ETF Edge - BlackRock’s Rick Rieder on the Fed, Rates & Global Bond ETFs 10/30/23

Episode Date: October 30, 2023

CNBC’s Bob Pisani sat down with Rick Rieder, CIO of Global Fixed Income at Blackrock and Head of the BlackRock Global Allocation team. They discussed everything from the Fed’s next moves and the glide path of interest rates to the popularity of active fixed income and investing in a 5% world. They also broke down big global bets ETF investors can sink their teeth into, if they’re looking to go beyond domestic borders in the bond space. In the “Markets 102” portion, Bob continued the conversation with BlackRock’s Rick Rieder. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQQ, supporting the innovators changing the world. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange, traded funds, you are in the right place every week. We're bringing you interviews, market analysis, and breaking down what it all means for investors. I'm your host, Bob Pizzani. Today on the show, we're sitting down with the man in charge of allocation of the world's largest asset manager, and that's BlackRock. We're going to get his take on a range of business.

of topics, everything from the Fed's next moves and the glide path of interest rates to the popularity of active fixed income and investing in a 5% world. We'll get a look at big global bets. ETF investors can sink their teeth into if you're looking to go beyond domestic borders in the bond space. Here is my conversation with Rick Reeder. He's the CIO of Global Fixed Income at Black Rock. He's also head of the Black Rock Global Allocation Team.

So here's the question. Thanks for coming on. Thanks, Rob. Appreciate it. topic dominating everything here. And that's the direction of interest rates. You knew I'd start with this, right, folks? A rate's going to be higher or lower towards the end of the year in 2020. Yeah, I mean, I think we're closer to the top end of the range. I mean, is it possible if growth continues to be strong and we push up a little bit? Listen, I think the one thing that's usually

important is that the Treasury's got to issue a tremendous amount of debt. And, you know, every week we're getting four to 500 billion a week of debt that's coming into the marketplace. So, you know, you got to absorb a lot in the markets. If, you know, I think the Fed is, you pretty much done. Could they hike another 25 in December possibly? But I think short-end to intermediate term interest rates have done virtually all they're going to do. Could long-end interest rates drift a bit higher? I think so because of the amount of debt that the Treasury has to put down. So we could get a normal yield curve? I think we're going to get a normal year as you get into next year growth is moderating, inflation is coming down. We think as you get

into the beginning of next year, you're going to get inflation in the high twos, two and three quarters, 285 or so. You know, that's, it's still elevated. But if you take it's, make real rates, you think about, you know, we're issuing treasury bills at 5.6%. You get inflation at 270, 280. You talk about real yields that are pretty darn attractive. Close to 3%. Right. And I think what's going to happen is next year, the Fed, to keep real yields at a restrictive level, they'll still have to bring the rate down because inflation is coming down.

So, listen, I think, particularly front to intermediate term interest rates, I think that we've seen most of what we're going to see there. You know, today, later on today, we're going to get the Treasury refunding schedule at 3 o'clock. When was the last time this was news? And yet now it's news. So I think we're expecting there was huge numbers. As Rick said, there's huge amounts of debt being issued. I think it was $1 trillion in the third quarter.

I think the estimates now they're going to announce this today, but I think $825 billion or something is the numbers. And we're actually paying attention to this and we never used to. So, Ann, if you take gross issuance in November, I think we're going to see $2 trillion of gross issuance. Think about that. $500 billion a week of gross issuing. So that takes Treasury bill supply and coupon supply. The numbers are staggering. And by the way, it's not like they're going down because of the costs of the interest now. And people don't factor in. Do you know for the last 10 years the average interest rate on bills was 0.82%. We're going to issue bills this week at 560. So the thing about what's happening, the debt service, a cost of Treasury grows. What happens is you have to issue more debt. And so this is a big deal for going. I mean, $2 trillion a month of gross issue. It's $500 billion a week. The numbers are staggering.

It's part of why I think rates will stabilize here. I think you need to see the Fed start to bring that rate down, which I don't think I'll have in the second half of the year. But, you know, we're going to get to buy these yields at these levels. So the supply is staggering, but the demand may not be. But the Chinese apparently are not buying as much as they used to. The Japanese are not. The banks are not for whatever restrictions. Who's buying all this stuff?

By the way, so you hit the two of the big ones. You missed, one, the Federal Reserve. In 2020, bought 2.5 trillion, 21, they bought a trillion. Fed's not buying their selling. The banks, like you said, not buying their selling, and actually I would argue international is net selling. Who buys it all? What has to happen, and I think what will happen over the next year so is households will increase their holding.

