How should I be positioned? with Rick Rieder (BlackRock) and Jason Draho (UBS CIO)
The desk believes that the current macroeconomic environment and anticipated central bank policies suggest a cautiously optimistic positioning in US equities and fixed income assets. Per the full note from UBS and BlackRock, both firms note the importance of strategic allocation as they expect monetary policies to be adjusted amid evolving economic data. The dialogue highlights the ongoing adjustment of investor sentiment as inflation remains a critical theme affecting asset distribution, evidenced by recent data indicating resilience in the labor market alongside inflation numbers. The consensus targeting from the broader market reflects a balanced approach between growth and value allocations.
What the desk is arguing
The desk emphasizes a proactive approach to positioning by focusing on asset allocation that aligns with anticipated macroeconomic shifts. The insights from UBS and BlackRock stress the interdependence between monetary policy shifts and market response, advocating for careful consideration of both fixed income and equities in the coming months.
Supporting this view, Rick Rieder and Jason Draho noted that the stabilization of the US economy should lead to more predictable monetary policy, even as inflation continues to be closely monitored. A notable focus remains on how bond yields react as the Federal Reserve contemplates potential interest rate adjustments in response to economic indicators.
Where it sits in our coverage
With a current consensus target for the USD/EUR pair at 1.075, the range spans from a minimum of 1.04 to a maximum of 1.12. Noteworthy targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's view aligns closely with jpmorgan, suggesting a bullish outlook at the higher end of the forecast range. Divergence from bofa indicates a cautious stance reflecting concerns about inflationary pressures that could lead to further tightening by the Fed.
How other firms see it
Several firms are aligned with this optimistic outlook for equities and fixed income, particularly within the context of a stable recovery. However, firms like bofa present a more conservative view, indicating potential headwinds from continued inflationary risks.
This optimism is particularly relevant for the US equity landscape as it parallels the Federal Reserve's approach to interest rates, making the trajectory of USD/EUR a critical focus for those attuned to central bank policies and economic signals. The upcoming shifts in economic indicators will likely reflect or challenge these positions.
01Strong macroeconomic fundamentals suggest a positive outlook for US equities.
02Strategic asset allocation is essential given the inflation outlook.
03Cautious optimism remains key as investors navigate potential central bank adjustments.
04The labor market's resilience will influence monetary policy trajectories.
Market implications
Watch for how inflation reports impact future Fed decisions; market sentiment may shift significantly depending on job data and consumer price indices. Key resistance levels around 1.12 in the EUR/USD pair should be monitored as potential reaction points for traders positioned in line with equity and fixed income strategies.
Risks to this view
The call could be invalidated by unexpected inflation spikes or significant changes in the labor market that compel the Fed to adopt a more hawkish stance. If economic data suggests a slowdown or recession, this could precipitate a reevaluation of asset allocations towards safer investments.
ubs
Hi everyone, Dan Cassidy here. Welcome back to How Should I Be Positioned on the UBS Market Moves podcast channel. On this podcast, we do like to catch up with our industry colleagues to discuss the market and macro environment, along with thinking when it comes to asset allocation.
Joining us for the first episode of 2025, glad to welcome back from the UBS Chief Investment Office, Jason Draho, Head of Asset Allocation for the Americas. We're excited to welcome back to the podcast, Rick Reeder, the Chief Investment Officer of Global Fixed Income, Head of the Fundamental Fixed Income Business, and Head of the Global Allocation Investment Team at BlackRock. So with that, Jason, Rick, it's great to be with you both as we embark on a new year.
Thank you both for spending some time today with our listeners, our clients. I know we have a lot we want to cover with our audience. So Rick, let's begin with the U.S. economy.
Can you provide us with your one-minute outlook on the U.S. economy for 2025? And more specifically, do you expect growth and inflation to decline, hold steady, or accelerate? So that's a hard one-minute question.
But I will say our official forecast is we have real GDP of one and a half, we have inflation of two and a half, getting a nominal GDP of about four. My gut is, though, that that number is going to be flatter to the upside, and more so on the growth, but we also have some tilt towards inflation. But I think there's a couple of things at play that are quite significant.
