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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
Speaker 2: my co host Matt Miller.
Speaker 1: Every business day we bring you interviews from CEOs, market pros,
Speaker 1: and Bloomberg experts, along with essential market movin news.
Speaker 2: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
Speaker 2: you listen to podcasts, and at Bloomberg dot Com slash podcast. Again,
Speaker 2: it feels like this market is just really has it
Speaker 2: gotten too far over? That's what it feels like to me,
Speaker 2: at least in the short term. But what do I know.
Speaker 2: I've only been doing this since nineteen eighty six. I
Speaker 2: still don't get it. Robert Teetert, he knows what's going on.
Speaker 2: He's a head of investment policy in a strategy group
Speaker 2: at silver Cress Asset Management. Robert, does it feel like
Speaker 2: we're a little ahead of ourselves here based upon what
Speaker 2: we heard from FED Chairman J Powell last week?
Speaker 3: It does.
Speaker 4: We've gotten a lot of progress in the last six
Speaker 4: weeks as we've seen the yield and the tenure come
Speaker 4: down from five to four. We've added a lot on
Speaker 4: the valuation side. Seems like we're fairly valued here rather
Speaker 4: than undervalued. Need a lot of progress next year on
Speaker 4: inflation and FED talk to keep holding those gains in valuation.
Speaker 4: So I think we're sort of at the end of
Speaker 4: this phase of the of the FED rate cut cycle
Speaker 4: or FRED rate cycle. Exc you get me flipping from
Speaker 4: ice to cuts and there I am getting ahead of myself.
Speaker 5: Right right, So how are you advising your clients to
Speaker 5: position heading into next year? Because you were mentioning to
Speaker 5: me earlier that you felt like what is transpired in
Speaker 5: the past seven weeks you were thinking was going to
Speaker 5: actually take about six months to happen.
Speaker 4: Yes, I do think it makes next year a bit
Speaker 4: more allenging. We've compressed a lot of gains into a
Speaker 4: short period of time. The earnings picture still looks reasonably
Speaker 4: encouraging for next year. So while the streets at plus
Speaker 4: eleven or so, my forecast is for around six percent
Speaker 4: on the earning side, I'm not really looking for any
Speaker 4: valuation progress next year. We've had that in the last
Speaker 4: six weeks and that probably isn't going to happen next
Speaker 4: year now, But that still sets the stage for a
Speaker 4: pretty decent year of midsignal digit returns driven mainly by valuation,
Speaker 4: And maybe when we get to the end of the year,
Speaker 4: we're starting to be into the fed cycle and can
Speaker 4: get a little more clarity on the outlook beyond that.
Speaker 2: Now, Jess, she won't admit to it, but she's owned
Speaker 2: the Magnificent seven. She's belong those stocks, so she says,
Speaker 2: you know, going right to the bank. Me, on the
Speaker 2: other hand, I have not What do I do here?
Speaker 2: Do I chase them into twenty twenty four? Do I
Speaker 2: try to find some of the sectors that have not performed?
Speaker 2: How do you think about where to go in twenty four?
Speaker 4: The likely scenario in my mind is that the seven
Speaker 4: still continue to keep pace, driven mainly by the earning side.
Speaker 4: They've got strong earnings potential that should continue. But small
Speaker 4: caps will catch up. They've been out of favor for
Speaker 4: a long time. There's a lot of valuation pressure that's
Speaker 4: closed the gap a bit in the last six weeks,
Speaker 4: but I think still more room to go. There are
Speaker 4: a lot of segments within small cap two that have
Speaker 4: been pressured a lot by the rate cycle. So as
Speaker 4: you have an easy rate environment, some of the finance
Speaker 4: and concerns are taken off of the table there. That's
Speaker 4: probably beneficial for margins and the small cap side to
Speaker 4: tend to carry a bit more debt. So I'm not
Speaker 4: really afraid of the seven here. They'll continue to carry
Speaker 4: their own on earnings, but the rest of the market
Speaker 4: will catch up a bit more. How do you view financials, Yes,
Speaker 4: that's an interesting and challenging sector, but I think the
Speaker 4: same as the small cap space.