So they're buying bills today, clearly, through money market funds and outright, what I think will happen in the next year or so is if Fed starts to cut rates, people say, gosh, I want to lock these yields in, then I think people will start to go out the yield curve, and you'll start to see the households have to buy it, but that has to happen. And by the way, same thing with agents. More rates are going to go through the roof.

All rates can go higher. Yeah, so all those equity investors sitting on the sideline collecting 5% treasury bonds right now, yields right now, that's a huge competition for the stock market. As the stocks guy, that worries me tremendously. But you're saying that could be good news, though, here. What would entice them to come back into equities, though? Or is this a permanent feature?

So, no, I mean, listen, I think, I think what happens. I think the equity rate still do okay as long as rates stay here and or start to come down. If you believe that the Fed is going to start to move rates down in the second half of the year, if you think the yield curve can normalize, you could create a decent tail win for the equity market. Listen, I think equities, if you said next year, what should my portfolio look like? By the way, you can get 5.5% in Treasuries. If you want to take a little bit more yield curve, it's got in three years, five years, which I think is fine today, and maybe I'll do some investment in great credit.

You can get seven. So I get seven in high quality fixed income. I think equities can get you an 8 to 10. You think about what return on equity for equities is 8 to 12 percent. Multiple is not that bad. But a lot of people are saying it's not going to be the same going forward because of the competition. That's part of the problem. Right.

So are we going to see 25 percent returns in equities? I don't think so. But I think equities will do their job. I think a multiple will stay relatively unchanged. You know, can you throw off 10 percent growth of book value of equities? Listen, I think people will continue to buy equities. I'm pretty blown away. You think about U.S. economy, this quarter, grew 4.9%.

That is staggering. That is the direct relationship to revenues for companies. As long as we can keep growing, nominal GDP in this country, equities will do their job. And where are you in the soft landing camp? We've been waiting for this recession for a year ago. Everyone was sure we were being in a recession this time, wrong, completely wrong. I don't really get the concept anymore of landings.

Like I think the world likes to talk about soft landing. The U.S. economy is 70% consumption is 70% services. In 100 years, it's only been 14 negative quarters of negative growth in services. Services don't go, don't have cycles. Goods economy has cycles. When people say, gosh, we're going to go into a recession or deep recession, you'd really need the goods economy under tremendous pressure. The goods economy can be cyclical, commodity-driven, commodity-oriented.

But gosh, I just don't, you know, do I think? So this year, we think GDP, real GDP, we think we'll finish it 2.5% real. Next year, we think it's going to be a percent and a half positive. So moderating, slower. But I, you know, I think people underestimate. I call the U.S. economy the polyurethane economy because it flexes and adjusts like a temper pyrpeed. And it can take some pretty significant shots and it just, and it rebounds. So I think we're slowing. I love that polyurethane. So not teflon economy. You're sort of playing on words here, but polyurethane. So I said that before. And it's incredible.

And flexes. Yeah, so there was a commercial one. I remember the temperate bed. They showed somebody jumping on one side of the bed and they didn't spill the wine glass on the other. All right. And that, to me, is like the U.S. economy. You can take commercial real estate, local banks. You can take a gross, an incredible increase in interest rates.

U.S. economy, technology oriented, energy independent, real productivity and innovation taking place, and a service-oriented kind of economy, particularly as the population ages. You think about spend on health care, spend on education, et cetera. It's much more stable than, you know, people talk about these cycles. I think cycles were something we saw 20 years ago, unless you have a pandemic or financial crisis, I think it's much more stable than people think. Now, active bond ETS.

You've got this active bond ETS. One of the reasons I wanted to have him here, then again, his macro, is he's running an active bond ETIM right now, and they're having a bit of a moment, these things. You launched this Black Rock flexible income ETIM, B-I-N-C is the symbol. You started in May. It's got 160 million in assets. And that's pretty respectable. You're the manager of this thing. So I look at this. Two things stick out to me about this. This is a very unusual ETF, folks. Strong emphasis on international. I see Brazilian bonds in here. I see Mexican bonds in here.