One, you have the new administration, you have a couple of things that are going on, including animal spirits, in terms of expenditure that's going to happen alongside of this administration, this inventory build that is happening in advance of a concern for tariffs. And quite frankly, you still have a consumer that is, where unemployment levels are ticking up a bit, are still in good shape, the consumer is in good shape. And CapEx and R&D from companies, particularly centered around AI, is pretty extraordinary.
So my sense is, while officially we are closer to four nominal, I could see the data over the next couple of quarters is suggesting closer to something like five in the US. Last year was, well, probably coming around 5% when we get the final numbers for nominal GDP. The year before was 6%.
So it's reasonable to expect a bit of a moderation, I think that's a fair assessment. But I would put it at probably end up being closer to five than four when it's all kind of said and done. The risk that the numbers could be skewed to the upside, and that's because of inflation ends up being sticking or accelerated, but more that growth, again, surprises to the upside of the way that has for the past couple of years.
So that sounds like it's more to the downside, but I'd say almost more kind of flattish, but maybe down, but the risks are skewed more to the upside. And Rick, we kind of set the question, so it's like one minute, more of the teaser, so we can unpack a lot of things going forward. I know there's a lot of things to get into.
If we think of, like you mentioned, the animal spirits and the policy, if not, the most important question that investors are thinking about right now, but certainly right up there, is what to kind of expect from the Trump 2.0 administration, and there's a whole range of economic policies that's from tariff taxes, immigration, deregulation, all these kind of things. There's a lot of concern about tariffs, but there's also the idea of deregulation, unleashing animal spirits. When you think about kind of maybe the overarching view of how the policy could take shape, do you ultimately think that it will be positive for growth, but also positive for inflation?
A different way, ultimately, kind of net out to be somewhat neutral, like how are you thinking, without getting into the details of specifics, and we can certainly get into the weeds on that, but just more of the big picture in 12 months from now, how do you think the policy will be shifting the macro environment, good, bad, or otherwise? So I think there's a timing to it. I think the first part, I think you have to assume that there are certain tenets of this administration that are going to be at the forefront.
So immigration, I'm not sure that there, I don't think there's going to be a significant economic impact on the backside of that. I think there'll be headlines, I don't think there's a lot of economic, tariffs, price adjustment, and a de-globalization, bringing in sort of this America first set of initiatives, it's going to be a really big deal. And so if you take, you know, in the next couple of quarters, my sense is, including inventory bill for companies, and I've seen some of that today, that say, gosh, I need to get ahead of this.
So my sense is you get a bit higher growth, and like you were saying, a bit more inflation to work its way through. I think there's something that's going to be, two things that are going to be significant over the coming couple of quarters. One, like you said, deregulation, and particularly in two areas that are going to be significant.
Energy, and by the way, not just deregulation, I think how international negotiation will take place, I think the president will want lower fuel prices, and he's talked about that as a way to get interest rates down, bring inflation down, I think that's going to be a big one. The second one is deregulation of the financial industry to allow for more lending, to allow for, you know, there's a lot of treasury debt that has to be placed in the system, allow the banking system to own more, but I think you'll see those two places as a way to get, you know, try and get inflation down, but keep the economy moving along and create some more efficiency. You know, things like he's talked about, you know, if you put X amount of dollars in, you'll get faster permitting.
I think all those things are going to be part and parcel to how, you know, increase productivity economy, especially alongside things, you know, you've seen some comments around AI data center, et cetera, and I think those are the things that will work their way through over the coming couple of quarters, but listen, I think when you, you know, it'll be hard to fight a market perception in the next couple of quarters of growth and secure inflation as you would describe it. So one of the things at a very conceptual level that I'm kind of don't think about, at least what they inherit as an economy this time versus eight years ago, like it's, you know, inflation is higher, growth is higher, interest rates at the starting point are definitely much higher. So the reflationary set of policies that they, you know, did back in 17, they caused the markets to react in a sort of a reflationary way.
That made sense. In economics 101 terms, I think that was a aggregate demand shift of the curve kind of going out. So you left growth, but you also left inflation.
We've come off a years where demand's been strong, growth has been strong, it's also been inflationary. We don't really need a demand positive shock. What we need is positive supply side story.
