Jeffrey Abalos: Great. Thank you very much Lou. And Lynn, best of luck with your search out there. If you succeed in doing so please tell me how. But to start with Kathy, thank you very much for joining me today.
Kathy Jones: Oh, thanks for having me. It’s great.
Jeffrey Abalos: Wonderful. So I’ll jump right into it. I’ve got to know. When I wake up in the morning the first thing that happens is I just think to myself ok, all right. Here we go. For somebody in your position though, I imagine you have much more composure over what you’re doing throughout the morning. Could you take me through how you identify what’s going to have an impact that day and maybe what’s just going to be noise for you?
Kathy Jones: Sure. Well, first of all my day starts with coffee. So yeah. That’s my first thought is, is the coffee ready? But after that I usually spend a little bit of time in the morning before I leave for the office checking on the overnight market. So things that affect interest rates are inflation, growth, currency movements, the price on goods commodity. So I do a quick scan to see what happened in the Asian markets, what’s going on with all of those.
And then during my commute I actually have kind of a strange habit. I have a very short subway commute here in New York but I try to get, almost meditate. I try to like blank out everything for a little bit because I know once I hit the office it all starts to roll. So I take about ten minutes to just kind of just get my composure, get my thought process together and try not to go in with any preconceived notions.
Jeffrey Abalos: Ok. Blank mind, no expectations.
Kathy Jones: Right. Exactly. And then it depends on – every day is different. If I’m in the office and not travelling it’s going to be all about whether the economic data points today that we need to observe and see how that influences the market. What’s the federal reserve likely to do based on that information? What’s going on with the global central banks? That’s always an important one as well. And just kind of try to catch up on the news, scan as much information as I can before I settle down and try to process it all and put it together.
Jeffrey Abalos: Ok. Great. And what do you find in your position and in your role as our chief fixed income strategist, where do you say that I know that a lot of clients may be looking at this because of the sensationalization but perhaps that should be best categorized in the noise column.
Kathy Jones: There’s a lot of noise and the important thing to do is try to filter it out. And what really affects the bond market is really the prospects for inflation. I mean when you boil it down, that’s the most important thing. Certainly, also central bank policy. So if it doesn’t affect that, I try to put it in that category where I’ll look at that later. It’s not that important. The other thing to do is I just have to filter out the sources of information. There’s so much information out there. If you turn on TV you’re going to get bombarded with somebody yelling about something. And sometimes you have to just say that’s not really a source of information that’s going to be meaningful to me or has ever had a big impact on the market so I’m just not going to pay attention to that one.
Jeffrey Abalos: Ok. Got you. So inflation is a big component but I heard you just touch on a moment ago and I remember talking yesterday about this which as a novice in fixed income, I still have a hard time getting my head around. But you talk about the inter relationship between commodities and fixed income. Please as best as possible for somebody like me, how do those two interwork with one another.
Kathy Jones: Sure. I mean when you think about commodities what you think about is the price of the goods that we buy that get traded globally. So it’s both the currency component and the commodity price. So for instance, oil prices go up, inflation goes up because everybody consumes energy in some form or another either through gasoline or through heating oil or some other product. So that’s going to filter through to your cost of living. And that’s what inflation is. It’s true of everything whether it’s food. Whether it’s lumber that gets into building materials. That’s all very important. So the supply and demand of those goods is really important to know where inflation is headed.
Jeffrey Abalos: Got you. So it can be a bit of a leading indicator if you will for the –
Kathy Jones: It can be. It can be. Again, there’s a lot of noise there. Occasionally you’ll hear somebody say this base metal in China went up 100 percent so inflation is picking up. That may not be the case.
Jeffrey Abalos: Got you. Well, I know we’ve got a little bit of time left and I’m dying to know. The fed has a dual mandate, right? It’s got inflation and it’s got unemployment and unemployment is looking pretty good right now. It’s at 4.4 at least as of the August read. Inflation bellow the 2 percent target at 1.5. What do you think the fed does in this circumstance to manage that dialect?
Kathy Jones: Yeah. They’re having a lot of trouble because inflation normally with unemployment this low inflation would have picked up. People would have more money in their pockets. They’d be spending more and that would drive up prices. Hasn’t happened. We just haven’t risen that robustly. They’re starting to pick up but not as quickly as you would have thought with this level of unemployment. I think they continue to do what they’ve done, very slow approach to tightening policy. It’s not so bad that they are not going to tighten policy but they’re going to take a very gradual slow approach as they have over the last many years.
Jeffrey Abalos: Absolutely. Wonderful. Well, you know what? I’m going to fit one more question in if that’s ok. So talking about the noise that’s out there, I do quite a few different news sources. I look at the Wall Street Journal. I look at Bloomberg. For you when you’re going through these sources, how do you find ways to say this article is something that’s worth my time to read versus this might be a great fun read but I don’t see how this could actually have an impact on the market?
Kathy Jones: Yeah. Sometimes it’s hard to tell. So I divide them into two. I divide the information into two piles, things that I know and have read, people or sources that I know are reliable and interesting information. And then I have what I call opposition research as – it’s either somebody who totally disagrees with my point of view which I think is valuable if they have good points to make because I need that information. Or it’s just junk. The same person who has been saying the same thing for 30 years, after a while, you can kind of push that aside.
Jeffrey Abalos: Off to the side.
Kathy Jones: Yeah.
Jeffrey Abalos: Wonderful. Great. Well, Kathy thank you very much for joining us today.
Kathy Jones: Thank you.