00:00Rebecca Patterson, the fancy title, Writing Daily, great work with Sebastian Maliby,
00:05senior fellow at the Council on Foreign Relations.
00:07I don't care because it's Bloomberg money.
00:10Wonderful to have you here.
00:11Long ago and far away at Bessemer Trust, I came in and I said,
00:15wonderful pontification to wealth management people.
00:18If you were at Bessemer Trust today, how do you handle this bond market?
00:23You know, I would have been nervous about bonds for some time.
00:28I wrote an op-ed in The New York Times in January last year expressing some concern about longer-term
00:34bonds
00:35because the policies we were getting were going to increase the deficit, increase growth, which is a good thing,
00:41but push up inflation, therefore likely higher rates.
00:44So this isn't a surprise what's happening.
00:47I think the surprise this week is now we have volatility in those rates thanks to the Treasury.
00:52So I would prefer to be in cash or short-term fixed income and other types of diversifiers,
00:57dare I say it, gold.
00:59Here's the canard of the business, folks.
01:01Bring up the chart, please.
01:02This is for Rebecca Patterson.
01:04Wall Street and Rebecca Patterson talk differently than mere mortals.
01:09If you own the TLTs out 20 years plus, like a lot of retail does, picking up that yield,
01:15it's priced down from COVID.
01:17It has been a crater of yield up, price down.
01:21In your world, what's long-term, seven-year duration, not 20-year, when you're looking at retirement and wealth management?
01:29Yeah, I think even shorter duration, like money markets right now.
01:34So the yield pickup you have by owning a longer-term bond right now, yes, you get something for it,
01:39but is it worth the risk?
01:41And right now, I haven't thought it is.
01:43What I would say, though, is for retail investors, if you lose money when rates going up,
01:49it does depend on how fast the rates go up, and it depends what the yield is.
01:54So if I'm getting a high yield, say the 30-year, it's 5.24%, and yields continue higher but very
02:00slowly,
02:01I lose money as the prices fall and the yields go up, but I'm making money on that coupon.
02:07So it depends how quickly this move happens from here.
02:11They get the envelope at home.
02:12I'm sorry.
02:13They get the envelope at home, and $100,000 has become $97,238.
02:18And then for your wealth management, the next month, it's $95,800.
02:22Wall Street rationalizes.
02:24In the Bloomberg money world, folks, you're looking at yield up, price down.
02:28Right.
02:28So the rate of change is what you're saying you're focused on.
02:30Correct.
02:31But if we look at the volatility in the bond market, and you can see it certainly this week,
02:35does it feel like the U.S. bond market is increasingly looking like a developing market
02:40as opposed to a developed market?
02:41A little bit, yes.
02:42I mean, if I wanted this kind of volatility, I'd go and invest in another country's bonds, not the U
02:47.S.
02:48Well, the irony today is that a number of emerging market financial markets have done better
02:53than the U.S. market in stocks and bonds this year.
02:57And some of that is fundamentals, and some of it is just point in time and what those economies are
03:02doing.
03:02If I'm Korea or Taiwan and I'm doing a lot of AI, that's obviously helped me.
03:07If I'm another country and I'm doing a lot of commodity exports, maybe that would have helped me.
03:11But I hear you.
03:12The point is that with our debt to GDP in the United States running around 100 percent and poised to
03:18go towards 120 over the next decade,
03:21and questions around who's buying the bonds and what yield they need to buy them, it makes things a little
03:28more tenuous.
03:28You say we need to watch the U.S. dollar because it'll suffer if the U.S. Treasury, under Scott
03:34Besson, can bring down yields.
03:35If you're an American living abroad, you certainly feel the effects of the dollar's strength and weaknesses, all the swings.
03:40And I feel affected if I'm traveling abroad, but not if I'm sitting here in New York for weeks on
03:45end.
03:46Right.
03:46Am I misunderstanding that?
03:48A hundred percent.
03:49If you're an American, you live in dollars, you get paid in dollars, you spend dollars.
03:52The only way you're going to feel that exchange rate movement is what it does to inflation and what it
03:59does to financial conditions.
04:00And what I mean by that is when you have a weaker dollar, basically, it tends to push up inflation
04:06in the U.S.
04:06And at the margin, that might make it more likely that the Federal Reserve thinks it needs to raise interest
04:12rates.
04:12Do you predict a weaker dollar?
04:15I'm more in kind of the range camp right now, so I don't think the dollar is about to fall
04:21off a cliff now.
04:22We just brought up the Gurra camp bill for this summer.
04:24Let's bring it up again.
04:25I was a mistake.
04:26It's a Bloomberg money correction there, folks.
04:28This is the U.S. debt clock popping out at $40 trillion.
04:32You and I were weaned on Paul Songus, Sam Nunn, Pete Peterson, and the rest.
04:37Are these people interesting?
04:37Every year, cry wolf, cry wolf, cry wolf.
04:40In my retirement, in my wealth management study, is it time to stop crying wolf?
04:46I think there's two things that are different today.
04:48One is simply the size of the debt.
04:51And the fact that we that's one thing.
04:54The second thing is that neither the public nor the politicians are willing to turn the corner on fiscal policy.
05:01Americans since 2008 have been conditioned to think the government's going to come to their rescue anytime there's a problem.
05:07And politicians trying to hold on to their seats.
