accountants and uh you know sales folks going out trying to sell these things. We use our partners for those things and then we focus on uh designing the strategies and the portfolio construction and the things that you know we think that we're good at and the things honestly that we enjoy doing. Okay. All right. So Okay. So, um, in as we wrap up here in a few minutes, uh, Jim, I'll I'll let you direct people who want to learn more about your strategies, whether it's to your specific websites or some of your partners or whatever. Um, but just getting back to to treasuries for a moment. Um, so obviously you think that duration will be your friend here over the foreseeable future in bonds as the forces you talk about start bringing yields down. Um, let me ask you this. So, there is a lot of capital over the past couple years, uh, and a fair amount from the folks watching this channel, I know from talking to them, uh, that has made its way into the T- bill and chill trade. Um, I guess first question for you is is do you have a a projection in terms of how much you think the Fed will bring its policy rate down? you know, are we are we going to you know, some people, not too many these days, but some are like, "Oh my gosh, we're going to go back to the old Zer days." Um I don't get that vibe from you, but don't let me put words in your mouth. You know, I think uh through the end of the year, and I know this is somewhat the consensus view of, you know, call it 25 to 50 basis points. I I guess I of those two I I'm more leaning towards 50. Think that's where we'll get by the end of the year. And then it really depends on how bad does the economy get, how slow things get. Yeah. And we'll see what happens next year. Um now once we get a new Fed chair, who knows? Um that might be where we start to see, you know, larger moves, but at this point, you know, even in, you know, let's call it your normal run-of-the-mill recession. Let's just say that happens. We're not talking about a financial crisis, but just your normal run-of-the-mill mill recession. You know, I could see us getting down to one and a half or 2%. Okay. I think they learned and they're trying very hard to avoid going back sub 1% down towards zero. Um doesn't mean it won't happen. doesn't mean that that forces might you know require that but I think that's a a very low probability um given what we're expecting to happen over the next you know year or so in the economy. Okay. So let's let's just assume for a moment throughout 2026 we're we're on that trajectory where the Fed is meeting and you know at least ticking off a quarter point every time. Right. So such that so that the T bill and chill trade goes away. Right. Where do you think that capital is likely to go or do you have an opinion on where you think it should go? You know is people who have enjoying a nice safe 4 plus percent on the short end of the curve have to start putting that somewhere else. Is it just going out in duration on you know the same instrument or is it going into other types of asset classes where I think it will go is moving out in duration. I think you know the T bill folks will move out to the 2-year and the fiveyear and they'll start to take on more duration wi within uh you know within reason and I don't think there's anything wrong with that. I think that's perfectly fine based on all the things we've talked about. um you know where I think there's actually bigger risk is really you know we haven't talked a lot about you know private markets or p you know private credit which is sort of moved its way into the retail market um I would say unfortunately uh I'm I'm not a big supporter of not that there's anything wrong with private credit for you know institutional investors and those that understand what they're what they're getting and have the liquidity uh you know avail availability to to make those investments. But as we start seeing or if we start seeing fragility in in private markets from retail, well, you know, the the liquidity premium starts to hurt in the wrong way. Um, you know, we start seeing forced selling. So, um, you know, it's I I bring that up because I think the the nexus of your question is essentially, you know, will people reach for yield? Um, which is usually what happens. they're not getting it on T bills. So, okay, now how where can I get that yield? I'm going to start, you know, stretching forward a little bit. Um, so, uh, yeah, I think maybe to answer your question of where it should go, I think taking on some duration is perfectly fine. You're getting the same, especially again for retail investors because you're getting a similar um, you know, risk profile that you're getting with T bills. Obviously, you're taking on more duration risk, but you know, it's the same issuer. You don't you're not worrying about those sorts of things. Highly liquid markets, deep markets, all those sorts of things that um you know, if you're not doing this every day for a living, it's not a bad place to stay. Okay. So, um, is it would your general counsel, not specific financial advice obviously because you don't know any of the people watching independently, um, or individually, um, but should people who are currently sort of heavily invested in the T- bill and chill trade, should they start taking some of that now out further on the curve? Like if you're sitting here in say, you know, 1 month, 3 month, 6 month T bills, maybe start moving some of that to a 2-year T bill. Um just because if you know you like 4%, you know, why not lock in that for at least a percentage of your portfolio for the next couple years. Uh and no matter what happens with the rates, whether they go down or stay where they are, you're still getting what you, you know, determine you kind of need or or really value. Yeah. And again, not not offering any particular advice to anyone, but as I think about it, if someone offered me, you know, a three-month T bill or, you know, a 3 to