Speaker 5: Well, it's also very broad because you have the bigger banks,
Speaker 5: you have insurers, and then you also had fintech in
Speaker 5: it that was not originally in that sector but got
Speaker 5: moved over because of the GIGS changes in the spring.
Speaker 4: Yeah, I think a lot of that nuance will be
Speaker 4: super interesting next year. We've had this easy knee jerk
Speaker 4: reaction of lower rates good for everybody, especially good for financials,
Speaker 4: And in my mind, the story of twenty twenty four
Speaker 4: is going to be a stock picking story, a nuanced
Speaker 4: story of not just sectors, but industry groups, and not
Speaker 4: even just industry groups, but individual companies and how they're
Speaker 4: navigating the challenges of a slower growth environment, which frankly
Speaker 4: is in front of us, so they have to be
Speaker 4: paying attention to margins.
Speaker 2: How about energy here, we've seen a lot of volatility
Speaker 2: in the price of crude oil across the globe, supply demand,
Speaker 2: all the geopolitical issues here. Is that a space that
Speaker 2: you like into twenty twenty four or is that kind
Speaker 2: of had its run because it's been a sector that
Speaker 2: everybody forgot about for a decade, it seemed like, and
Speaker 2: then it's just been really performing well over the last
Speaker 2: couple of years.
Speaker 4: It has been It's hard to see an environment where
Speaker 4: those prices continue a lot higher, absent more geopolitical risk,
Speaker 4: again just on the basis of a slowing economy. So globally,
Speaker 4: you know, Asia had been a real powerhouse of growth
Speaker 4: that slowed down US. They'd had a massive rebound, of
Speaker 4: course in terms of growth, but next year, with a
Speaker 4: backdrop of probably two percent economic growth, hard to see
Speaker 4: a lot of upside pressure on commodities next year.
Speaker 5: How are your clients feeling right now?
Speaker 4: I think they, like most of the rest of the world,
Speaker 4: are feeling a bit surprised how quickly the last six
Speaker 4: weeks unfolded. You know, it was sort of very easy
Speaker 4: back in October to look at the year and say,
Speaker 4: it's been an okay year, but there are a lot
Speaker 4: of things that have been lagging, and a lot's.
Speaker 5: Happened from the past six seven weeks, I don't think.
Speaker 4: So we've done a pretty good job, I think of
Speaker 4: keeping clients invested, and our view for most of this
Speaker 4: year had been relatively optimistic, so we hadn't been in
Speaker 4: the Barish camp. We had been in the optimistic camp
Speaker 4: on the year on the basis of the progress that's
Speaker 4: been made in inflation and economy. Mainly on the economy.
Speaker 4: You know, a lot of folks had a really strong
Speaker 4: recessionary bias and we have not had that, and so
Speaker 4: I think for the most part, we've kept a pretty steady,
Speaker 4: steady course through the year and not feeling like we're
Speaker 4: missing out on anything.
Speaker 5: How do you view the trajectory of the economy next year.
Speaker 4: Definitely slowing. I'm not in the recession camp mainly on
Speaker 4: the basis that I think we'll I think we'll see
Speaker 4: it coming. And that sounds like very dangerous words, but
Speaker 4: with the availability of real time data that we have
Speaker 4: and the fact that we're still adding jobs in the economy,
Speaker 4: that means economic growth. And we can debate a lot
Speaker 4: whether that's half a percent or two percent, but it
Speaker 4: is still growth. And I think until we start seeing
Speaker 4: some signals that economic activities turning negative, we're in a
Speaker 4: slow growth.