You know, what you described, some of it sounds like, you know, deregulation, you know, whether it's energy, financial services, things of that sort, permitting, you know, speeding up is all designed towards that. I do, and I think I'm kind of, I lean in that direction that'll be positive for supply. I do worry though that there'll be, to try and get a budget deal passed, that ultimately to get everyone on board, they end up providing maybe more stimulus than is necessary.
And so like the markets may not like it. What is your, if you kind of think about that for a minute, what is your sense of how it could play out? Would you hear things in terms of like, you know, different policymakers of how they kind of emphasize it?
Are they kind of conscious of like, like we actually don't want to be too stimulative because that's not good for inflation? So the one thing that I'm pretty heartened by, there is an increased focus on the debt in the country and about, and about reducing spending. And listen, I think, I think the debt in the country is too big.
I think the debt service is too significant. I think the tail risk is in and around the amount of option debt that we're going to have to place over the next year or so. So I'm, I'm pretty heartened that there's, there are a number of conversations with policymakers.
It is definitely reached a point of concern. And then, listen, I'm a bit skeptical, I've seen some numbers showing about how much spending we're going to cut. I actually don't think we're going to get to the numbers that are so hard to, hard to debate, hard to argue with what Elon Musk can do.
But I'm not sure we're going to get those, those sort of spending cuts. But I will say, you know, one of the things that I think is going to be quite real over the coming, you know, it's hard to see, you know, there's a J curve effect of this, but boy, I'm pretty blown away by the amount of spend that's going to go into AI and the potential increase in productivity. And, you know, people say, gosh, you know, we'll see that, we'll really see it through the economic data two years hence.
Boy, boy, I don't know, I see a lot, I mean, every time you're with a company, we talk about inventory amounts, we talk about logistics, we talk about utilizing tools to actually grow demand for their product. And obviously, whether it's cost of labor or other, or other forms of augmentation of your business that, that AI is going to, is going to contribute to. So the point being, I actually think you're going to see some pretty significant productivity gains, and that ultimately will bring inflation down, I think could bring it down quite significantly.
But there's a real timing to that, I think it's going to take some time. So I want to pick up on that point, because a kind of thesis I've, you know, been kind of publishing and writing about for a few years, it's like a Roaring Twenties scenario. But the analogy is much more like the 1990s, you know, with the Internet versus AI now, you've gone through a hiking cycle, now a cutting cycle that looks a little bit like 94, 95, 96.
So when I think of like, and I've asked people, like, you know, where do we think you, where do you think we are, if you use the 90s as a parallel, because people can look at the stock market and think, this is 99, and we're at the top, others would say 96, I've heard people in the technology and the AI productivity, you know, kind of thesis suggests it's more like 92, 93. And it's kind of years away. Obviously, it matters in terms of like investment implications, I'd rather be 96 than 99 at this point in time.
If I would ask you that question, like, how do you, you know, an imperfect parallel, you can, you know, adjust it as you see fit, like, how would you think of that as an analogy? Where will we be? What are the pros and cons in terms of making that kind of comparison?
What are the risks if you either make it right or wrong? So I think we're seeing something that nobody in our generation has ever seen. So if you take the Mag 7, and how much they've powered the performance of the equity market, and there's something very unique to these big companies in that, and I know, you know, it's way better than I, and the free cash flow they're throwing off and what separates this so much from the late 90s and the internet is, so let's go, I was looking at the numbers tonight, the market cap of this Mag 7 is $18 trillion.
They only have 91 billion of debt, of net debt, 91 billion net debt, 18 trillion market cap. And of that, there's about 400 billion that is free cash flow, 400 billion of free cash flow. So just put it in perspective, you go back 20 years ago, the free cash flow of the entire S&P 500 was 322 billion.
This group goes to 400 billion, seven companies, and then their ROE, so if you throw out like NVIDIA is finding the numbers scary high, but then you look at these other companies, and you say, gosh, you're throwing off 30 and read the Meta 36, ROE, Google 30, Google 32. Boy, oh boy, I mean, you know, your ability to, even if you're multiple, even if you're trading at multiples, like some of them, you know, they're trading at 25, 30 multiples, that's who it is, Tesla's different. But gosh, if you're trading at 25, 30 multiple, but you're 30 ROE, you have no debt, your free cash flow generation is, by the way, your free cash flow generation is so big that somebody, many of these companies, Meta, Apple, they're buying back more stock than their free cash flow generation, and you can still spend on CapEx and R&D.
