Paul Christopher, Head of Global Market Strategy for Wells Fargo Investment Institute (WFII), covers with co-hosts Jeffrey Sherman and Samuel Lau his macro outlook for growth and inflation, the case for cyclicals, small caps and value in the U.S. stock market, commodities as a current “tactical favorite,” shortening duration for fixed income allocations and the suitability of a managed allocation to cryptocurrencies for qualified investors among other topics. While Mr. Christopher suggests the reprise of inflation might be stickier than foreseen by the Federal Reserve, he does not expect a return to 1970s rates of rising prices. “Inflation is really going to go with growth,” he notes. “And if we’re at peak growth, then you have to figure we’re at peak inflation.” The WFII, he says, expects inflation settling in at 2% to 2½%. “We don’t think that the market is worried about the Fed letting inflation go too far. That’s why the Treasury curve flattened the way it has.” Thus, Mr. Christopher likes stocks better than bonds, although he still recommends some allocation to shorter duration munis, corporates and preferreds to provide some ballast against the volatility of equities. This edition of the Sherman Show was recorded July 13, 2021.

The Sherman Show

TSS S11 E3 - Paul Christopher of Wells Fargo Investment Institute Covers Macro and Asset Allocation

S11 E3 - Paul Christopher of Wells Fargo Investment Institute Covers Macro and Asset Allocation

Gregory M. Dowling, Chief Investment Officer and Head of Research at FEG Investment Advisors, joins The Sherman Show. FEG is an independent investment consultant and provider of outsourced chief investment officer (OCIO) services to primarily nonprofit institutional clients throughout the United States. In this episode recorded July 27, 2021, with hosts Jeffrey Sherman and Samuel Lau, Mr. Dowling discusses among other topics how he entered his career, the quest for alpha in a time of overvalued public fixed income and equity markets, FEG’s approach to selecting active asset managements, developing individual profiles of clients to manage within their risk tolerance and time horizons, the new momentum to social awareness in client investment objectives and macro and market outlooks.

S11 E4 FEG’s Greg Dowling Discusses OCIO Services, Markets and Macro

S11 E4 - FEG’s Greg Dowling Discusses OCIO Services, Markets and Macro

DoubleLine’s Jeffrey Sherman and Sam Lau welcome Emidio Checcone, the firm’s portfolio manager of actively managed equity value and core strategies. Mr. Checcone shares how his history in the business, including experience at both growth- and value-focused shops, informs his investment philosophy and influences his differentiated equity research approach. He also highlights how incorporating DoubleLine’s macro viewpoints into his bottom-up research process confers added insights. The trio discusses the equities market’s performance amid the pandemic and whether we have seen “peak earnings growth” (starts at 6:01), how this period of unprecedented fiscal stimulus impacts traditional valuation metrics (11:12) and what it would mean for equities if the Fed tapers its bond purchases (14:00). They also examine the risk of inflation and even stagflation (18:24); the relative performance and attractiveness of value versus growth stocks (24:37); and current portfolio positioning within each strategy, including a discussion of some larger individual holdings (28:25). This episode was recorded Aug. 24, 2021.

S11 E6: DoubleLine Equities Strategist Emidio Checcone on Process, Valuation and Positioning

S11 E6 - DoubleLine Equities Strategist Emidio Checcone on Process, Valuation and Positioning

Bob Froehlich, owner of the Kane County (Illinois) Cougars minor league ball club and a veteran observer of macro and markets, discusses with co-hosts Jeffrey Sherman and Samuel Lau, among other ideas, his favorable 12-to-18-month outlook for global growth and stocks (14:01, 24:32), the place for commodities in investor portfolios (22:00) and the re-imagining of corporations (31:02) as they evolve for hybrid home-office work environments and face the need to take stands on pressing societal issues.

The upbeat outlook for growth and equities comes with at least one caveat. While losing no sleep over what the Federal Reserve might or might not do (18:35), Dr. Froehlich keeps a weather eye for inflation (14:51). Rising prices, he says, form “a headwind that we really have to pay very, very close attention to because that changes the dynamics quickly for any long-term equity investor.”
 
As do all Sherman Show guests, Dr. Bob, as he is known especially among business executives and financial professionals in the Chicago metropolitan area, shares how he came to his career in markets and investing, a career preceded early in his adulthood with summer jobs working in Pennsylvania’s steel mills and two years playing center field for the Independent Minor League North Side Mets in the Greater Pittsburgh Semi-Pro Federation Baseball League.
 
The Kane County Cougars owner and CEO also talks about the business of pro baseball with Jeff Sherman, one of the San Francisco Giants faithful and, in his varsity days in Bakersfield, California, catcher for the South High Rebels. “I’ve always been a numbers guy,” Dr. Bob recalls (1:42). “So it was a natural transition for me to go from Wall Street to baseball. It’s just the type of type of numbers I focused on were way different. Instead of worrying about GDP and inflation, now I worry about attendance and how may beers are being sold on a given day. But it’s still a numbers game.”

S11 E7: Dr. Bob on “Woking Up” Corporations, Global Growth and a Bit of Baseball

DoubleLine’s Jeffrey Sherman and Sam Lau welcome David J. Kostin, chief U.S. equity strategist at Goldman Sachs, to talk about the dramatic comeback of profit margins (2:34), the impact of duration on investing (5:08), the demand and supply for equities (13:52), and the resurgence of retail trading (22:45), among other topics. Messrs. Sherman and Kostin also get into special purpose acquisition companies, SPACs, with Mr. Kostin detailing their nuanced appeal in the pandemic era (18:00). Mr. Lau brings up the impact of the Federal Reserve’s monetary policy on the U.S. equity market and the market’s potential reaction to a Fed tapering of asset purchases (30:20). Mr. Kostin notes that tapering is not tightening, and Goldman sees tightening, starting to hike rates, beginning in 2023. The trio also looks at the rise of ESG investing (34:50) (“E, S and G are three interesting letters of the alphabet, but they’re really not related to one another,” says Mr. Kostin) before getting into Mr. Kostin’s allocation advice (41:34). This episode was recorded Sept. 21, 2021.

S11 E8: Goldman Sachs’ David J. Kostin on Profit Margins, Duration and ESG

DoubleLine’s Jeffrey Sherman and Sam Lau welcome Cryptocurrency AML Strategies founder Yaya J. Fanusie, an adjunct senior fellow at the Center for a New American Security who early in his career gave up the high-stress job of high school math teacher for work as a CIA counterterrorism analyst. Now in the private sector, Mr. Fanusie researches and consults on cryptocurrency through a counterterrorism and anti-money-laundering mind-set. Messrs. Sherman, Lau and Fanusie discuss press releases presented as news in the crypto space (7:03); how Mr. Fanusie’s CIA training helps him assess the risks of digital assets, including the presence of criminal activity (9:35); the importance of due diligence for banks looking into crypto partnerships (13:51); and why Bitcoin might be a bigger draw for Miami Beach waiters than bankers (16:28), among other topics. Messrs. Sherman and Lau bring up the threat of being scammed by players in the new world of digital assets, with Mr. Fanusie confirming the danger but also noting that crypto scams are getting harder to pull off as the sector matures (19:24). The trio also looks at the growing talk around central bank digital currencies (CBDCs) (25:11), China’s development of one as a tool for data collection (27:45) and how a left-right divide has already manifested in Congress over employment of CBDCs (39:51). This episode was recorded Sept. 14, 2021.

