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Eric, it's great to have you here. So talk to us just about what you think is already priced into the market. Here we are, we're going to get the Fed rate decision tomorrow afternoon. There's a massive debate going on between 25 basis points, 50 basis points. I guess my question to you this morning, given the current higher odds of a 50 basis point cut, what happens if we only get 25?

Yeah, it's a great question, Seana, and good morning. I think the key thing for market participants is to really get a better sense of the Fed's path. And when we say the path, we ultimately care most about where will rates settle out over time. Clearly, the 25 versus 50 basis point debate is the current event. But we think the bigger issue is, where will the Fed normalize? Before the great financial crisis, you had Fed funds really at about 6 and a half, 7%. That was like the steady state level where they hung out. And then, post the GFC, it's been closer to 1%. So, we think the Fed has some signaling to provide market participants like us to say, "Hey look, where should we be calibrating that equilibrium view?" So, we think the bias is probably more like 3, 3 and a half. Um, if the Fed were to go higher than that, that's really not priced in. We don't think this economy can withstand a really high terminal rate by the Fed. So again, the path is probably more important than the 50 versus 25. And so it's a very important press conference on Wednesday.

And so, I mean, how much of that path and the terminal rate do you even think they'll begin to discuss at this juncture?

Yeah, Brian, I think it's one of those things where if you look at what's really been communicated by the Fed thus far, it's this idea that that terminal rate has been ticking higher. It's very subtle, but I think what we as investors are really focused on is, "Look, is this inflation risk actually higher than normal?" Not just like what's happened post the pandemic, but is normal steady state inflation going to run a little bit higher? You've heard that from the European Central Bank earlier in the week, they actually think inflation risk probably go up later, later this year and early next. There are also a couple of other sell-side shops that are saying the same thing. So, ultimately, we do think a risk that is not fully priced in is inflation hanging around. I think that there's this Goldilocks soft landing view that inflation will mean revert. That could happen, but there's also this risk for us as investors that, look, inflation just hangs around for longer than expected. That's why we think the Fed is going to have to provide some more guidance and be a little more clear about that path.

So then, Eric, let's talk about what investors should do right now. How should investors, should investors be adjusting their portfolio today? How about the Fed decision or, or how should investors then be allocating some of their exposure, given the fact that we'll likely see a cut, but like you were just saying, there's a long list of uncertainty right now.

Yeah, I think the biggest thing is income replacement for a lot of individual investors. Institutions have a lot of options in front of them. We still think that private markets are the best place to be, but from an individual perspective, we think the most important thing is to move out of the front end of the yield curve again, whether it's in CDs or cash products. They've been helpful. They've actually underperformed for the last couple of years. And now that we have the Fed taking away that punch bowl, if you will, of higher rates, which we think will be a steady drip lower, there are other things to do. So, so we think investors should be really paying attention to things like longer duration municipal fixed income. Again, taxes and tax considerations are important, but we think there's some value there. We also think that sectors that are probably a little underappreciated by investors. So things like the consumer discretionary area, uh we also think that there are some components of the energy market that are starting to become interesting. Again, energy is the one sector that just has not worked. It has not worked at all this year. I worked two years ago, it hasn't worked for some time. That's a spot that we'd probably start looking at opportunistically, but again with very tight stops. So, we think income replacement, moving away from the front end of the curve is important. We are still believers in tech. We think that that spend is going to continue. Companies are getting bigger, stronger, faster, not through hiring more workers, but actually through capex dedicated to information technology. We do think there's a lot to do there beyond AI. So that's a spot that we think is also of value for investors here.

Eric, when you think about growth and and value, I mean we we've continued to hear this term get brought up and maybe it's because I just keep asking people about it, but growth at a reasonable price right now, what are some of the elements of that trade that people should be looking at and and really grading companies based on as they're evaluating whether or not it is a right move for their portfolio?

Yeah, I think that the most important thing right now is number one, do we see real income statement improvement, both in terms of sales and margins? That'd be the first thing that we'd pay attention to in terms of growth at a reasonable price, because there has to be growth. And the second is an emphasis on returning cash to shareholders, not at the expense of bond holders necessarily. So what I mean by that is that as companies look to grow, and you've had some evidence of that this morning, you've done a good job reporting on, that companies needing to, you know, focus on things like buybacks, things like increasing dividends, those are signals that we think are actually healthy. Uh so, you know, there's a combination, we think the perfect combination of stocks right now are those who are returning cash to shareholders, but also seeing some organic growth. So that's not for everyone. Not every company has that opportunity set. So that's really what we think is a sweet spot for growth at a reasonable price right now. And again, especially emphasizing income statement strength and the ability to return cash to shareholders.

Eric, one thing we haven't talked about yet is the election. How does that factor into your forecast? How is that factoring in to your portfolio allocation?

Yeah, it's a great question. I mean I think the biggest thing for us is there really has not been enough substantive policy to get into the, what's called the micro sectors that we normally would look at from an election standpoint. Again, things like regulation and tech, things like what's happening in drilling, those would be important. But I think the key thing for investors right now is to really pay attention to considerations around taxes and tax rates. So, back to the idea of municipal fixed income, which is this like sleepy sector, it actually has some good and long cash flow, but does have some value state by state. So we do think emphasizing municipal fixed income makes sense. Also, extending duration when you have opportunities to do so, we think that's a good spot to be. So I do think that defense, in terms of our stack rank of interesting sectors to play off of the election, but we need more details, would be defense, and then technology, and then finally the energy space. But right now, we just don't have enough substance. It's probably going to be something we learn more about in November, December, kind of the aftermath of the election, as opposed to playing something in the election. That's how we're looking at things right now.

Eric Freedman of US Bank Asset Management Group, thank you so much for taking the time here with us today.

Great to be here. Thank you.