I mean, and if you go back, like you said, you know, if you go back, we had big companies before, the GEs, the Exxons, the Mobil, the Ford, you know, these companies used to borrow, they had a big, you know, big labor infrastructure, and they didn't throw off, I mean, you know, the free cash flow generation wasn't that, I mean, these donors, and by the way, they, in terms of their scale in their markets, you think about what Amazon is, or what Meta is, you're oligopoly bordering on monopoly, but in industries where, you know, monopoly is usually like, gosh, that's a bad thing, but actually people love the company's business, they're bringing their costs down, think about what Amazon's doing, what Meta's doing, what Google Search does, nobody's ever seen this, and it's staggering, 400 billion of free cash flow from selling companies, that is remarkable, and so I don't know, I'm getting excited about it, but I think it's, I don't think it's, I mean, it's just hard to compare it to anything else, because we've never, we've never witnessed this, and by the way, AI over the coming number of quarters, and data center, and energy, you know, it's hard to see, like, 30 ROEs are going down a lot. If we go back to 2020, two years ago at this time, the consensus view was the US economy would go into recession, and of course, it did not go into recession, if anything, you know, growth was far, far higher than what people anticipated in 23, and even last year, the consensus at the start of the year was something like 1.1%, we'll probably end up around 2627 for GDP growth, so there's a lot of people kind of scratching their heads, like, you know, what's going on in the economy, they could, you know, point to say it's all debt finance, whatever it might be, but I've also had a view, this is pre-pandemic, that the US economy is very different than it was 50 years ago, like in the 1970s, and just the nature of the economic activity, and you know, these tech companies are kind of part of the story, is it just less prone to kind of the cycles, it is, like, we're basically an information-based knowledge economy, or services-based knowledge economy, and therefore, unless there's some real adverse shock, by and large, we should not have recessions, you know, that this cycle can go on for a long period of time. A year ago, I remember, or actually, I think I heard you on, might have been on TV, talking about, you know, the economy, like, you know, we really don't need to have experienced recessions anymore, and that may be taking you out of context, but, like, I think it's relevant in terms of, like, the question, like, where are we in a cycle, as people think about the playbook across, you know, early, mid, late cycle, so what, I guess my question is sort of two parts, is, like, do you, how much do you agree with sort of the idea that, you know, the U.S. economy, by and large, is much less cyclical, and therefore, how to think about the cycle is different, and therefore, maybe we would be thinking about slight cycle, mid-cycle, that's probably the wrong way to think about investing at this point in time?
Yeah, I don't, I mean, I don't, you know, I think, you know, whenever I hear this, you know, this is the classic X pattern. I don't think there's anything classic about this. I think there is a, I think 70% of the economy's service, or certainly, certainly, serve the consumption, is 70% of services, and what people spend, there's a demographic to it, in healthcare and education, and, you know, that is just sticky, and what people pay for their, whether their internet service or cable service, there is just a stickiness to it that is quite real, and I don't think goes away, and it goes away anytime soon, and so, you know, plus, and by the way, it's hard to argue with it, you know, there's some, when people say, you know, this is all debt financed, or debt stimulated, I think there's truth to that, and I think if you said that's what it is as the answer, I think it's incredibly cynical, because there is, you know, you have what is a mature economy that operates, it's not hard assets, not commodity, it's not export driven, a la China, China exhibits real cyclicality to it, but I just don't think this economy will do that anymore, save, you know, I know I've used this quote before, in 75 years, there's only been two recessions in services, pandemic and financial crisis, and unless you tangibly shock the system, people are going to spend the same amount of money on, you know, on their cable bill, as they, as they have in the pie, and, you know, a quarter ago, two quarters ago, listen, they're, and I, by the way, I don't mean to be naive to the fact that, you know, can hiring slow, you know, obviously can, and, but you know, you're starting from a pretty good place today.