Speaker 5: What are some of your favorite signals that you like
Speaker 5: to gauge, because I feel like there's sort of the
Speaker 5: telltale signs that Wall Street likes to look at. But
Speaker 5: what do you like to use from more of an
Speaker 5: investment perspective, maybe contrarian perspective too, to see if certain
Speaker 5: things are weakening where you start loading up on stocks.
Speaker 4: Yeah, that's a great question. We look a lot at
Speaker 4: We do a lot of factor work. We do a
Speaker 4: lot of work on spreads between sectors and attribution and
Speaker 4: then tying that to where we are in the economic cycle,
Speaker 4: So just looking at rates of change on different indicators
Speaker 4: on the economy, both real time and jobs growth, and
Speaker 4: basically trying to link those two pieces together. So our
Speaker 4: story for twenty twenty three had been avoiding recession and
Speaker 4: we thought that would be good for earnings, and that's
Speaker 4: buying large played out, and the story for next year
Speaker 4: is sort of more of the same but at a
Speaker 4: much smaller level. No recession, very slow earnings growth and
Speaker 4: eking out mid single digit gains and.
Speaker 2: Earnings about outside the US. Any opportunities there for you guys,
Speaker 2: it's been a really tough area.
Speaker 4: You know, every time we and other look at it,
Speaker 4: there's that nice looking valuation gap that never seems to close.
Speaker 4: And the challenge there, I think is growth. You know,
Speaker 4: Asia growth has been slowing. Europe's had a really tough
Speaker 4: time generating growth. The sectors that are that are growth
Speaker 4: oriented in terms of generating organic earnings are really in
Speaker 4: the US, and so it's very hard to get excited
Speaker 4: about those areas. There are, of course, great companies that
Speaker 4: are very undervalued because they're based overseas, So there are
Speaker 4: some selective opportunities but more of a stock picking opportunity
Speaker 4: rather than a broad based international play.
Speaker 2: All right, Robert, thanks so much for joining us. Really
Speaker 2: appreciate it as always, Robert Teeter. He's head of investment
Speaker 2: Policy and a strategy strategy group at Silvercress Asset Management.
Speaker 2: Looking at these markets holding on to some modest gains
Speaker 2: here the S and P five hundreds up about four
Speaker 2: tens a one percent, of Dow up a half a percent,
Speaker 2: Russell up one point five percent. So that's better breadth. Right,
Speaker 2: as the technicians like to say, you're listening to the team.
Speaker 6: Ken's are Live program Bloomberg Markets weekdays at ten am Eastern,
Speaker 6: Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business app,
Speaker 6: or listen on demand wherever you get your podcasts.
Speaker 2: Let's love transports, all right. I'm not a big podcast guy,
Speaker 2: but I actually do subscribe to this thing called Talking Transports.
Speaker 2: Lee Klascal from Bloemberg Intelligence, He's got it because I mean,
Speaker 2: when you got one entitled werner on better trucking conditions
Speaker 2: in twenty twenty four, Boom, I hit that. Yeah, I
Speaker 2: care about the truckers, I care about the railroads, the
Speaker 2: ocean stuff, it's it's a I used to cover those companies,
Speaker 2: but b they give you a great insight into the
Speaker 2: Lee Clasical joins us here in our Bloomberg interactor broker's studio.
Speaker 2: He's been covering the transports for a long time. He
Speaker 2: does that for Bloomberg Intelligence. Now, Lee, I want to
Speaker 2: start with FedEx. Man, that stock is ripping up sixty
Speaker 2: two year to date. They're gonna report numbers after the close.
Speaker 2: What do you expect to hear?
Speaker 7: You know what we expect to hear is share gains.
Speaker 7: So there won some share gains from UPS. As you
Speaker 7: should probably remember UPS at a labor contract negotiation that
Speaker 7: went down to the wire and UH shippers diverted their
Speaker 7: freight away from UPS. And FedEx was a big winner
Speaker 7: in that. They're also one share from Yellow. Yellow is
Speaker 7: back in the day in your transportation today. Yeah, they
Speaker 7: were a large lesson truckload provider. They shipped about fifty
Speaker 7: thousand shipments a day, so they had about.