Generally emphasis on the shorter term. I think it's three-year duration. Is that right? Two point three years. Okay. Tell me about international. This really freaked out at me. I see almost what almost 40% international? What's the, what, why international bonds? Yeah, so I mean, by the way, there's international and international. So when you think about emerging markets, you could be hanging out on the edge in Argentina and

Turkey and other, and historically Russia, et cetera. We do it. We like Mexico. Think about where short-term interests, as local rates are in Mexico, you can clip double-digit yield by short-term Mexico. As long as you're comfortable with them, we hedge some of the currency. You know, Brazil's a high-quality emerging market

issuer. But are the size we have it, emerging markets relative to where we have international is much bigger in Europe. So things like European investment credit, European high yield, a dollar investor today, because of the currency, can actually swap back. So as a dollar investor, what we do is we swap back European, things like European investor and grade credit to dollars. You get six and a half percent for two-year good quality investment-grade companies. So this is largely a dollar play to a certain extent.

Yes. By the way, we could be here a year from now. and will be 15% international. Today, it is such a boon to U.S. investors to take advantage of this. Because of the dollar. Yeah, by the way, it's the flip side of a European or Japanese investor. You can't buy U.S. assets because the cost to hedge your currency is so expensive. But as a dollar investor, it is a windfall.

The beauty of this, the active ETF is we can move around and take advantage of where the opportunity is. I think, you know, active ETFs in fixed income, people underestimate me, there's 68,000 securities in fixed income. And we were talking earlier about the size of the equity market, the number of issuers. There's 68,000 fixed income. I think the stat is 85% of active managers outperform fixed income. One, you get carry an income.

Two, you have such diversity of opportunity. You know, what we'll do in this that I think is hard for an individual to replicate, we'll do things like securitized assets, things like asset backs, CLO, but we'll keep it real high quality. Our average rating, I think, is low single A now. Yeah. Well, that's what's unusual about this. First off, five and three-quarter yield on this right now. That's above two-year treasuries, right?

And what's the expense ratio? 40 basis points, I think. Yeah, we're actually significantly hard yield than that. But we're actually over seven in terms of the way we're at 7.4% today. So it's a pretty good yield into the portfolio today. So I see here, non-U.S. credit, 22%. Those are like international bonds, Mexico, Brazil. So U.S. high yield, 17%.

Yeah. That's pretty high. That's a, that's a little help there. There's one thing when you categorize certain, like, we buy a lot of high quality issuers, and we do an awful lot of analysis in terms of the types of issuers we buy. And I said, like international, things like European investment great, is pretty safe. The nice thing about this, we're getting 90% of the yield of high yield index, and we're half the volatility. Like, if you go back since we launched this in May, our volatility is really low.

We've outperformed the aggregate index by 500 basis points since we launched. Is that only because you buy the highest quality junk? We buy a lot of high quality, high yield to buy a lot of high quality asset backs. We buy a lot of agency mortgages. And because of the, like we talked about earlier, the shape of the yield curve, you can buy a lot of yield in the front end of the yield curve today. Keep your yield really high. Keep your volatility down.

We don't own, I'm going to say if we don't own anything, but I'm pretty certain we don't own anything longer than a five-year maturity. So our interest rate volatility, say the ag, since we launched, the ag's down over four and a half percent, and we're up since we launched. And the idea is keep your interest rate volatility down, keep your volatility of credit down. And I'm just trying to do it over and over again. And I see asset-backed securities here, 8 percent. I mean, that could be what? Credit card portfolios?

It's anything backed by assets, right? Credit cards, car loans, whatever. Food loans, auto loans. I say credit cards. residential mortgages. You know, we like parts of the AAA commercial mortgage market. People have said, you know, office property is having a problem. It is.

But we like parts of the commercial mortgage. And you have commercial mortgages in here, too, 7%. So how do you put this together? I've asked them several questions about its construction here. Do you use top-down, bottoms up? I mean, how does the model, do you look at the global economy and say this? And then you say you have all these tens of thousands of bonds. Is there a bottoms-up way to do that, too?

So, you know, we run $2.6 trillion in fixed income, so we're pretty active in the market. The way we do it is we set regime identification. So I spent tons of time on the macro and saying, okay, where are we today? In the interest rate, where do I be in the short end of the curve, long end of the curve, do I want to be international, or be domestic. And then we let our teams do the bottom up. So I'll say to our securitization team, I'm looking to get this yield, I'm looking to get this sort of dispersion, this sort of volatility.

I'm willing to take this sort of volatility. Go get me the best assets for it. And then we let our teams do bottoms up. And, you know, the intensity of what we do, we have unbelievable risk systems. We run stress testing scenario analysis. I think we run 350,000 simulations a night to try and look at the stability and make sure, you know, not to get too technical. Things like correlations, dispersion, beta is in the right place. And it takes some pretty serious analytics to get it to the right place.