S11 E9: Yaya J. Fanusie on Crypto Cheerleading, Digital Asset Due Diligence and CBDC Trailblazer China

S11 E9: Yaya Fanusie on Crypto Cheerleading, Digital Asset Due Diligence and CBDC Trailblazer China

Macroeconomist Zoltan Pozsar, a Managing Director in the Investment Strategy and Research department at Credit Suisse, discusses with hosts Jeffrey Sherman and Samuel Lau, among other topics, the possibilities of “ugly versus beautiful” quantitative tightening by the Federal Reserve (13:18); his expectation of scant demand for Treasuries by FX hedge buyers, foreign central banks and domestic bank portfolios once those assets start rolling off the Fed’s balance sheet (15:44); a vulnerability of the U.S. banking system to mobile retail deposits (19:36) and commodity price spikes (21:48); and non-U.S. central banks diversifying part of their forex reserves away from the dollar (36:20). The podcast was recorded April 25, 2022.

In addition to his economic training in academia and market experience on Wall Street, Mr. Pozsar brings deep experience from within the financial and monetary system itself. Before joining Credit Suisse in 2015, he served as a senior adviser to the U.S. Treasury Department, focusing on matters of financial innovation. As part of the response to the global financial crisis and contributions to the resulting policy debate, in August 2008 he joined the Federal Reserve Bank of New York. There he oversaw market intelligence for securitized credit markets and served as point person on market developments for senior Federal Reserve, Treasury and White House officials. He also worked at the International Monetary Fund where he took part in framing the IMF’s position on shadow banking.

TSS S12 E8: Mapping Flows, Tracing Bottlenecks in Liquidity with Zoltan Pozsar

S12 E8: Mapping Flows, Tracing Bottlenecks in Liquidity with Zoltan Pozsar

Ugo Egbunike, a fixed income specialist at Jane Street, joins DoubleLine’s Jeffrey Sherman and Samuel Lau on The Sherman Show during the InsideETFs conference in Hollywood, Florida. Mr. Egbunike kicks the episode off by recounting his time as a Bowdoin University undergrad with authorial aspirations and pre-med designs who would end up an econ major jumping into the then-“bleak” hiring market of 2009. (1:14) His first job at Kellogg Capital Markets introduced him to ETFs, a focus that led him to the San Francisco startup scene and Index Universe, where he was “baptized in the comforts and the benefits of passive investing, and the good that ETFs were doing.”

Topics that Mr. Egbunike discusses with Messrs. Sherman and Lau include quantifying “best” exposures amid marketing messages of “cheap cheap, fees fees” (10:52), Jane Street’s place in the ETF ecosystem (13:42), fixed income ETFs’ price-discovery function (21:42) and risk management of passive and active products (28:06). The three also cover the secondary market for Air Jordans (7:25), thematic ETFs (11:48) and the three things that Mr. Egbunike says every ETF investor should know (37:39). This episode was recorded June 1, 2022.

S12 E10: Jan Street’s Ugo Egbunike on ETFs, and the Comforts and Benefits of Passive Investing

Ashok Varadhan, Global Co-Head of the Global Markets Division, Goldman Sachs appears Oct. 17, 2022, on The Sherman Show with hosts Jeffrey Sherman and Samuel Lau. After discussing his career in markets (2:48), which began with the last protracted Federal Reserve tightening campaign (1994-1995), Mr. Varadhan assesses the current Fed’s monetary management (9:20) and shares his leading indicators for the economy (14:36). Among further topics, Messrs. Varadhan, Sherman and Lau discuss the state of credit markets (17:44), the rising cost of leverage due to quantitative tightening (22:02), the dominance of the U.S. dollar (29:54) and the possibility that equities can remain expensive and become more expensive (35:56).

TSS Episode 127: Goldman Sachs’ Ashok Varadhan on Global Markets in a De-Leveraging World

DoubleLine Portfolio Manager Jeff Mayberry returns as a guest to share his market and macro outlooks for 2023 with DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Portfolio Manager Samuel Lau. Noting Mr. Mayberry gave his outlooks a year ago for 2022, Mr. Sherman reviews Mayberry’s score card (1:15) for the year gone by. Among those 2022 calls, one of Mr. Mayberry’s most contrarian forecasts (4:28), which proved to be true, was the Federal Reserve would tighten a lot without weakening the labor market. This episode was recorded Jan. 19, 2023.

Turning to the future, the discussion goes into Mr. Mayberry’s expectations for the Fed’s rate-hiking campaign (4:45). Mr. Sherman (6:51) asks about the divergence between market pricing and the Fed’s forward guidance on the fed funds rate, which leads to Mr. Mayberry sorting out the market mechanism as a “probability machine.” The discussion eventually takes up the idea (13:36) that the Fed follows the bond market, especially the two-year Treasury yield, and to what extent, if any, the Fed can push back against market-priced expectations.

With the December prints of the Personal Consumption Expenditures Deflator due Jan. 27, Samuel Lau notes that Fed Chair Jerome H. Powell’s preferred inflation metric, the Core PCE Deflator, has been falling (15:11). He asks what will the Fed do if that gauge falls below the current fed funds rate? Mr. Sherman asks his guest (20:06) for areas of the fixed income universe where investors are getting paid to take credit risk and areas to avoid. While people are focused on the Fed’s management of the fed funds rate, the discussion notes (30:50) that the Fed has quietly been pursuing another path to tighter financial conditions: balance-sheet reduction, aka quantitative tightening (QT).

TSS Episode 132: Jeff Mayberry’s 2022 Score Card and 2023 Lineup

DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Portfolio Manager Samuel Lau welcome Ted Seides, founder of Capital Allocators, a podcast ecosystem that includes gatherings, and advisory to managers and allocators. The episode kicks off with Mr. Seides recounting how he got his start in the financial industry working for David Swensen and the Yale Endowment (2:05), what led him to podcasting (11:14) and how that decision grew into a broader enterprise that draws on his diverse experience (12:49). “I didn’t know if they’d be interested in talking,” he says of his initial interest in speaking to CIOs. “Turns out there’s a lot of reasons why they would.”

The three also discuss, among other topics, how Capital Allocators advises both managers and allocators (19:01), what drives the investment decisions of allocators (24:55), new things under the sun in the industry (30:14) and the risks associated with new complex strategies being available today to the average investor (38:14). In discussing what has changed during his 20-plus years in the industry, Mr. Seides notes, “The thing that doesn’t change is an increase and drive for innovation and sophistication. If you looked at the average practitioner today, they are far more sophisticated than the average practitioner when I got started in the business.”

