Goldman Sachs' Lindsay Rosner: Fed rate cuts are 'coming' this year
John made a great point 1/2 an hour ago about soft landings and that they are not smooth all the time, even though they may be soft, right. Talk about that a bit. That’s exactly right. And I think the market should listen to John. There’s been so much back and forth. Is it a hard landing? Is it a soft landing? And I think what we very much feel it will be a soft landing. But I think what’s been missed by the market is that a soft landing, If you think about it literally at the airport, right, you’re landing on the tarmac. There are times when you have to brace with the tray table in front of you. That could be what we’re going through in the economy. I think the three hot inflation prints we had in CPI, we’re a bracing of the table in front of you. But it’s how it broadly trends. And what the bigger theme is, this is a soft landing. We’ve got good growth. We’ve got a normalizing labor market. We’ve got inflation channeling in the right direction. Yeah, some bumps, but we’re going in the right spot. This is a soft landing and I think we heard from Powell, he is seeing a soft landing for sure, right. The house view at Goldman has been pretty constructive for a while now. I think yawn has 15% recession odds looking for a July cut, looking for relief in things like insurance and shelter. So where does that lead you to on the duration conversation right now, right? Well, we think it’s really a good time to extend duration. So there’s a lot of money sitting in cash right now. There’s about 6 trillion money markets and the very, very front end of the curve. We think that cuts are happening. They’re going to start either this summer, they’re going to start July, or they’re going to potentially come in September, but they are coming. And as a result, it is the time to extend your duration and lock in those yields. The really exciting 5 handle on money markets, that’s going away soon. The average duration of a money market fund is 2 weeks. So if you think about as that starts to work through the system, you’re not going to get those great yields in the front end of the curve, move out the curve into great spots and fixed income where you can take advantage of the high yields you’re used to and want, right? But, but the choppiness you’re talking about does still lead you to high quality, right? That’s right. This isn’t a market in which everything’s going to do well because what is different here in the playbook changed is we have a higher cost of capital. So there are absolutely countries, company structures, consumers that can’t handle this higher cost. And so you have to be really discerning in where you invest big picture, broad strokes up in quality, leaning into high quality assets, investment grade or up in quality and high yield, double B, single BS. That is a great place to be. And the other thing we think is really important is that this is a market again with that higher cost of capital that you want an active manager because someone needs to be looking at the portfolio and saying I want to stay away from those triple C’s or I’m worried about that commercial property. Let’s pick the right things that are going to do well in this environment. You talk about geographic diversity and I wonder why what, what, what about the current environment leads you to making sure you’re not concentrated in one area of the world. Sure. Well, it’s really interesting right now because there’s global divergent, right? You have the Bank of Japan that’s likely to hike. You have the Fed, July, September, let’s see, going to cut, Sweden cut actually. So you’ve got all these things moving in different directions that leads to very different outcomes. This is a beautiful place to be in fixed income and pick and choose because you can do interesting pairs like you can be long duration in the US, you can be short duration in Japan. We can put all of this together to have a much better outcome and alpha opportunity for our clients. When you I don’t need to belabor like every data point but when an Atlanta Fed comes in this week and says Q2 tracking at 4-2, how do you look away and and not get seduced by numbers that might lead you to change your whole thesis? Yeah, I I think you have to pull the camera back and you need to think long term. We are long term investors. We’re also investors I think with humility. I think that’s really important and I think that’s a message that we’ll have at the investor forum today. Investors really do need to be humble. We have seen just in the very first quarter where Atlanta Fed would have told you a very different kind of brain. So we have a very recent data point that suggests to you need to pull the camera back and think broader. The bigger picture is as we forecast out where GDP is going to go, it’s strong. Finally, you mentioned the forum and I wonder when you talk about say, duration extension, do clients push back or are they are, do they, are they willing to be LED on that front? Right now, clients are asking the question and they’re looking for advice. What are we supposed to do? The pushback that we’ve received is, hey, being in cash has really worked. And you know what we are saying, congratulations, you’re right, cash was a great place to be. We are not denying that and we are not saying that the investors that we speak to aren’t smart and haven’t made prudent decisions. But together we want to work together on the forward. What should you do next? Let us help you think about solutions for your clients that for us is extending duration. Fixed income right now has yield in a way it didn’t have before. This is a great opportunity. And again, if you really did like those yields that you were getting in money markets with a 5% handle, they’re not going to be there forever because all it takes is 2 cuts and suddenly T-bills don’t have A5 handle anymore right there in the four range. So move out that curve, lock that in. And if you’re willing to go out the risk spectrum a bit, think about high yield, think about bank loans, think about emerging markets, you can do for in excess of five percent, 678. There’s real opportunities out there. But again, with this higher cost for capital, you need an active manager to help guide you through this market. I can hear the view.