And, you know, I think we're hiring, you know, there'll be something over the next couple of years, around AI, and, you know, in the massive amount of potential augmentation and job replacement, you know, that's going to be an interesting period of time, and how that plays out. But, you know, I really, otherwise, I don't, I don't believe, I think the US economy, by the way, is the US economy imports and exports a fair amount, by and large, it's a closed economy that operates domestically, from, you know, the sheer aggregate size of it. So I'm, I'm much more relaxed about, I'm not relaxed about the debt in the country, I think that's a problem.
But I'm, you know, you said to me, you know, my book of constants and variables, I feel good about the economy is doing its thing. So given that, given the view of the overall state of the economy, fiscal policy possibilities, thoughts on the Fed of like, what they'll do, how much they'll cut this year, our official view is to 25 basis point cuts in June and September. You know, so the Fed needs some time to see more data to get comfortable, the timing, obviously, could be very subjective, but the direction of travel still for the Fed to cut rates this year, the risk of any hikes is, in my mind, single digit probability, probably.
Where do you kind of stand in terms of what the Fed is likely to do? I completely agree. I think, I think a March rate cut would be, you know, given what was described about the data in the first quarter and the potential, the unknown around what inflation could be.
So I wouldn't, I wouldn't disagree with any, any of that. I, you know, I will say today, you know, maybe because I'm enthusiastic about these growth numbers. And by the way, there are some places like you're seeing in the higher end, you know, the, the actual number of hires is coming down, the fixed rate is coming down.
I mean, there's no doubt there's some softening at play in some parts of the economy and hiring. But the, you know, I, you know, I think I wouldn't argue with that as the two cuts. But if you, if I had to bet on more cuts or fewer cuts than that, I would bet on fewer.
You know, it's, you know, unless financial conditions change significantly, you know, unless you had some tangible weakness in employment, you know, like you said, the Fed's going to wait, let's see the data. But, you know, I would say today, coming into the beginning of this year, it's sure but hard to see them cutting anytime soon. Kind of follow up, like the, that's the Fed, you know, I would agree that it's probably more likely that the economy holds up enough, they just don't need to cut, you know, you know, even twice.
But it's, you know, it's just inflating questions about like the, like the back end of the curve, like the 10-year, which is up about 100 basis points since they first cut back in September, which is a highly unusual development. I think most of you look at like real rates, what the market's pricing, what the growth is, it's sort of justifiable that, you know, rates were too low back then, they've kind of gone higher. But adding the concerns about larger deficits, term premiums have gone up, you know, there's certainly anxiety when you look at what's happening right now in the UK with the gilts, the 30-year gilts at the highest it's been since 2008.
You'll see concerns about the risk of rates going higher. As someone, you know, and we are right now, just for clarity, sort of recommend like a five-year duration, five to seven years ahead of the targets, you know, not wanting to extend duration, and this is from last fall, just from the fear that rates would go higher. These levels, I've seen some people say, you know, it's kind of getting interesting to want to step back in.
How do you think about kind of the curve overall, you know, where rates could go at the back end, you know, and maybe where you see opportunities, the best way to position on refrigeration right now? You know, I'm pretty biased in my portfolio. I don't really, you know, I'm not, you know, if I were a life insurance company or pension fund, I'd have maybe a different disposition in wanting long bonds.
I just don't know until you build in enough term premium, you know, why, you know, I look at my portfolio and say I can own equities, which is a long-durated assets with companies showing up 30% ROE, or I can own long bonds and pray that maybe, you know, when the Fed starts cutting rates come down, but I don't like rates come down, the curve's going to steepen. Like, you know, unless there's some geopolitical shock or some exogenous shock to the system, I just don't know. Like, I don't need to be one of those thrill seekers trying to pick the bottom on the long bond.
You know, and like I said, I think we're going to auction off an awful lot of debt. And so I think, I think, Secretary, the Treasury will thoughtfully extend the term, the spend, the wham of the weighted average maturity of the debt in the country. And so I, you know, I'd like to say I'd much rather, you know, there'll be a point in time if, you know, if the Fed is cutting aggressively, we can't get yield in the front end, but we're building portfolios where we can get six, six and a half percent yield, you know, low single A rated, usually mostly the front of the belly of the yield curve, and not having a stretch in the aggressive parts of the arm or, or, you know, down to triple C high yield.