TSS Episode 134: Capital Allocators’ Ted Seides on Literal Rich Uncles, Platforming CIOs and more

Morris Chen, head of DoubleLine’s Commercial Mortgage-Backed Securities (CMBS) and Commercial Real Estate Debt (CRE) team, on April 18, 2023, discusses the merits of his asset class with hosts Jeffrey Sherman and Samuel Lau. He describes CMBS-CRE both as a timely investment in the wake of repricing in 2022 and as a strategic portfolio allocation. With a primary focus on bonds rated A to AAA, Mr. Chen takes listeners behind the news headlines of defaults by commercial mortgage borrowers (2:39). In many cases, he says, these defaults, which began in 1Q2023, represent serious problems, especially in office mortgages, but have obscured healthy fundamentals in other property types. Many of these represent borrowers following necessary protocols to open the process of negotiations with lenders ahead of actual maturities. Often the better outcome for lenders will be maturity extensions and changes to loan covenants rather than foreclosure and property liquidation.

In the wake of the Great Financial Crisis, the capital structures of high-grade CMBS have undergone significant improvement (15:13). For example, Mr. Chen notes in 2007, “AAA bond had essentially had 11% subordination, which means the bond can withstand 11% of losses before that bond is impacted, at least in terms of principal. Today, an 11% subordination level equates to a single A rated security.”

Mr. Chen discusses (19:35) his team’s investment process, which includes research into the borrowers and loans securitized into CMBS; the properties securing those loans, including the tenants, utilization rates, leases and loan-to-value ratios; and bond structure. The discussion then turns to property types (26:53). Mr. Chen is most negative about office buildings. While some shopping malls are dying, other retail properties are doing well, notably grocery-anchored shopping centers. Mr. Chen and his team also are finding investment opportunities in mortgages secured by multifamily (apartments) and industrial properties.

The conversation concludes (38:58) with a discussion of the place of high-grade CMBS as a strategic allocation to a diversified fixed income portfolio. Among other factors, Mr. Chen says that investment grade CMBS at present offer attractive yields compared to corporate bonds carrying the equivalent letter-grade credit ratings while providing diversification to investors’ corporate exposures. In addition to the yield pickup, high-grade CMBS is backed by real property as collateral and beneath the subordinated debt is 30-35% equity.

TSS Episode 138: Morris Chen on Opportunities in Commercial Real Estate Debt

Russ Ivinjack, Global Chief Investment Officer of Aon Investments, discusses, among other topics, his management of Aon’s investment manager research teams, the discipline of selecting active managers and investment strategies, and the strategic and tactical dimensions of building portfolios to perform under a range of macroeconomic outcomes. The latter include a “dark-sky” scenario more severe than the Global Financial Crisis. DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Portfolio Manager Samuel Lau spoke with Mr. Ivinjack on May 23, 2023.
 
In his role as an outsource CIO to pension plans and other institutions (4:23), Mr. Ivinjack assesses how much volatility, illiquidity and other forms of risk the client is willing to bear in the portfolio as a starting point for building a strategic policy. The next level is how to implement the strategy in the asset classes suited to the client. Mr. Ivinjack notably oversees manager research teams in equities, fixed income, liquid alternatives, private equity, infrastructure and private credit.
 
In terms of the current opportunity set (9:21), Mr. Ivinjack notes that in the wake of the spike in interest rates in 2022, the markets offer “a better base to build portfolios from,” with “cash earning 5% and core fixed earning about the same.” He expresses concern that, amid higher inflation than experienced in decades, economic data used to guide investing “is far less reliable than it was just three, four years ago. I joke that we used to worry about the 0.1% difference in GDP or inflation, and now we’re worrying about one, two, or three percentage point differences in the reads that come out, and that causes much more volatility in portfolios.”
 
This necessitates (10:26) “numerous strategic studies with our clients, walking through those scenarios we call blue-sky scenarios, recessionary scenarios, stagflation or even dark-sky scenarios so they can gauge what’s the right portfolio to implement.” He defines a dark-sky scenario as “more or less a depression” involving “significant negative growth,” causing “significant impairment on financial assets in clients’ portfolios over a fairly short period of time.”
 
Mr. Ivinjack describes his teams (21:44) as “very disciplined about rebalancing, so we set targets,” rebalancing back within allocation ranges when they are exceeded. This is key in the direction of cash flows. “And we’re market aware about where valuations are. We will take that into account in terms of where to deploy new cash coming or where to take money out. That disciplined, I would say somewhat boring, approach has worked incredibly well over the last 10 years.”
 
Another issue Mr. Ivinjack calls to investors’ attention (23:57) is the concentration of risk in today’s financial markets. “If you pull back the S&P 500, it’s far more concentrated than what is five or 10 years ago. Pull back the investment-grade indices, you’ll see they’re more concentrated than they were years ago. Investors need to recognize where their unintended risks lie. People like to wring their hands about a 25 basis point position in certain securities when, frankly, their exposure to Apple is five times that, 10 times that in some cases.”
On the subject of manager research and hiring managers (25:26), he looks for stable firms, philosophy and approach, “but the key thing is they’re matching up with their philosophy and process and what their advantage is – so making sure those two stick together. Obviously, we spend a lot of time understanding the people who manage the money. It’s a lot of time on Zoom calls, in-person meetings. It’s monitoring portfolios even before we invest with them to know what they’re saying matches their actual actions.”

TSS Episode 141: Aon Investments’ Russ Ivinjack on Manger Selection and Portfolio Construction

TSS Episode 141: Aon Investments’ Russ Ivinjack on Manager Selection and Portfolio Construction

Robert Cohen, head of DoubleLine’s Global Developed Credit team, discusses navigating the waters of investment grade and high yield corporate bonds and leveraged loans as these markets enter the late stage of the economic and credit cycles. He speaks June 9, 2023, with DoubleLine’s Jeffrey Sherman and Samuel Lau.

“We’re in a period, probably the greatest period in the last decade, where credit selection matters,” Mr. Cohen tells Messrs. Sherman and Lau (25:00). “It really hasn’t mattered for a long time. We’ve been in an environment where beta trades worked. So you liked an asset class, you liked high yield or you liked emerging markets, or you’re putting on these beta trades where you’re just allocating to a sector. Now we’re seeing great dispersion amongst the constituents of these asset classes, and we’re seeing that the dispersion of managers is widening because it’s all about credit selection.”

For corporate credit, Mr. Cohen defines a late cycle (3:01) as an environment in which “companies try to defend their balance sheet, so instead of raising money and borrowing more, they try to pay down their debt. That tends to be when credit conditions get tight, lenders are more strict or more discerning about the companies that they lend to. You often see credit metrics deteriorating in that environment.” These phenomena are underway, he says, amid a raft of warning signs portending recession such as the inverted Treasury yield curve and a negative year-over-year change in the Leading Economic Index. Credit markets are not pricing for a recession, but Mr. Cohen thinks the next one is coming in early 2024 if not by the end of 2023. 