But we start with identify the regime we're operating in. Where's the best opportunity? Then let our teams go find the individual assets. Yeah, so now let's just talk about how well they're doing on this thing. Okay, so what are you launched in May? So the benchmark is the AGG. And for those you don't know, the AGG is, it's sort of a basket of the most diversified stocks and bonds, a fixed income that you can have.

So you've got high yield, you've got corporates, and here you've got treasuries, right? So this is sort of the benchmark. So there's the AGG on the white line there. You move that again. Put that back. We had the AGG on the white line and the BINC there. And you've been outperforming, which is actually not, it's hard to outperform on fixed income. They can be...

I don't know. Well, actually, you have a very unusual mix in. Yeah, because we can build income. There you go. That's what I'm looking for. Thank you. Yeah, yeah. Last few months.

The orange line is the BINC, which is Rick's fine. By the way, that number, I mean, that's 500 basis points. So they can... And the volatility. And that's only price. You're just doing price here too, right? Yes, sir. And we yield more than I think that's the ag.

But look at how stable the orange line is versus the white line. So what we're trying to do is create really low volatility, very low dispersion, and keep our yield up so you clip in an awful lot of income and then use our tools to manage the diversification of it. BlackRock also runs ice shares. I mean, this is the largest ETAF provider in the world right now. But that's mostly passive investments, right? The I-share's part.

This is actively managed here. So where would this fit in a world that's largely moving towards indexing? I mean, can you make some argument that active management bonds actually has a better proposition for outperforming than actively managed stocks, for example? Is there something about bond investing that makes it more amenable to active investing? Or is that not true at all? So there's two things of fixed income that make it very, very useful. One is the secret about fixed income is if you can build more yield in your portfolio than the index

and kick out the stuff you don't want to own. So, I mean, you can create 50 to 75 base points a year. Things that trade too rich. Things like agents, like some of the agency paper, some of the supranational paper, trades too rich, kick it out. Get more yield than the index and then manage your volatility aggressively. And then the second thing is the point I made earlier. There's 68,000 fixed income securities.

your ability to pick the ones across that makes sense. So you're saying the plethora of QSips, what they are, the individual names, is how they number them, Cusips. It enhances the possibility for you to win an active management. Correct. I mean, to think about, we'll look at a piece of commercial mortgage security, and we'll look at all the collateral and we'll say,

is there residential in here, is there how much of offices in there, is there warehouse in there? And then we analyze it, dissect it. It takes a lot of rigor. It takes a lot of analytics, but you do it over and over again. You know, similar to the way casino operates is if you can tilt the odds in your favor, just do it over and over and over again.

Well, the increase in choices strikes me as one way you could outperform. It also has the potential for underperforming because you get overwhelmed by the sheer choices. It does. So I run an opportunistic mutual funds called Strategic Income Opportunities. We've run one year, three, or five years. We've won double the return of the aggregate index at half the volatility. And it's because you have so many tools of your disposal around the world, like you were pointing to, you know, there are times you want to be in Mexico, there are times you want to be out of it, there are times, you know, being tactical and fixed income and have an expertise and real teams around the world to do it can be hugely effective. How do you compete with the onslaught of these active products I've seen?

I've covered so many of these option overlay products that are out there, all sorts of things that I have seen, option income strategies, covered, call ETFs, enhanced option ETFs, premium income ETFs. You know what the competition is like, and they've attracted some interest. Yeah. How do you compete at that against that? So listen, I've been doing this for a really long time. We've run a lot of fixed income. My view is

just try and create durable return, consistent return over time. The reason why I think this BlackRock income will grow significantly, the desire to own ETFs and models, but to also don't understand how will that ETF do? So if I put it in what most financial advisors say, gosh, I want to build a model, I want to understand what that is.

The transparency around this today is like, gosh, I know I'm getting income, I know I'm not getting a lot of volatility, that will fit an awful lot of models. It's why you've seen it grow as much as it has, it grows so much in the last few months, and our senses as more and more platforms put it on, which we've seen recently, that it'll get some real growth.

I say, because it fits. Like, how do you got, people buy yield because they like high yield. They like, and they're not to make tools to do it. Being able to find a tool that somebody can manage that higher income with some stability, I think we'll gain a lot of attention. A lot of people are saying this increase in rates, I want to go back to the macro as we get out of here. The increases rate has done the fed's work for it.