fiveyear, you know, Treasury bond, I'm probably buying the three to fiveyear bond because I'm not as worried. I'm not that worried about the duration risk as we talked about and I'd rather lock that in. So well and if you are worried about the duration risk I mean unless you need the money personally if you're not getting paid back on your treasury bill in three years because the US government is default like we've got way bigger problems. Yes. Exactly. If uh I have that conversation with uh some folks in my family who are convinced that the US is going to default on its debt and I say when that happens we're talking about wars and other sorts of things. that's not something that that's taken on lightly. Um maybe I'll just throw in, you know, real quick is, you know, for folks who who are thinking, yeah, okay, I'm I'm ready to take on some duration risk. Um but are worried about inflation, you know, the the TIPS markets are a great opportunity as well. Have asked about that. Yeah. Um you should definitely, you know, consider those particularly again if you're if you're worried about, you know, short-term inflation. Okay. All right. Yeah. Um I'm glad you brought that up. Okay. And then you you mentioned private equity, private credit. Um, and that's a whole I mean we could do a whole interview just on that. Jim, let me ask you this. Um, I have a hard time looking at the move to bring private equity to the retail market, which there's a big, you know, I'm sure you probably know this more than I, right? But I have a hard time looking at that not as just a godsend to the private equity industry to just dump all of its illquid underperforming junk that it doesn't want to have on its books onto an unsuspecting retail, you know, public. Uh, am I wrong to think that way? I don't know if you're wrong, but I completely agree with you. I think these the stuff that makes it just historically, we've seen this in in you know many different markets that once they eventually make it to retail, what makes it to retail is the the underperforming junk, right? Um and so I just it bothers me when this happens. Uh but I I won't get into that. But uh yes, I'm not I'm not a fan of selling these types of products to retail uh retail investors who, you know, just they're not doing this every day. They have day jobs and they're worried about other things and they're not understanding or paying attention to the risks. Yeah. And I just I just can't see that the private equity guys resisting the obvious incentive to just say, "All right, look, we're going to let you sell whatever you want to sell to the private to the public markets." Well, you're going to keep the things that are on in your portfolio that you're the most excited about and you're going to happily dump the stuff that up until yesterday you weren't sure you were ever going to be able to get out from under. Right. Yeah. I I think I think that's exactly right. So, uh I think you and I think about this problem exactly the same way. Okay. All right. Well, that's a big compliment to me. So, thank you. Um All right. Well, look, um this has been a great conversation, Jim. I've really enjoyed meeting you. I talked about having you on, you know, a year from now to give us an an audible, but uh if you would like to come on a lot sooner and uh you know, call some additional balls and strikes as they start coming in, we'd love to have you be able to do that. Um so for folks that have enjoyed this conversation, maybe this is the first time that they've uh you know, heard you talk. Um if they want to follow you, your work, or more about what's going on at Research Affiliates, where should they go? Uh so if you go to our website researchaffaffffiliates.com you can learn all about the firm. Um we do a lot of writing about what's happening in markets uh particularly you know quant markets and things that we're looking at. So a lot of great information there. We also on our website have a link to what we call our asset allocation interactive where we actually publish our long-term expected returns for 150 different assets. So everything from you know gold and name your commodity to individual you know equity markets uh all the emerging markets that we talked about before as well as developed markets and so that it's it's free to use. We just ask that you give us you know your email address and sign up with a password and that just allows us to know that you're a real person and not a you know a bot that's uh you know trying to troll our our website. So all that stuff is is free to use again and and provided there. So hopefully provides um you know investors with a way to think about where are valuations for various asset classes. So uh again that's our asset allocation interactive from our our research affiliates website. And you can also maybe most importantly um as I mentioned we license our strategies to other uh other firms who actually launch the funds. So sometimes you'll you'll invest in a fund and not even know it's our strategy. Well, we have links on our website to all of our strategies and what they do and and the various partners who uh you know offer those strategies. All right, great. So, if I'm working with a firm, I can see if they're on your partner list. Yeah, absolutely. Okay, great. All right. Well, Jim, when I edit this, I will put up uh the URL to research affiliates there on the screen so folks know exactly where to go. Folks, that link will be in the description below this video as well. Um, you made me think of one, um, asset question I didn't ask you that I'll try to squeeze in right now, which is just in general your thoughts on commodities. Um, one could make the argument that if the economy is starting to slow, that's going to have less demand for commodities. Um, on the flip side, uh, you're talking about equity valuations, general equities. Um, the ratio of the S&P to the general commodities index, I think, still remains at pretty much near an