05:10Fiscal austerity doesn't get you reelected.
05:12And so it's just been the self-fulfilling thing where every government, both parties, keep increasing that deficit, which pushes
05:20up that debt clock.
05:21So something has to give.
05:23We need politicians to be honest with voters and say we need to have fiscal austerity.
05:28And we need voters to accept that to have a stronger financial market and economy, there is a price.
05:34So when you say something has to give, what does that look like and how will people feel it?
05:38Well, if it is fiscal austerity, more spending cuts, which are harder to do, or tax hikes.
05:45And we'll see who pays those tax hikes.
05:47That's a question mark.
05:48If it's not that, and politically that's not likely anytime soon, then we have to get something else happening.
05:55And my fear, and I'm not calling for a crisis, but my fear is this happens in an ugly way
06:00that forces the austerity.
06:02And that could come from a few things.
06:04It could come here at home.
06:05Let's say there's a catalyst that pulls down sentiment towards artificial intelligence, AI stocks.
06:11It's not just an AI stock trade anymore.
06:13It's AI stocks, AI debt.
06:15Everything comes down.
06:16The entire stock market, the entire corporate bond market.
06:18And globally now, right?
06:19AI is in a lot of different markets.
06:21So that's one risk.
06:22I think a second risk is if inflation is sticky, the Fed has to raise rates higher than expected.
06:28That could be another catalyst.
06:29And don't forget overseas.
06:30You might be spending and living in dollars, but if France has a debt crisis, we will have contagion here
06:37in the U.S.
06:38I'm sorry, I didn't research this.
06:39The interns have all gone back to school.
06:41Are you on a task force?
06:43Are you on a Warshian task force?
06:44Oh, one of the Fed task force?
06:45No, one of Warsh's five task forces.
06:47Lucky you.
06:48You're not on.
06:48What would you do on a retirement task force right now?
06:51What would be goal one?
06:52A retirement task force.
06:53Social security task force.
06:55Rebecca Patterson.
06:55Social security task force, we have to raise the age where you start getting benefits from social security.
07:02People live longer.
07:03100% agree.
07:04Also, the rich people have to put in more.
07:06And we could do some means testing.
07:08I don't mind contributing to social security.
07:11I shouldn't get any.
07:12I'll live fine without it.
07:14I would rather have my money going to help people who need it more, and therefore we don't have a
07:19financial crisis.
07:19I'm not sure that's a popular opinion.
07:21None of these are popular opinions, which is why it hasn't been addressed.
07:24Since she's not doing popular opinions, does she come back or not?
07:27Yes, we need to have her back.
07:28I would like to come back.
07:30Please have me back.
07:31All right, Rebecca Patterson from the Council on Foreign Relations.
07:34She will be sticking with us, but we're going to talk some more personal finance.
07:37Get Rebecca's take on how she manages her personal finance.
07:41This is Bloomberg Money.
07:49Bloomberg Money, a perfect Friday in New York City.
07:52Hope you have a wonderful weekend.
07:54Are you working all next week?
07:56I am working all next week, but I have to work doubly hard because it feels like no one's in
07:59the office.
08:00No one's in the office.
08:01And the bond market keeps going crazy.
08:03It used to be quiet.
08:05It's not quiet anymore.
08:06What's not going to be quiet is November.
08:08Rebecca Patterson with a book come November, Investment Wisdom for Our Friends.
08:14Friends and Loved Ones.
08:15We are the first people to talk about this.
08:17I know.
08:17I feel like we're getting a sneak preview of all this.
08:19So, Rebecca, because of that, and you're going to come back once the book is published, I want to get
08:23a sense of your personal investment approach.
08:26How do you do things?
08:27Are you kind of a set it and forget it person, or are you constantly making changes based on conditions?
08:32I'm not a trader.
08:33And when I say that, I mean people who like to figure out what to buy and sell daily or
08:38even hourly.
08:39I'm an investor.
08:39So, I'm saying, what are my retirement goals?
08:43What money do I need along the way for kids' weddings, down payments for homes, et cetera?
08:48And then figuring out my asset allocation, partly because I've been living in this world for 30 years.
08:54I'm comfortable making some tactical tilts in my portfolio along the way, whether I'm leaning a little harder into equities
09:00or out or towards a certain country or a sector.
09:03But I'd say those are at the margin, because I think for most people, they get emotional.
09:09Yeah.
09:09They think they need to time it.
09:11Oh, my gosh, the market's frothy.
09:13There's a bubble I want to get out.
09:14It's really unusual that people can time getting out and then back in well.
09:19You have to time it twice.
09:19You're better off just figure out what makes sense for you personally and then let it go.
09:24Is there anything that's off limits to you when you look at all the possible investments out there?
09:29I am agnostic about crypto.
09:31If other people want to trade it, God bless.
09:33It's not for me.
09:34I don't like that you can't determine a fair value.
09:38I don't like that there are so many idiosyncratic drivers around it.
09:42However, I will fully admit, if you bought it in 2012 and held it to today, you'd be extremely happy.
09:48All right, Rebecca, such a pleasure to have you here.
09:50Great to have you.
09:51Thank you so much.
09:51Thanks.
09:52Rebecca Patterson, Senior Fellow at the Council on Foreign Relations, formerly with Bessemer Trust.
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