It feels okay to me, even if, like you say, even inflation is two and a half to three. Like, you know, we can run a relatively low risk yielding portfolio sitting on the front of the belly and not have to, not have to care what the long bond does. So that in terms of spread product sounds like kind of shorter duration, like not taking a lot of duration risk, where maybe within kind of the spread product space, you know, would you like, is it corporates?
Is it restructured? Something else? So it's a bit, you know, we've, we've evolved it a bit over the last couple of months.
Like, I think the investment grade credit market, at least spread is not terribly interesting. You know, in Europe, we still, you know, there's still some opportunity in Europe because of the dollar investor because of swap back the dollars. But I, you know, I still like high yield.
And I, you know, not down the triple C's, I don't think we need to do it. Like, you know, single B, double B high yield, US and Europe. I like and then securitized products.
You know, you know, across the board, I mean, there's parts of like, office and commercial CNBS, we're not a big buyers of at all. The, but I, but generally securitized in resi, in, in, you know, general asset back, we think makes, makes a bunch of sense that I see a lot of triple A CLOs, you know, behind some mortgage floaters. So, you know, generally, we're higher quality in aggregate than we've been.
And we've reduced some of the spread beta by taking out some of the IG that's gotten pretty, that's gotten pretty tight. So those have been the, those have been the big ones, you know, still conservative in the end, you know, some hard currency in the end, we've brought in Mexico, but still pretty conservative in the end for now. You know, like say, you know, these yields, this real rates are really attractive in the form of the belly and being in decent quality.
I think you like you, you know, our general view has been set up in quality for fixed income, because you can get pretty attractive yields without taking a lot of credit risk. And if you want to take more of that risk, then in simple terms, the way I think of it is like, I'd rather own the equity tranche of corporate America than the, you know, the credit tranche given, you know, for the spreads aren't given the upside. You question we often get, you know, say from from our advisors is you have a forward multiple for the S&P that's 22 or even above, depending on like, you know, where the market is exactly at that point in time, people point to the market concentration, you know, the counterpoint with like all the numbers you give in terms of the cash flow, the generation, kind of these oligopolistic businesses that, you know, have a pretty good motor on it.
So it's, you know, still very attractive. It's something that, you know, we see upside in equities, we like the tech sectors are our most attractive sector. But yeah, given how it's performed, you know, it can't continue indefinitely.
So the question is, like, you know, another year or not, we think so, where within the equity space, you know, are you or would you kind of play like those areas that work more working? Or do you think scope of broadening out this year, parts of international markets like Europe, you know, is underpriced, or at least cheap on a relative basis, you know, some positive surprises on tariffs might be like, at least at least a bit of a rally there. So how are you thinking about, you know, take center kind of playing in equities, or just your general views on equities?
Yeah, no, I mean, I don't, I don't find Europe intriguing. I don't, you know, other than valuation, and I've often found that valuation is not a determinant of future return, unless there's some growth catalyst. And I don't, I, you know, just, you know, I think it seems to me, I just traveled all over Europe, and it seems like there's more motivation for austerity to bring down the debt and regulation of tax than promotion of tax.
So I don't buy that. I don't find small cap really interesting, either. I think the companies in and around data in are just unbelievably exciting.
And, you know, I talked about the mega cap, I really, you know, we've evolved some of that positioning, in which parts of mega cap, where we have some of our bigger exposures. But I like tax, you know, we've moved around our exposure and financials, I'm starting to get intrigued by financials. Again, I think the dereg is real.
And I think it'll, it'll free up a fair amount of capital. So I think the financials are, are interesting. I think there are, you know, parts of healthcare, particularly in and around robotics, automation, equipment that are, that we think are, that we think are attractive.
And I listen, I still, you know, we feel like, you know, we got to be careful, we're not, we're not hanging at the bar too long. But I still think the consumer is going to hold up pretty darn well. So the big cap, consumer oriented companies, and by the way, airlines, I've been trading a very cheap multiple, and I think there's a cultural movement towards leisure and hospitality.