The next default cycle (5:47) has yet to begin in below-investment-grade corporate credit, although Mr. Cohen expects it to come with or without recession. With respect to investment grade corporates, rather than looking for the rare default, Cohen is on watch for changes in new issuance, leverage and risk-taking “as opposed to companies that are defending their balance sheets, borrowing less, paying down debt.”

The term “leveraged credit” (7:29) encompasses both high yield bonds (fixed rate) and bank debt (floating rate), both of which are below investment grade. “They work kind of in tandem with each other. There are often cases where borrowers will tap both markets for a senior secured term loan and an unsecured high yield bond,” he says. “Lately, really since the pandemic in 2020, you’re seeing borrowers tap the high yield market and loan market for both a secured loan and a secured bond.”

While leveraged credit defaults peaked at around 10% in the wake of the Great Financial Crisis (8:40), Mr. Cohen expects a lower peak in defaults if the next recession is less severe, but recovery rates on defaulted bank loans will be worse The reason? “In a prior cycle, maybe bank loans would recover 70% or 80% of their initial par value” post-default, he says. Due to a decadelong deterioration in protections for secured senior lenders, he expects “recoveries closer to 50% or even lower.” In contrast, high yield bonds (10:21), Mr. Cohen notes, appear in stronger shape than at anytime before. He cites growth in the BB share of the sector and the highest percentage of secured bonds in the sector’s history. “While the loan market has been getting worse in credit quality, the high yield market has actually been getting better in credit quality.”

TSS Episode 142: Robert Cohen on Credit Selection and the Coming Default Cycle

Jeff Mayberry, Portfolio Manager on DoubleLine’s Macro Asset Allocation team, on July 10, gets graded by Jeffrey Sherman and Samuel Lau on his forecasts for 1H2023 and shares his outlooks for the second half of the year. Jeff Mayberry gets a win on his prediction on federal funds rate hikes (2:44), shared on the Sherman Show at the beginning of the year. The podcast hosts ask him for his take on the June jobs report (5:18), which for the first time in 15 months came in below expectations. “Maybe you’re starting to see some cracks in the labor market,” he says. Mr. Sherman notes that, contrary to market expectations that tightening credit conditions would take a bite out of employment, manufacturers have continued to add jobs while “restocking of the services sector” has added payrolls in that part of the economy. 

One loss on Jeff Mayberry’s midyear scorecard (8:05) was view that the 10-year Treasury yield would not exceed 4% in 1H2023, although he did correctly predict that yield would settle into a higher range. The yield on the two-year Treasury, he thinks, could reach 5% (9:50), although he continues to watch out for labor market deterioration, which would send that yield lower. Mr. Mayberry’s 10% allocation to Treasury bills (11:56) proved a winner. He is keeping on his fixed income allocation for 1H2023 through 2H2023. That deployment forms a barbell between higher-yielding credit and longer-duration Treasuries, the government allocation aimed at offsetting a future widening of credit spreads if the economy enters recession. 

Messrs. Sherman and Lau give Mr. Mayberry a “solid win” for his bullish call on technology stocks (15:50), the best-performing sector of the S&P 500 year-to-date. One losing theme turned out to be his favoring commodities (18:16), which among other headwinds had to contend with China’s failure to re-open its economy. The hosts and guest discuss the macroeconomic outlook for the United States. Amid weakness in manufacturing but resilience in services, and low unemployment (21:18), Jeff Mayberry expects the Fed to keep rates elevated the remainder of 2023. “The Fed doesn't want to say they want a recession,” he says. They don't want to say they need unemployment to rise, they need wages to fall, but they do in order to get inflation back down. That's what they're going to be focused on: wages and the labor market overall.” If the economy remains resilient, he expects the Fed to raise rates in 2H2023.

Mr. Sherman and Mr. Mayberry agree that the resumption of student loan payments (28:11), coming after three years of forbearance, could become a new headwind for the economy. “That's going to hurt consumers, it's going to hurt consumption” in some households, Mr. Mayberry says. However, he describes the odds of recession this year as “very low.” Notwithstanding that outlook, he advises preparing for trouble now by including longer-duration Treasuries in one’s portfolio (35:07). “If we're not getting a recession this year, you still want to have that barbell side, that flight-to-safety side, your long-duration Treasury side to kind of take some of the edge off of the spread-widening that would occur before a recession comes.”

The discussion turns to Mr. Mayberry’s outlook for emerging market and developed market ex-U.S. equities (39:25), cryptocurrency (41:08) and overall asset allocations, including cash and credit (42:23).  As for fixed income, he would “avoid the investment grade credit market at 130 basis points over. I'd rather just go more high yield, more bank loans, more emerging markets, and then Treasuries to give you that duration. So one third in Treasuries, two thirds in credit.” As for U.S. equities (43:21), he does not expect the S&P 500 to match its performance in the first half of the year, and he advises some diversifying away from the market-cap-weighted large-cap index into other areas of the stock market, including mid- and small-cap stocks and value stocks.

TSS Episode 143: Mayberry’s Midyear Score Card and 2H2023 Outlook

DoubleLine Deputy CIO Jeffrey Sherman and Portfolio Manager Samuel Lau welcome Matt Forester, CIO of BNY Mellon Advisors, to The Sherman Show. Mr. Forester kicks off the episode by discussing the recent branding shift from Lockwood Advisors to BNY Mellon Advisors and the opportunities it will provide to the firm, which oversees about 550 strategies that it can provide to clients (0:53). Mr. Forester then shares his macro and markets outlook, including where we are in the cycle (8:08), how the Fed’s fight to lower inflation is going to get tougher the closer it gets to its 2% target rate (9:22) and what he calls the frenzy into AI stocks (11:10), which they then take a deep dive into. Mr. Forester notes that the companies that made money from the creation of a national electrical grid in the 1920s and the launch of the internet in the 1990s were not the beneficiaries of these productivity-enhancing technologies. “I suspect we’re there again, that the companies that are now leading the charge are not the same ones that are going to emerge,” he says. The three also discuss the hype around AI (13:44), and what these kinds of tools might mean for the investment world when everyone is using them (18:34).

They round out the episode with talk on recession probability (23:13), the pitfalls that Mr. Forester sees out there (29:07), his thoughts on asset allocation (33:41) and what the fiscal response mechanism could be in the next recession (37:19). On the latter Mr. Forester says, “I don’t think fiscal policy is going to be a big tailwind for markets for quite a long time. We’ve just got a really big hole to dig out of.” This episode was recorded July 17, 2023.

TSS Episode 144: Wading Into the AI-Stirred Stock Froth

Joseph Mallen, founder and CEO of Modelist, discusses with Jeffrey Sherman and Samuel Lau evidence-based investing, the integration of customized models with the securities and managers to implement them, the role of AI in his platform, and his take on the present state of financial markets and the macroeconomy. Modelist constructs model portfolios tailored to the needs of financial advisors. This conversation took place Sept. 7, 2023. 
 