Speaker 8: Six to seven percent of the market and they poof
Speaker 8: went away.
Speaker 7: So that's a lot of a lot of Paletts that
Speaker 7: went up for grabs and FedEx. FedEx Freight is the
Speaker 7: largest LTL carrier in North America, so they were able
Speaker 7: to benefit.
Speaker 2: I didn't know that.
Speaker 5: So when you're looking at FedEx, LTL means LTL.
Speaker 2: Less than truckload. Yeah, as opposed to Tel, which is
Speaker 2: not team leader. It's truckload team leaders.
Speaker 7: And Paul, if you want to learn more about it,
Speaker 7: we actually we have a new podcast today, you do
Speaker 7: with the CEO from ARC Best.
Speaker 2: ARC Best celebrated centennial.
Speaker 8: They did Happy Birthday arc Best.
Speaker 2: Yeah, very cool. So and so ARC Best are they
Speaker 2: sort of their private trucking company LTL trucking company their
Speaker 2: public The problem a ARC b Oh, I didn't do
Speaker 2: that deal? Did they get public? I took all those
Speaker 2: public back in the day they.
Speaker 7: Were public, and then they a while ago they had
Speaker 7: some activists investor and then they took themselves private and
Speaker 7: they went public again.
Speaker 2: Fort Smith, Arkansas. That's where I went when I was
Speaker 2: doing this truck Really, God, what do we do with
Speaker 2: the heart land? I don't know, des moines I or something.
Speaker 5: Oh yeah, yea yeah, that sounds like it's awesome. Sounds
Speaker 5: about right. Looking at the Dow transports from their October
Speaker 5: low up close to twenty percent, when you're thinking about
Speaker 5: we will hear like you, we're talking about FedEx after
Speaker 5: the bell today, but when it comes to these transport companies,
Speaker 5: what are they telling us about the economy.
Speaker 8: That's that's a good question.
Speaker 7: So we've been in a freight recession for quite some
Speaker 7: time and we're coming out of that freight recession. The
Speaker 7: less than truckload mark is actually negative right now. And
Speaker 7: one of the good things about when we were talking
Speaker 7: about FedEx earlier, why it's a good thing that they
Speaker 7: got all this market share from Yellow and it comes
Speaker 7: at a time when volumes were down because demand has
Speaker 7: been down, so they've been able to mitigate that impact.
Speaker 7: But you know, what we're seeing is from our vantage
Speaker 7: point and conversations that we have in our channel checks,
Speaker 7: is that you know, in the truckload market, we seem
Speaker 7: to be at the bottom, we're bouncing along the bottom,
Speaker 7: and demand is poised to do better next year, not great,
Speaker 7: but better, uh, And we could see some growth. And
Speaker 7: you know, we expect growth from the rails railroads, whether
Speaker 7: it's commodities or intermodal volumes in the mid single digit
Speaker 7: next year. We expect truckload volume growth in the low
Speaker 7: single digits next year.
Speaker 2: So that's not that's not recessionary data from your transportation.
Speaker 7: So I think what we're doing is we're reflecting positively
Speaker 7: on a lot of these industries because like we've been
Speaker 7: down for a while, and some of that has to
Speaker 7: do with the economy and someone has to do with
Speaker 7: really difficult comparisons.
Speaker 2: Right because everybody was stocking up like crazy back.
Speaker 7: In Beta, okay, and the destocking cycle appears to be
Speaker 7: over from a lot of the retailers, which is really
Speaker 7: good for the truckload market.
Speaker 2: So I mean, I look at FedEx again, up sixty
Speaker 2: two percent, but ups down seven percent? Is that reflective
Speaker 2: of just they're operating?
Speaker 5: Also the strikes strikes?