So some of the, some of the travel areas, you know, individual names, but some of the hotel management companies and airlines, I, I still think the consumer is in, particularly the high-end consumer is in the mid to high-end consumers in good shape. So that's where we're going. I mean, I'd like to reiterate one point you said, like, I don't really understand it.
I think the small cap, I think as far as the data is such a big advantage today. I think there's an incredible dichotomy between fixed income and equities now. And like consumer staples or, you know, some of the odd traditional autos, some of the traditional telecom companies, telephone companies, et cetera.
Like in the debt markets, we do a ton of financing and they're great to lend to. I just don't find, and again, it's not universal, there's a couple of idiosyncratic situations within it. But on equity, I'd much rather be like, I don't know why I don't own consumer staples.
I mean, yeah, there's getting fixed income, but I, but I, and equities are like the bottom of the cap stack to take on growth. And then the fixed income will lend to more of the traditional businesses that don't have a lot of growth stimulus. So one kind of final question to kind of wrap up, it's maybe kind of like in simple terms, kind of what would you think it would be?
You're out of consensus view or where do you think the consensus is wrong? Because it feels to me like the consensus is most people feel pretty good about the U.S. economy, believe in the U.S. exceptionalism story that will continue to outperform the rest of the world, for like some of the reasons you alluded to with Europe, comfortable with tech, it's not uniformly consensus, but it feels like there's a pretty common view that people have. There's a few, those who might worry about inflation going lower, there's an odd person who's calling for significant slowdown, but it feels like it's pretty consensus.
The one area that I feel like I would maybe disagree with some of the consensus, it does feel within some parts of the investor community that the policies from the Trump administration would be very reflationary. I've kind of thought they actually might be not disinflationary, but less reflationary than people are assuming. It won't be Trump 2.0, will not be Trump 1.0.
Is there a part of the kind of the consensus view, however you want to define it, that you say, I think that's not right, I have a different take on things? I'm much more enthusiastic on growth than others. I think, right to the point you made, I actually think that the way we're going to get inflation down, I'm actually surprised that oil prices have been rising, because I actually think that's going to be the place that there's going to be pressure to move price down.
While the market seems to be buying upside, I'm buying the other way in oil. Now, there are some dynamics in that gas and nuclear, et cetera, that are going to be stimulated by the AI, but I actually think you could see more pressure on energy. Then the other one that I have a more, I think, aggressive view than most is, well, I just got back from the Consumer Electronics Show, I think AI is the thing.
I believe in it. I think it's going to be powerful. The other one that I'm more aggressive on, I think this debt thing is worth, I think I hear people quite a bit talk, we've always had significant amounts of debt.
I think people underestimate how we're going to have to be auctioning as much debt as we're going to have to auction, unless there's significant policy to address it. I think that's going to be one of the parts of the risk factors you got to be really, really careful about. I hear people, I think people are very sanguine about it as well.
Well, your comment about you don't want to stay at the bar too long, I think that might apply to the US government, stay at the borrowing bar a little too long. I don't think the chance of any bigger crisis here is still quite low, but it wouldn't surprise me to see a bit of a mini tantrum where rates kind of go higher that spooks people out of mind, also spook the administration and Congress to be tamped down a little bit what they want to do on the fiscal front. I feel like that almost has to happen before they get a little bit of kind of religion to maybe it actually would be beneficial to the economy if we get a little more deficit hawks, bring down inflation, bring down rates, that actually would be the best thing for the economy, but you might have to have a little more pain on the rates front to get there first.
I hope not, but I fear, you know, I've found, as I've said this before, that policymakers tend to react when the shark is right next to the boat. And I know I, as opposed to being proactive, but I hope I'm wrong. I hope so too, but we're prepared for the worst. 30 minutes goes quick as always.
So with that, Rick, Jason, thank you both for spending some time today with our listeners here on How Should I Be Positioned? And thank you very much for covering all of the ground with us that you did. I do look forward to continuing with the conversation at some point, though, Rick, Jason, thank you again for your time today.
Appreciate it. Thanks so much. Yeah, thank you for joining us and good luck in 2025.
It'll really be interesting. Sure. Thank you.
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