Is that your position to? I think it's a big part of it. I mean, part of it's the long end of the interest of the yield curve that's moved up. That tightens financial conditions. That's where most of modern financial. finance issues, you know, corporates issue out the longer end of the curve. Mortgages are issued out five to longer on the curve. So the fact that we've moved this much and we've moved the forwards, not to get too technical,

but if you look at the forward rate curves, they've moved back 160, 170 basements. That is a huge move because people were expecting the Fed to hike and then start easing quickly. I think a lot of people were baffled why the long end did move. But this is historically a bit of problem. The Fed raises short-term rates and then the long-term doesn't. go up enough and everybody says, why isn't everybody listening to us? But now it is. It also helps the Treasury's now issuing it a lot.

And so you're getting a lot of supply. And to your point earlier, parts of that where the traditional buyers aren't there anymore, so we're getting some curvature. I think you'll get more normalization of the yield curve. Part of why I like owning the short end to the belly is, I think the yield curve will steep them. I know you're the fixed income guy, but I'm the stocks guy. What's your outlook or Black Rock's Outlook for equities?

The S&P's gone nowhere for two years. essentially sideways here. Europe still underperforms global equities? So I run a lot of equities. My global allocation funds big, you know, is oriented towards equities. So, listen, I think equities will do their job next year. I think, you know, I prefer U.S. to Europe.

I think Europe's slowing faster. I think the multiples in U.S. are actually, if you take out the seven, magnificent seven, although actually I think those stocks are okay because of their revenue growth, but you take them out, your multiple, you can find a lot of stocks trading at three, four, five times cash flow. I've learned in my life, if you can buy companies stable businesses at three, four, five times cash flow, that's pretty darn attractive.

You know, there are places like Japan. Are there companies like that that are doing, you can do that now? 100%. You look at parts of health care, autos, defense, home builders, energy. There's a bunch of them. In the last couple of months, they've gone in that tenter territory. It's taken that much time. Totally great.

Now it's time to round out the conversation with some analysis. perspective to help you better understand ETFs with the markets. 102 portion of our podcast will be continuing the conversation with Black Rocks. Rick Reader, Rick, thanks for sticking around. I want to talk to you about international investing because your new ETF,

which you launched in May, has a significant amount, and this is a bond ETF, of international bonds in Mexico, Brazil, government bonds in it. The case for international investing, how do you balance out need to do international and diversify versus the fact that for a long, long time, the United

States, at least inequities, has outperformed the rest of the world. Is there a way to balance that out? The problem with most people is, I think, oh, the U.S. has outperformed, at least in equities for years and years. Therefore, it must in the future, which we know is a mental fallacy. So I say a couple of things. First of all, the beauty of fixed income is when rates come down faster. We think Europe, growth is slowing faster, rates will come down faster.

is falling in parts of the emerging markets, Mexico, Brazil, we talked about. So your opportunity for return in a lower rate environment is probably faster in those locales than it is in the U.S. The other beauty of it is there are some incredible opportunities as a dollar investor. When you swap foreign assets, things like European investor grade back to dollars, you get an extra 200 basis points because of the currency hedge. So you can buy things like European investor grade. Two-year European investor-grade companies, 6.5% maybe a bit higher,

European high yield at 10, gosh, it's pretty attractive. The economy's slowing, but it's not slowing that much. We could get a tailwind from interest rates. We could get a tailwind from just a yield that we get into those assets. So the beauty of active, fixed income is you can move it around the world and find where the best opportunity is today. I mean, still we own an awful lot of U.S. You've got to be a bit careful about U.S. interest rates.

We're offering so much debt. The Fed, from the Treasury, the Fed may still raise rates a bit more. We want to make sure we're managing our interest rate exposure, hold in the places that are most optimal and just run balance, stability in the portfolio. How do you look at global investing when you have political issues like China? So 10 years ago, we were all saying, okay, a true global investor will invest based on, say, market capitalization. So if the U.S. is $40 trillion market cap and China has a $10 trillion market cap and Japan is a $6 trillion or whatever, you would own, you would want to own in relation to market capitalization. And yet the political conflict with China's, a lot of people are saying, well, maybe this is a

different case. Maybe China is a different case. Maybe China is not investable in the way we would think of it in a traditional way. Does BlackRock have any opinion on how we should do that, or what's the right way? Because the investment community is really kind of baffled now about what to do. There's the value guys. Remember, the value guys never used to care about any of the problem. political stuff. As long as it got cheap, they bought anything in the world. Then there's the

global investors that say you ought to invest with the global economy, you know, in proportion to market capitalization. But now there's a whole new issue about whether China's actually investable. So, you know, I think we always look at what the alternative opportunity is today. Listen, the geopolitical dynamic is challenging. And you think about, and it's just hard to predict. From an investor point of view, I always think about, you know, you comment about why do we own international. You know, I feel pretty good on Europe. I feel pretty good on Europe. I feel pretty good in Mexico, how much more do I want to stray from that today? If I get ample yield in those places, by the way, same thing in the equity market.