After Mr. Sherman introduces (0:33) Mr. Mallen and they discuss the career that led him to launch Modelist, Mr. Mallen shares (4:00) his approach to modeling and the way Modelist works with independent financial advisors. Modelist develops and maintains models that implement a diverse array (9:01) of investment methods, including trend-following, relative strength, duration management, credit management and inflation expectations. Modelist’s models incorporate passive strategies as well as strategies that allocate among active managers. In the case of using tradeable securities (12:46), Modelist often relies on exchange-traded funds. At the end of the day, Mr. Mallen says, the objective, regardless of the choice of models tailored for the advisor, is “robotic-type investing based upon what the data says and taking emotion completely out of the equation” (17:09). Toward the end of the conversation (49:51), Mr. Mallen discusses Modelist’s use of artificial intelligence as an investment tool.
 
Turning to market and macroeconomic outlooks (29:45), Mr. Mallen observes markets have “churned up,” leaving equity valuations “pretty extended” amid a “severely inverted” yield curve and signals of a “recession that’s looming” but “still has yet to come.” He notes (30:44) that the Federal Reserve has “done a good job of putting itself in a position where if data does start to get pretty gnarly, they can reverse course. And I think that’s what’s kind of priced in and embedded right now is the fact that people are expecting economic weakness, and, in turn, they are expecting the Fed to react and loosen monetary policy.” 
 
With respect to U.S. stocks (31:15), Mr. Mallen would “like a little bit of a mean reversion” with value “catching up, maybe providing that leadership between now and the end of the year relative to growth. I think growth could use a little bit of a reset. We’ve had seven companies in the S&P drive most of the return so far this year.” In fixed income, he still favors short duration. “Just from an academic perspective, I’m getting a greater yield with less expected volatility than on the longer end of the curve. I’m not as insulated if rates do fall, but I like that kind of conservative approach. Take that 4½% and 5% on the fixed income side of the book – go value.”

TSS Episode 145: Modelist CEO Joseph Mallen on Evidence-Based Investing

Liz Young, head of investment strategy at personal finance company and bank SoFi, discusses markets, the investor movement to DIY investing, and her investment process and market outlook with DoubleLine’s Jeffrey Sherman and Samuel Lau in this episode recorded Sept. 12, 2023. Their conversation begins with a discussion of Ms. Young’s career (1:06) in the investment industry and her path to SoFi, where she dispenses her economic, investment and market insights to a variety of audiences. Then she discusses the evolution of investors (6:04), away from “high-touch advisory” investment professionals to DIY investing, a movement with which SoFi works to bring education and tools to enable investors’ success. She notes the DIY movement has especially taken hold among younger people and new investors (9:15). For example, while the average age of clients at older brokerages is 55 to 65, 60% of SoFi’s investment clients are 20 to 40.

Turning to the investment process at SoFi (16:35), Ms. Young begins with her assessment of the macroeconomic cycle and whether the market is reflecting that assessment or reflecting something else. If inconsistencies arise between macro and market signals, she says, “in my head it means one of the two is wrong. One of these two data sets is sending the wrong message or the timing is off and then you try to figure out what’s happening.” She warns (21:12) that investors have become conditioned to expect troubles in the capital system will be corrected by an “open-ended insurance program” underwritten by fiscal authorities and central banks. “OK, rates are now up, but (people’s thinking goes) we have this sort of never-ending punch bowl of stimulus if something ever goes wrong. In my eyes, that’s probably the next thing that can’t last forever.” While some observers have theorized the absence of a long-telegraphed recession points to a soft landing, Ms. Young points to historical data (24:23), noting the economy has only recently neared or crossed the average time lags between leading indicator warnings and the advent of recession. Mr. Sherman agrees, adding that even when such average time gaps are crossed, volatility around the average could allow for further delay before the next contraction begins.

TSS Episode 146: SoFi’s Liz Young on Markets, DIY Investing and Capturing Gen Z Investors

DoubleLine ETF Specialist Scott Thomson discusses his role at the firm and describes the growing use and evolution of exchange-traded funds as vehicles for trading and investment with DoubleLine Deputy Chief Investment Officer Jeffrey Sherman and Macro Asset Allocation Analyst Mark Kimbrough. The discussion begins (1:08) with the career of Mr. Thomson, who joined DoubleLine in 2022 after working as an ETF Capital Markets and Fixed Income Strategist with PIMCO. Mr. Thomson next discusses the history of ETFs (5:29) since the first of this vehicle launched in 1993 and their evolution, a trajectory that began with passive equities funds but now includes fixed income as well as active strategies and commodities, among others. 
 
ETFs (9:11) continue to evolve and diversify, Mr. Thomson says, noting the development of semi-transparent structures and derivative-based strategies. He foresees growth potential in  fund-of-funds strategies, which have long existed in the mutual fund universe, becoming available in ETFs as well as ETFs as a share class of mutual funds. 
 
Mr. Sherman asks Mr. Thomson to discuss his role heading up DoubleLine’s capital markets efforts in ETFs (11:34). Mr. Thomson breaks his role into four areas: primary markets, secondary markets, client execution services and relationship management between authorized participants and market makers.
 
Asked by Mr. Kimbrough to explain the drivers behind the growth in fixed income ETFs (17:09), Mr. Thomson points to a combination of factors, including advisors seeking new and different investment tools, among other reasons, to the implementation of ETF model portfolios, which have grown in number and variety. Asked for advice for people who wish to trade ETFs (22:18), Mr. Thomson advises, “Always use limit orders. Don’t use market orders. That just helps you avoid paying more than you want.” For financial advisors looking to trade more than a couple of hundred shares in an ETF, he recommends they work with their firm’s or custodian’s block trading desk to support best order execution.
 
Mr. Sherman, recalling Mr. Thomson’s comments on the efficiency of the arbitrage mechanism in ETFs, asks the ETF specialist to describe (25:13) the liquidity and efficiency of ETFs amid the dislocation of fixed income markets in March 2020.

TSS Episode 147: DoubleLine’s Scott Thomson on the Evolution of ETFs

Andy Constan, founder, CEO and Chief Investment Officer of Damped Spring, joins DoubleLine’s Jeffrey Sherman and Samuel Lau to discuss his approach to macroeconomics-driven investing. They also discuss, among other timely topics, Mr. Constan’s outlook for persistent inflation above the Federal Reserve’s 2% target. Damped Spring is a full-service macroeconomic research firm. This episode of the Sherman Show was recorded Nov. 20, 2023.
 