Speaker 7: Yeah, so so what you see there? So you know,
Speaker 7: it's all about, you know, your two points from a
Speaker 7: performance standpoint, and this year it's a little bit about
Speaker 7: you know, ups dealing with their labor contract issues and
Speaker 7: FedEx kind of getting hammered last year and coming off
Speaker 7: their lows, they've initiated a bunch of new strategies. They
Speaker 7: call it Network two point oh, their Drive initiative. It's
Speaker 7: supposed to say about six billion dollars. They're really FedEx
Speaker 7: became a fat company and they're trimming the fat right now,
Speaker 7: and they're also looking at ways that they never really
Speaker 7: looked at before, like combining their ground and express networks.
Speaker 7: It's going to take time, it's gonna be messy, it's
Speaker 7: gonna be lumpy, if you will, But you know, I
Speaker 7: think the market is actually starting to believe that management
Speaker 7: can finally execute.
Speaker 5: How did the what's going on in the Red Sea
Speaker 5: and it comes to shipping, how do you foresee that
Speaker 5: affecting transport companies?
Speaker 7: Yeah, so it's just another kind of shock to the
Speaker 7: supply chain. We've seen container liner rates which are down
Speaker 7: twenty nine percent from last year.
Speaker 8: They're up ten percent over the last two weeks.
Speaker 7: And that's really driven on that because at the end
Speaker 7: of the day, if a ship can't go through the
Speaker 7: Suez Canal, it's got to.
Speaker 8: Go south along Africa.
Speaker 7: It adds about ten to twelve days, and so that
Speaker 7: you know, time is money, So it's going to add
Speaker 7: costs to shippers and listen, it's going to be inflationary.
Speaker 7: But that inflationary pressure I'm not gonna say transitory because
Speaker 7: I think someone will trouble for that, but it's definitely
Speaker 7: going to be short term in nature because the US
Speaker 7: government is and its allies they have.
Speaker 8: A coalition to deal with the houthy rebels.
Speaker 7: And you know, it might not create the most fluid
Speaker 7: supply chains because you know, ships might have to operate
Speaker 7: in a convoy if you will.
Speaker 2: Wow.
Speaker 8: But but it'll be.
Speaker 7: Safer for ships to transverse the traversity of the Red Sea.
Speaker 2: I do even quite frankly, have to be honest, I
Speaker 2: need to know where the Red Sea was a couple
Speaker 2: of days ago, and I had to go.
Speaker 5: Like Google map it and air you thought it was.
Speaker 2: It's Jerry Garcia on it. I thought that until very
Speaker 2: recently in my adult life. So but I mean twelve
Speaker 2: percent of you of global shipping goes through the Red Sea,
Speaker 2: so I mean that's marish. Those are the companies you cover, right,
Speaker 2: the big Yeah.
Speaker 7: So a lot of a lot of the liners like Maris, Capac, Lloyd,
Speaker 7: the two private ones MSc and CMA, they all announced
Speaker 7: that they're not going to go in the Red Sea
Speaker 7: because of the risk not only to their crews but
Speaker 7: to cargo and ship ships are pretty expensive there, around
Speaker 7: seventy to one hundred million dollars each, so you know
Speaker 7: that's very expensive and insurers do not want insurance insurance
Speaker 7: companies don't want the ships that they're ensuring to be
Speaker 7: in those waters because obviously it'll increase their cost.
Speaker 2: Talk to us about the railroads, what's the what's the
Speaker 2: the theme for twenty twenty four for these railroads? Is
Speaker 2: it kind of just riding the economy? I mean, what
Speaker 2: are you thinking about or what are investors thinking about?
Speaker 8: Well, I'm thinking about service.
Speaker 7: So you know, rails talk a big game about service,
Speaker 7: but I really think they.
Speaker 8: Need to deliver on that.
Speaker 7: More and more of the railroads are kind of have
Speaker 7: pivoted to a precision schedule railroading or precision railroading. They
Speaker 7: like to call it different things, but at the end
Speaker 7: of the day, it's six sigma for the rail industry,
Speaker 7: and in order to lower costs, it can't come.