If I think I can garner enough return in the U.S. and or places like Japan's interesting these days, like how much risk do I need to take in those regions? The political risk is so high now. That's my point. It's really a problem. I've learned over my career. And not just on the moral, not moral issue, but intellectual issue of do we want to invest in a country that is antithetical to our interests.

Absolutely. And one thing I will say is you can think about it as a professional investor, you can think about, gosh, I'll own it, and then I'll hedge the risk. Pretty darn hard. It's unpredictable. You pay a lot. Nobody wants to provide insurance when the risk is high. And so what do I do? I just run my beta or I run my, you know, where my exposures are to a place. I feel very comfortable organically of what's in the portfolio. Because quite frankly, you know, I want to make sure that, you know, something that shocks the portfolio, that markets, by the way, are not deep today. People are, whether it's the Fed, whether it's growth, whether it's international, people want to take less risk. So we just want to manage that and make sure you don't air pocket in portfolios. So your point is, you're a new bond fund, B-I-N-C, BlackRock flexible income. I was fascinated. You own Mexican bonds there. And you're getting, what are we getting Mexican bonds? So you get low double-digit yields from Mexico. Oh, the same place where inflation is coming down.

You think about how attractive that. Without going out the yield curve. And the dollar's strong. So it's a... Well, and so mex peso has also been quite strong. It's, you know, so what we do is we manage our currency risks and make sure we're not taking too much currency. So your point is, why should we go out into other risk gases

when we can get a decent yield here in our own backyard, practically? Right. So you talk about what we have in high yield in our portfolio. So if you look optimally, they say, gosh, we own high yield. But do I need to own triple C rated high yield today? Do we need to own some of the weakest thing? No way. I get plenty of yield otherwise.

The one thing in the markets today that other people talk about, we're clipping over 7% yield today. If you wanted to get 8.5 to 9, the additional risk you'd have to take is so profound. Like, why do it? People would be very comfortable. You know, we used to buy bills and treasuries under 1%. Like, these yield levels are super attractive.

The average investor seems to understand that. We have $6 trillion in money marketed funds. Yes, correct. So, I mean, it's really a problem. So told me about stocks next year. year. We're down 20% last year. We're still up, what, 7, 8% in the S&P this year. The glue that holds the bear case together is high rates. Are we, let's assume rates don't change from here. Let's assume we're still 5% on the two years or thereabouts in the next six months. Is this a

permanent headwind for the stock market? So there's something very interesting about, you know, why are higher interest rates of drag on equities? One, like you said before, there is an alternative and the alternative is super attractive. Bills at five and a half percent are super attractive. There's one that's different, though, than historically. The reason why it drags so heavy on companies or on equities is companies used to borrow significantly at those rates and would drag on their margins. Companies have turned their debt out. I think it was something like 75 or 80 percent of high yields finance when the funds rate was under 1 percent. That's pretty unbelievable. So if companies have termed their debt out don't have to refinance, that drag on margins from debt costs

is muted relative to was historically. The big one is, gosh, is an alternative. But today, like you say, you talk about $7 trillion a city money market funds, it's not all going to go back into bonds. A ton is going to go back into equities. They just want to know the Fed's not going to keep hiking rates and that we're in a fairly stable period. But I feel pretty good.

Stocks are pretty washed out. We were talking off camera a little while ago about how the earnings have come in okay, but the body language of the corporations are such These stocks that they sell off immediately after. Health care has been awful. Johnson & Johnson was a new low on Friday. American Express was at a new low,

and they came out and said the consumer was fine. The stocks had a new low. Gee, it seems like somebody doesn't believe them. Yeah. It's pretty incredible. If you strip out those seven stocks and look at their performance of a lot of the equity market this year,

it hasn't been that great, particularly after a tough year last year. Part of the beauty why equities make some sense today is your buying companies at three, four, five times cash flow. That's pretty darned. aren't attractive, even if rates stay elevated. It is quite amazing.

All right, Rick, thank you very much for joining us. As always, Rick Reeder with BlackRock, and thank you for listening to the ETPH podcast. InvescoQQQ believes new innovations create new opportunities. Become an agent of innovation. InvescoQQQQQ, Invesco Distributors, Inc.