DoubleLine Deputy Chief Investment Officer Jeffrey Sherman opens the conversation (0:38), asking Mr. Constan to describe his 35 years in the financial markets, a career that began at Solomon Brothers in 1986 and spans roles at such notable names as Bridgewater Associates and Brevan Howard before the launch of Damped Spring. Then the discussion turns to Mr. Constan’s macroeconomic approach to investment decision making (4:45). Mr. Constan operates with a four-pillar framework. First, he focuses on how growth occurs in an economy and how inflation works on an economy. From those two starting points, he seeks to understand “the risk premium that assets contain and how policymakers and market participants can influence the risk premium, which is the return you get on assets.” Once those three factors come into focus, Mr. Constan overlays a fourth pillar his framework: positioning. “When those three other things are moving, it still matters how people are positioned, what's priced into markets and what's going to cause investors to change their positioning.”
 
Mr. Constan warns against decision-making based on taking risk premiums as objective levels for trade exit or entry (7:18). “There's no level that is the correct level.” Attempting to buy or sell based on perceived whether a term premium is too high or too low can land investors “in a lot of trouble – just as most investors get themselves in a lot of trouble” buying and selling simply because assets are priced above estimates of fair value. “Markets overshoot all the time. It's very difficult to be an investor to base your investment thesis just on the level of valuation. And so the level of risk premium is not that important to me because nobody knows what it is. The only way you can interpret risk premium is through a model. All models have assumptions. All models require assumptions of forward-looking information which is unavailable.” 
 
Instead of focusing on estimated risk premium levels, Mr. Constan’s framework “just focuses on what could change term premiums because that's what you need to know to be an investor. If you think term premiums are going to fall, you want to own assets. If you think term premiums are going to expand, you want to sell assets. And so my framework just focuses on the factors that would cause term premium to change” (8:50). He then describes variables that can change risk premiums. These include changes in the supply of an asset vs. demand for it as well as changes in credit availability and monetary conditions.
 
Jeffrey Sherman then asks Andy Constan for his thoughts on inflation (12:32), noting “perhaps people have not been thinking about the inflation component for, let's call it, over a decade. What are your thoughts about inflation today? What are your thoughts about how investors should incorporate some of this into estimates that raise premiums and hence thinking through the allocation process?” Mr. Constan starts with the fact of falling inflation, under the twin drivers of correcting supply chains and “less easy” monetary policy. A naïve extrapolation of those trends forward would point to inflation soon falling to the Fed’s 2% target or even undershooting it. Mr. Constan, however, expects inflation to a plateau well above 2%. Factors driving resilient above-target inflation, he says, are “a still-very-strong job market,” ample residual reserves “that will keep liquidity high and support demand” and “the three Ds” of de-globalization.

TSS Episode 148: Andy Constan on Macro-Driven Investing, Inflation and the 3Ds of De-Globalization

Jim Bianco, President of market and macroeconomic research firm Bianco Research, appears Jan. 11, 2024, with hosts Jeffrey Sherman and Samuel Lau to discuss among other issues his outlook for a “no landing” U.S. economy in 2024, sticky inflation of 3% to 4% and his theory on Fed Chair Jerome H. Powell’s dovish turn on Dec. 13. “The problem with the economy is there isn’t a problem,” Mr. Bianco says. “My biggest concern is too much growth and sticky inflation.”

Between a hawkish Powell speech on Dec. 1 and Powell’s softened stance on Dec. 13, the data showed no change in economic fundamentals. So what changed his mind? Mr. Bianco notes that Federal Reserve officials prefer unanimous or near-unanimous votes on monetary policy and bank regulations. He suspects “a bunch of doves” among the FOMC’s voting members let Chair Powell know they were prepared to vote in dissent, “and I think he acquiesced.”

Mr. Bianco thinks the biggest change in the economy coming out of 2020 was remote work. On economic fundamentals, he sees little case for “a macro problem with the labor market” or trouble with the consumer. He does note warning signs in credit and the potentially problematic rise of the U.S. government’s interest expense.

Asked about exogenous risks, Mr. Bianco points to attacks on commercial shipping in the Red Sea and the consequent rerouting of 30% to 40% of the world’s cargo shipping from that critical Asia-Europe route to around Africa. Mr. Bianco warns delays will spell inventory trouble not only in Europe but in the U.S.

Mr. Bianco has some criticism of the Federal Reserve. “The Fed first raised rates in March of 2022. What was the year-over-year inflation rate when they finally got to the first rate hike? It was 8.6%. Boy, they waited way, way, way too long before they got it.”

Messrs. Sherman and Lau also discuss with Mr. Bianco why the bond market sometimes is “smarter at sniffing out disaster” than the stock market, the absence of recession despite protracted recessionary warnings from leading indicators and complacency in the credit market.

TSS E149: Bianco on a “No Landing” Economy, Sticky Inflation and Powell Pivot

TSS Episode 149: Bianco on a “No Landing” Economy, Sticky Inflation and Powell Pivot

DoubleLine Deputy CIO Jeffrey Sherman and Portfolio Manager Jeffrey Mayberry welcome back David Zervos, Chief Market Strategist for Jefferies and Head of the Global Macro Division of Leucadia Asset Management. The last time Mr. Zervos was on in May 2019, he discussed Federal Reserve Chair Jerome H. Powell’s tenure in harsh terms, so this episode kicks off with what’s changed with Chair Powell, and Mr. Zervos believes he has come a long way. The group then gets into how the Fed acted in March 2020 (7:45), with Mr. Zervos noting that Fed officials think of their reaction as a success, setting up a framework for future intervention. He says areas that could draw Fed attention are private equity and commercial real estate (22:39), “two areas that have gorged on zero rates more than anybody.” 

Mr. Mayberry then turns the conversation back to Chair Powell and the specific way he has improved in his role (26:43). In discussing the performance improvement, Mr. Zervos notes, “I look at the evolution from what happened in ’18 and ’19, he really got caught up in the politics of the time and tried to stand his ground at a time when economically that wasn’t a very smart thing to do, and he looked kind of foolish.” The episode also includes discussion of the market’s eagerness for cuts (31:52) and whether there will be one before the election (34:36), what Mr. Zervos likes out there (38:19), the Fed framework shifting from average inflation targeting to nominal GDP targeting (45:53) and what Mr. Zervos thinks are the risks that are not being talked about (47:40). This episode was recorded May 7, 2024.

Jefferies’ David Zervos on Evolution of the Fed Put and Jay Powell’s Learning Curve (E150)

Jeffrey Sherman, Doubleline’s Deputy CIO and Sam Lau, Doubleline’s Asset Allocation Analyst, host Dr. Robert Shiller, Sterling Professor of Economics, Yale University.

Episode 1 - Dr. Robert Shiller

S1 E1 - Dr. Robert Shiller

Jeffrey Sherman, DoubleLine’s Deputy CIO and Sam Lau, DoubleLine’s Asset Allocation Analyst, talk “Infrastructure” strategy & investing with Damien Contes and Andrew Hsu, DoubleLine’s Global Infrastructure Investment Portfolio Managers.

Episode 2 - Infrastructure

S1 E2 - Infrastructure

Jeffrey Sherman, DoubleLine’s Deputy CIO and Sam Lau, DoubleLine’s Asset Allocation Analyst, talk “Rising Rates, Markets and Fixed Income” with Jeff Mayberry, a member of DoubleLine’s Asset Allocation portfolio management team.