Speaker 8: At the expense of service. And so you know, you'll
Speaker 8: see railroads maybe have.
Speaker 7: More employees during down cycles and they might normally have
Speaker 7: just so they're prepared for when the uptick happens. And also,
Speaker 7: in addition to service, I think it's growth. It's where
Speaker 7: are they going to grow from? Because they're not going
Speaker 7: to grow for major M and A because the.
Speaker 8: Large class ones will just not be able to merge.
Speaker 8: It's just they're just too big.
Speaker 7: So it'll be tucking acquisitions of short lines and kind
Speaker 7: of looking to take advantage of trends like cross border
Speaker 7: near shoring, that kind of stuff.
Speaker 5: We only have about a little maybe like a minute
Speaker 5: and a half left, but I want to get into
Speaker 5: airlines because it is the holiday travel season. I know
Speaker 5: airlines going into the fourth quarter had cut some of
Speaker 5: their outlooks because of they're worried about demand. But what
Speaker 5: are you seeing because it seems like people are still traveling.
Speaker 7: Well, the only thing I know about airlines is that
Speaker 7: I'm on them. That's George Ferguson, my colleague at BI.
Speaker 8: I do not cover.
Speaker 7: Airlines, but I do cover some of the freight, the
Speaker 7: air freight carriers, and what we're seeing there is capacity
Speaker 7: kind of getting back to.
Speaker 8: Pre pandemic levels.
Speaker 7: And it's interesting because you know, I mentioned earlier that
Speaker 7: liner rates are down twenty nine percent. Air freight rates
Speaker 7: are only down like high single digit, low double digits,
Speaker 7: So they've been a lot more resilient since the pandemic.
Speaker 7: And that's really because there hasn't beant while the capacity
Speaker 7: is nearing pre pandemic levels. There's not a lot of
Speaker 7: slack capacity out there, all right.
Speaker 2: Lee Classical, thanks so much for joining us. Lee Clasow,
Speaker 2: he is a senior analyst covering all the transports and
Speaker 2: logistics for Bloomberg Intelligence. He's also got a podcas Us
Speaker 2: out there talking transports. The focus will be on trucking, railroads,
Speaker 2: ocean and air freight markets and everything in between, so
Speaker 2: check that out. He always gets a lot of good
Speaker 2: guests on there. And again this most recent week, our
Speaker 2: best one of the biggest trucking companies out there. We
Speaker 2: got their chairman, president and CEO on to talk about
Speaker 2: the transport business. So good stuff. Check that out.
Speaker 6: S and P.
Speaker 2: Five hundred Here today holding on to the gains up
Speaker 2: about a half a percent, saying for the dall saying
Speaker 2: for the Nasdaq, the small cappers haveing their day up
Speaker 2: one point seven percent.
Speaker 6: Here you're listening to the tape Cat's are live program
Speaker 6: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
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Speaker 6: Bloomberg eleven thirty.
Speaker 5: Jess and paulse wean to hear in the Bloomberg Interactive
Speaker 5: Brokers studio and tiss the season Paul, because we talk
Speaker 5: so much about seasonality heading into year end. And who
Speaker 5: better to bring in than Jeff Hersh CEO at her
Speaker 5: Sholdings and the editor of The Stock Traders Amanac joining
Speaker 5: us on Zoom to discuss his correct market call this year,
Speaker 5: what to expect for the Santa Claus rally period as
Speaker 5: well as the outperformance here in small caps. So just
Speaker 5: to want to point out, Jeff correctly called the S
Speaker 5: and P five hundreds correction coming out of the summer
Speaker 5: into the fall, and then also the rebound that we're
Speaker 5: seeing here at year end. He also, over a decade ago,
Speaker 5: he predicted that there would be a Dow super boom
Speaker 5: in the wake of the global financial crisis that would
Speaker 5: drive the blue chip average to above thirty eight thousand
Speaker 5: in the mid twenty twenties. If you look where the
Speaker 5: Dows trading at now around records again and currently trading
Speaker 5: around thirty seven five hundred, so not too far away
Speaker 5: from that call you made a while ago. But Jeff,
Speaker 5: it's always really great speaking with you, and thank you
Speaker 5: for taking the time to join us, because I know
Speaker 5: you're busy this morning and had a doctor's appointment, so
Speaker 5: you made times for us. But I wanted to start
Speaker 5: off first because Paul and I always talked to people
Speaker 5: and portfolio managers will come in and you know, once
Speaker 5: we get to the fourth quarter, as you've known because
Speaker 5: you've done this for so long, people will talk about
Speaker 5: the Santa Claus rally period, But can you break down
Speaker 5: to our listeners what the indicator is and what time
Speaker 5: span it actually crosses over.