all-time high. And there's a lot of people that have been saying, you know, we're going to see uh some sort of reversion to the mean in that. Um obviously the world has become a more competitive place for commodities as countries are deciding to start to, you know, reshore their supply chains and stuff like that. So I'm curious what what is what is your general outlook on commodities, you know, over the next couple years concurrent with what you're seeing with the um your your outlook for the bonds? So um great question. I'll answer it in two ways. I think let me separate gold from commodities. Yeah. I think for investors who want to have a gold allocation, there's a lot of ETFs out there that you can go buy um that invest in gold and in particular a lot of them own, you know, physical gold. So, you know, that's perfectly fine. When we think about broad baskets of commodities and broad indices, I am not a big fan of most of the passive commodity products that are out there. Those that track the Bloomberg Commodity Index or the S&P GSCI, um, if you look over the last, you know, 25 years, they haven't even kept up with inflation. So, they they tend to not do very well. where I'm very bullish on commodities and where I think commodities add a huge opportunity for portfolios is really in the active space. So most of these commodities as we talked about you're buying commodity futures. So if you're buying derivatives the ability to go long and the ability to go short um you know is basically the same. It's no it's no more expensive to take a direction on and a you know derivative like that. uh there's also the opportunity to take leverage and so leverage and shorting are things that you know professional investment managers know how to do and so for somebody who's looking for a commodity investment I would look for I would look at active funds um look at some of their exposures there's a lot of quantitative factor exposures that are out there that make a lot of sense in commodity investing and so you know maybe just short short way to sum it up is I believe everyone should have an allocation to commodities in their portfolio. I think it's a, you know, I think there's a lot of benefits to that, but I would lean more towards active over passive and active management. Okay, great. Um, all right. And you probably didn't know this, Jim, but uh I have these financial adviserss who appear on this channel uh every week and um you know, a lot of these guys actually do have actively managed portfolios and commodities. So, folks, if you if you want to talk to a manager about it, uh feel free to have one of the free conversations with one of the firms that come on this channel. Um all right, Jim. Well, look, um, it has been fantastic. Thank you. Um, folks, if you've enjoyed having Jim on as much as I have, please let them know that by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. Um, definitely go check out Research Affiliates and uh, avail yourself of all the resources that are there that Jim mentioned. Um, as I said, if you want to talk to um, an adviser about um, you know, uh, if you're not already working with an adviser, that's a partner of theirs. Um, if you want to get, um, uh, you know, some, uh, free, uh, counsel from a financial adviser about how you might be able to put some of these things into practice in your own portfolio. Feel free to talk to one of the financial adviserss that Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out. to set up one of those free consultations. Just fill out the very short form at thoughtfulmoney.com. Again, those discussions totally free. There's no commitment to work with those firms. It's just a free service they offer to be as helpful as possible to folks. Um, all right, Jim. Well, look, um, thank you. This has been great. uh as we wrap this up, you know, the vast majority of people, we do have actually a number of professional investors who watch these videos, but the vast majority are just regular people that are, you know, here online to self-educate, make themselves more informed investors. Um hopefully um I think most cases what they don't want to do is lose their money uh by making poor decisions um or get caught by surprise maybe by a slowing economy. Um and then above and beyond that if possible they want to prudently grow their wealth from here. So um given everything we've talked about um do you have any sort of parting bits of counsel for that cohort? Yeah. I would just say that you know I'm always excited to hear about those the people who say look I just want to learn a little bit more. You don't have to be an expert to prudently manage your money and to understand the risk return tradeoff. uh and when you if you are working with someone else who's helping you to be able to understand uh you know all the things they're talking about and how they're thinking about the world. So I'm always excited to you know do shows like this where we can talk to real people uh who are just hey it's it's a problem. I have money I need to manage it and I just want to know how to do it. So maybe you know uh forgetting investment advice for I think we've talked a lot about that over the last hour. I would just say you know keep at it. Um, the tools today are so much easier than they were, you know, five years ago. You can use your, you know, your favorite AI tool to ask these questions and start to understand some of these concepts that, uh, you know, maybe you don't understand. So, uh, hats off to you as well for, you know, for providing this service for people. Well, thanks. Absolutely. Hats off to you for coming on and like I said, Jim, it's been a really good discussion and uh doors open here. Anytime you see something on the horizon that starts shifting, you know, the outlook that you share with us here, we'd love to have you come back on and give us an update. Sounds great. All right. Thanks so much, Jim, and everybody else. Thanks so much for watching.