Rising Rates

The Sherman Show - Rising Rates

S1 E3 - Rising Rates

Jeffrey Sherman, DoubleLine’s Deputy CIO and Sam Lau, DoubleLine Macro Asset Allocation, talk to Ryan Kimmel, DoubleLine Multi-Asset Growth Analyst about the markets, macro-asset strategies, trading and surfing.

S3 E2 – Ryan Kimmel, Multi-Asset Growth Strategy Analyst, DoubleLine, The Sherman Show

S3 E2 – Ryan Kimmel, DoubleLine

Jeffrey Sherman, DoubleLine’s Deputy CIO and Sam Lau, DoubleLine Asset Allocation, talk financial reporting with the host of CNBCs Fast Money Halftime Report, Scott Wapner.

S3 E9 - ScottWapner, CNBC Fast Money Halftime Report, The Sherman Show

On his way to the World Economic Forum in Davos, Dr. Robert Shiller, Sterling Professor of Economics, Yale University and CAPE Index co-creator, sat down in Zurich, Switzerland, as guest on The Sherman Show with DoubleLine’s Jeffrey Sherman and Sam Lau. Among the topics covered: the interplay of factors driving the markets in 2017 and 2018 and Dr. Shiller’s forthcoming new book on narrative economics: the phenomenon of stories which go viral to shape people’s behavior on a mass scale.

S5 E3 Dr. Shiller, Sterling Prof of Econ – Yale U, The Sherman Show – Zurich

S5 E3 - Dr. Shiller, Sterling Prof of Econ – Yale U, The Sherman Show – Zurich

After Samuel Lau and Jeffrey Sherman march through their mid-week macro-market-monetary menagerie, DoubleLine CLO analyst Joe Mezyk returns to the Sherman Show to discuss the state of the $750 billion market of collateralized loan obligations. In the wake of the market dislocations due to economic shutdown and massive intervention by the Federal Reserve, Mr. Mezyk observes a tale of two worlds in CLO Land. On one hand, there are securitized bonds backed by “good companies [which] will have the liquidity to ride out this pandemic.” On the other hand, generous liquidity is “putting extra debt on zombie companies.” In this juxtaposition of fundamental economic crunch and engineered liquidity boom, Mezyk discusses the “opportunities to pick through the ruble and find things we like.”

S8 E12 – What the CLO market can tell us about the state of corporate credit ft Joe Mezyk

S8 E12 - What the CLO market can tell us about the state of corporate credit ft Joe Mezyk

Gregory Whiteley Tours the Treasury Market

Gregory Whiteley, head of DoubleLine’s U.S. government debt team, delves into the strange new world of Treasury securities, a market today priced by quasi-permanent manipulation by the Federal Reserve rather than markets. Among other topics, Mr. Whiteley and podcast hosts Jeffrey Sherman and Samuel Lau discuss the wild ride of March and the danger of Fed’s underwriting moral hazard in the private sector in this episode of The Sherman Show, recorded the morning of May 20, 2020. While the current state of the economy, markets and monetary policy leaves much to be desired, Mr. Whiteley does see one bright point: contrary to indications in corners of the derivatives markets, he takes Jerome Powell at his word: the Fed is set against negative interest rates. Mr. Whiteley sees the Fed focused on the short end of the Treasury yield curve and not that concerned with absolute yields at the long end. 

Mr. Whiteley began his career in the salad days of Salomon Brothers before joining the team of Jeffrey Gundlach two decades ago. Like Messrs. Sherman and Lau, Mr. Whiteley became part of the original team which launched DoubleLine under Mr. Gundlach’s leadership in 2009.

S8 E13 Touring the Treasury Market with Gregory Whiteley

S8 E13 - Touring the Treasury Market with Gregory Whiteley

David Rosenberg joins DoubleLine’s Jeffrey Sherman and Samuel Lau to share, among other topics, his view on the (dim) prospects for a sustained V-shaped recovery; his choice of indicators for how the economy is progressing; the 10-year divorce between the U.S. economy and stocks; and, beyond the COVID-19 crisis, a future of stagflation. Mr. Rosenberg is the President and Chief Economist & Strategist of the economic consulting firm Rosenberg Research & Associates Inc. The podcast was recorded June 8, 2020.
 
In regard to his near-term view of the markets and the economy, Mr. Rosenberg argues, “The stock market and the economy became divorced a decade ago.” The rally off the March low, he says, “is all about Fed-induced liquidity.” “We have a lot of hopes over a vaccine,” he says. “Maybe the ‘V’ recovery stands for ‘vaccine.’ But let’s face it: This is the mother of all liquidity rallies that we’ve ever seen.” To illustrate, he cites M2, an important Fed measure of the size of the U.S. money supply. He notes that the Fed has boosted M2 by $2½ trillion since mid-March. “And what do you know … the market cap of the S&P 500 has gone up in that same time period by $2½ trillion.” 
 
Mr. Rosenberg expects the economy, as measured by conventional economic metrics and data points, to stage a “reflexive rebound” in the months ahead with the turn in the weather and all 50 states out of lockdown. “The question is, beyond the third quarter, will it be prolonged? And that’s going to be dependent on demand,” Rosenberg says. Rather than looking at coincident indicators, he advises watching spending intention surveys and consumer confidence. He was unimpressed by the prior week’s positive nonfarm payroll report, which was fraught with reporting irregularities and other problems. The critical determinant for demand, he says, is the timely arrival of a vaccine or effective treatment. 
 
Over the long term, Mr. Rosenberg sees no return to the state of the economy pre-COVID-19. “There is no such thing in this business as a get-out-of-jail-free card,” he says. “This is only a business of Newtonian physics where every action has an equal and opposite reaction, but there are lags.” At some point in the future, he expects aggregate to stabilize, and “we’re going to be left with a regulatory, (flatter) world and shrinking globalization that is going to mean cost-push inflation, and localized supply chains taking precedence over globalized supply chains. The corporate cost curve is going to look different, and the aggregate supply curve is going to be looking a lot more inelastic or sclerotic than it has in the past. So, we’re going to supply-side inflation. We’re going to have a form of stagflation in the future.”

S8 E16 Economist David Rosenberg Returns as Guest on The Sherman Show

S8 E16 - Economist David Rosenberg Returns to The Sherman Show

Sean Trende joins DoubleLine’s Jeffrey Sherman and Samuel Lau to discuss, among other topics, the use of aggregate polling to forecast election results, the challenges in creating accurate sample sizes in the era of the cellphone and internet, how personal biases impact not only how data models are interpreted but how the models are built and what COVID-19 might mean for November’s election process. Mr. Trende is the Senior Elections Analyst for news website RealClearPolitics. The podcast was recorded June 18, 2020.

Mr. Trende says the aggregation approach used by RealClearPolitics in its tracking of political polling is an advantage over single-sample polling, and the news site’s averaging methods promote transparency. He notes the difficulty of creating accurate polls when “everybody lies about voting and going to church.”