Speaker 3: Yeah, it gets misused.
Speaker 9: I mean, it's a fun phrase, Santa Claus Rally rolls
Speaker 9: off the tongue, but it's something my father discovered and
Speaker 9: devised back in nineteen seventy two. Is published in a
Speaker 9: seventy three almanac, and it's this short seven trading day
Speaker 9: rally the last five trading.
Speaker 3: Days of the year to the first two of the
Speaker 3: new year.
Speaker 9: And it's not this huge, you know gain, It's about
Speaker 9: a one and a half one point three percent gain
Speaker 9: on the S and PN average. But the key thing
Speaker 9: is that it's not a strategy, it's an indicator. And
Speaker 9: when that period is not up, it's an indication that
Speaker 9: there's something amiss in the markets. Usually have you know,
Speaker 9: traders and and prop desks, people picking up stocks that
Speaker 9: are sold off for tax laws selling. The rest of
Speaker 9: us are you know, sort of away, celebrating with family
Speaker 9: and friends and traveling and that.
Speaker 3: Sort of thing.
Speaker 9: So, as my father said, you know, some sixty seventy
Speaker 9: years ago, if Santa Claus should failed to call, bears
Speaker 9: may come to broaden wall.
Speaker 3: So it's you know.
Speaker 9: An indication that it's a catchy tune he could turn
Speaker 9: a phrase. But we've combined that with the January barometer,
Speaker 9: another one of.
Speaker 3: His inventions back in seventy two.
Speaker 9: At the same time, they're both in that seventy three
Speaker 9: Almenac the full month January barometer. Everyone knows as January goes,
Speaker 9: so goes the year, and then there's the first five
Speaker 9: days early warning system.
Speaker 3: January has become a bit of a profit taking periods.
Speaker 9: It's lost some of its luster in recent years, and
Speaker 9: we've had some errors in the January barometer recently. So
Speaker 9: we combined all three to this this January Indicator trifecta,
Speaker 9: and you know, the bulls win when we hit that trifecta.
Speaker 3: We hit it this year in January twenty three.
Speaker 9: Since nineteen fifty excuse me, doing all three year up
Speaker 9: Santa claus Rally first five days full month January barometer
Speaker 9: the year is up twenty eight of thirty one years,
Speaker 9: ninety point three percent of the time, for an average
Speaker 9: game of seventeen and a half percent. The subsequent eleven
Speaker 9: months February December up twenty seven of those thirty one
Speaker 9: for a twelve point three percent game.
Speaker 3: So you know, we didn't have that traffic in twenty
Speaker 3: twenty two.
Speaker 9: Interesting, you know, we were going we were going into
Speaker 9: a midterm years, so we're already concerned. So we'll be
Speaker 9: looking at those things right now. I'm pretty bullished. I mean,
Speaker 9: this is the pre election year. We've got a good
Speaker 9: chunk of new highs we're seeing right here. Happened in
Speaker 9: December of the pre election year, a lot of them
Speaker 9: on the last trading day. Everyone started getting you know,
Speaker 9: all the bears are now getting on the soft landing bandwagon.