Mr. Sherman raises the issue of how to accurately capture public political sentiment considering the difficulty pollsters must have in getting people to respond to an unknown caller ringing their cellphones. This leads to a discussion among Mssrs. Trende, Sherman and Lau about the challenges of modeling in the worlds of politics and finance with a comparison made to recent questions about unemployment data. Mr. Trende says models using online polling still have a way to go. 

Mr. Sherman wonders what the blown predictions that “remain” would carry the day in the Brexit vote means for the reliability of voter polling. Mr. Trende responds that the polls were accurate, and it was the analysts who blew the call, revealing their political biases. They talk about the problem of confirmation bias in modeling and reporting an era in which news consumers can filter out information they find disagreeable. Mr. Trende found this out personally in 2016 when he was savaged online after writing an article about data pointing to a possible Trump victory in November.

Mr. Trende sees Democratic candidate Joe Biden with a big lead today in the national popular vote, but there is still time for President Trump to rebound in the electoral vote by Election Day.

S8 E17 Elections Analyst Sean Trende Guests on The Sherman Show

S8 E17 - Elections Analyst Sean Trende Guests on The Sherman Show

Bob Brinker, founder and publisher of the Marketimer Investment Letter, comes on The Sherman Show to discuss “Quantitative Easing Infinity” under Federal Reserve Chairman Jerome Powell, the consequences of a Biden versus Trump election victory for the federal deficit, “free money” in times of negative interest rates, his investing concept of “critical mass” and other topics with podcast hosts Jeffrey Sherman and Samuel Lau. The podcast was recorded July 8, 2020. 

Now in its 35th year and listed on the Hulbert Financial Digest Investment Letter Honor Roll, Marketimer covers the economy, Federal Reserve Policy, technical analysis of the markets and market timing. Among Mr. Brinker’s outlooks is the idea that as long as real interest rates remain negative, the Federal Reserve will continue to buy the U.S. government’s debt. “The question here is going to be whether interest rates are going to stay near zero forever, which would, by the way, accommodate Modern Monetary Theory because, what the heck – if you don’t have to pay for the money, who cares?” Mr. Brinker tells Messrs. Sherman and Lau. “That’s where we are right now in my opinion…. The reason Modern Monetary Theorists are getting away with this right now is because we’re not paying for the money. The real interest rate on the 10-year Treasury is negative. So we’re getting paid to borrow in real terms, which is a good way to borrow if you can figure it out.”

Of course, how long rates can stay negative in inflation-adjusted terms is the open question. “Where does this all come to, one way or the other? Interest rates,” he notes. “If we ever get into a situation where interest rates go up, you do the math, the interest on the national debt is going to be a really big number. That is going to drive whether Modern Monetary Theory has legs or not.”  

Asked for a few of the most valuable lessons from his long career investing in securities markets, Mr. Brinker replied, “The most important thing is to keep emotion out of your investment decisions. That’s what we did this year – well, we always practice this, but we showed that this year when we maintained our fully invested position even though there was that very brief panic in March. We maintained our fully invested position; we told our subscribers to dollar-cost average additional money into the market as they wished. And look what’s happened in the market. The market is back near all-time record highs.”

S8 E20 Bob Brinker Joins Sherman Show as Special Guest

S8 E20 - Bob Brinker Joins Sherman Show as Special Guest

Famed economist Ed Yardeni joins this episode of “The Sherman Show,” where he discusses, among other topics, the importance of monetary policy for stock and bond returns, the risks of the traditional 60-40 stock-bond allocation given the outlook for near-zero interest rates and the compromising of the Federal Reserve’s independence. Dr. Yardeni is President of Yardeni Research Inc., a provider of global investment strategy and asset allocation analyses and recommendations. The podcast was recorded Oct. 27, 2020.
Dr. Yardeni calls Jerome Powell a “pragmatic pivoter,” given the willingness of the Chairman of the Federal Reserve to reverse himself on policy. For example, Dr, Yardeni notes that Powell has gone from being a hater of Modern Monetary Theory to its “No. 1 implementer.” While Powell is prepared to continue with unprecedented asset purchases, in Dr. Yardeni’s view, the Fed chairman probably won’t go so far as to implement negative interest rates, given the poor outcomes such policies have produced in the eurozone. 
One victim of the Fed’s new embrace of fiscal activism is probably the central bank’s independence. “Of course, over the years,” Dr. Yardeni notes, “presidents have on occasion tried to bend [the Fed’s] arm and get them to do policy their way. I think Arthur Burns caved in to Nixon a few times. But all in all, the Fed has maintained its independence. But now, too, for the Fed to, on a regular basis, be calling for more fiscal stimulus crosses that line. And that means that its independence, I think, has been somewhat compromised. As you know, President Trump several times urged Powell to lower interest rates, and Powell basically resisted and implied that he was going to remain independent. But circumstances changed. And basically Trump got what he wanted with low interest rates.”

S9 E4 - Economist Ed Yardeni on Markets, Interest Rates and Fed Policy

DoubleLine Capital’s Jeffrey Sherman and Samuel Lau welcome Charles Schwab Senior Vice President and Chief Investment Strategist Liz Ann Sonders to “The Sherman Show,” recorded on Dec. 10, 2020. Messrs. Sherman and Lau speak to Ms. Sonders about market momentum and investor sentiment, and the impact of new, often younger retail investors on each; growth-value rotation; and how her optimism has been buoyed by human ingenuity in the face of COVID-19, among other topics. Mr. Sherman says there is no difference between retail and institutional investors when in the latter case it is still individuals making decisions influenced by sentiment. Ms. Sonders agrees, noting that retail investors are often classified as contrarian or so-called dumb money indicators, but dumb money has been optimistically positioned since March and for the most part has been right. Mr. Lau brings up the traditional 60-40 portfolio allocation between stocks and bonds, respectively, and wonders if a move to an 80-20 or even higher split might be warranted for retail investors in today’s environment and how often they should be reviewing their allocations. Ms. Sonders is doubtful that there is an “average retail investor” to be coached since there are so many factors that should be guiding portfolio composition including an investor’s age and emotional risk tolerance. In regard to rebalancing portfolios, she sees many investors rebalancing based on the calendar and would prefer it to be driven more by portfolio, volatility or rotation. This would force investors to do what they are supposed to do, which is not so much “Buy low, sell high,” but “Add low, trim high.”

S9 E6 Schwab’s Liz Ann Sonders Talks Sentiment, Momentum and Smart “Dumb Money”

S9 E6 - Schwab’s Liz Ann Sonders Talks Sentiment, Momentum and Smart “Dumb Money”

Jeffrey Sherman, DoubleLine’s Deputy CIO and Sam Lau, DoubleLine’s Asset Allocation Analyst, host a series of podcasts with distinguished guests, giving listeners insight into DoubleLine’s strategies, Portfolio Managers and industry innovators.

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