Speaker 9: So we'll be watching these indicators and market action going
Speaker 9: through January. And you know, our forecast, early forecast is
Speaker 9: already pretty bullish for twenty four power of a sitting president.
Speaker 9: But we'll be we'll be fine tuning that in the
Speaker 9: newsletter on Thursday for subscribers, and then we'll be watching
Speaker 9: the market. And if things go awry, you know, whether
Speaker 9: with Santa Claus or January barometer, or something.
Speaker 3: Happens with the election.
Speaker 9: I mean, if something we're changed where Biden's not you know,
Speaker 9: the city president running, that would change our outlook a
Speaker 9: little bit.
Speaker 2: Jeff, you know, we've seen since late October this S
Speaker 2: and P five hundred rally fifteen percent. It's been such
Speaker 2: a moving in November and in December here, what do
Speaker 2: you make of that?
Speaker 9: It's pretty typical for your cycle seasonal behavior. It's encouraging
Speaker 9: everyone had you know, had this. The small caps we're
Speaker 9: in the doghouse. But you know, I've put out some
Speaker 9: of the recent charts about the small cap out performance
Speaker 9: starting you know, picking it around late October, and really
Speaker 9: the bulk of it is the last half of December.
Speaker 3: I mean games, we get games.
Speaker 9: It's supportive or starting to seeing some breath, you know,
Speaker 9: supporting it. We're seeing you know, broader participation in this.
Speaker 9: You know, it's it's a it's a rally based upon
Speaker 9: you know, the success of the economy. There's this productivity
Speaker 9: anticipation with AI market maybe a.
Speaker 3: Little ahead of itself.
Speaker 9: We're gonna have some corrections you know, throughout the you know,
Speaker 9: the the year, just like we had in twenty three,
Speaker 9: a very bullish year, but we had a nice you know,
Speaker 9: ten percent plus correction depending upon the index you look at.
Speaker 6: I make.
Speaker 9: What I make of it is that it's a bullish
Speaker 9: indication that we're we've got further upside here.
Speaker 3: So my biggest concern at the.
Speaker 9: Beginning of this year, I don't know if you remember,
Speaker 9: Jess when when I was talking, is that I wasn't
Speaker 9: bullish enough. I mean, we were already forecasting you know,
Speaker 9: fifteen to twenty percent gains for the for the S
Speaker 9: and P here we are with that, so again, you know,
Speaker 9: maybe I wasn't bullish enough, but pretty close.
Speaker 5: What I'm wondering is because you're walking us through the
Speaker 5: seasonality with small caps, typically we tend to see that
Speaker 5: usually history and more in mid December and then as
Speaker 5: you know, going into year end with some of that
Speaker 5: window dressing, is some of the gains, especially the bulk
Speaker 5: of it that we've seen like you were talking about
Speaker 5: that started out towards the end of October. Does that
Speaker 5: potentially steal some of the typical games we would see
Speaker 5: in the last couple of weeks in December. Do you
Speaker 5: expect us to continue for small caps to continue.
Speaker 9: I think the small caps were catching up with the
Speaker 9: rest of the ball market based upon you know, the
Speaker 9: interest rates finally settling down.
Speaker 3: That seems to have a bigger impact on the small caps.
Speaker 9: I don't know if we're going to get as much
Speaker 9: of that you know, small cap out performance as we've
Speaker 9: just add.
Speaker 3: I don't think it's over whatsoever.
Speaker 9: I think we're going to get that regular, you know
Speaker 9: small cap effect what used to be the January effect
Speaker 9: in last half of December.
Speaker 3: And into into January. I don't think it's taken away
Speaker 3: from it.
Speaker 9: I think it's just catching up and setting us up
Speaker 9: for another for a continuation of small cap back performance.
Speaker 2: Jeff, what do you make of the magnificence been here
Speaker 2: in twenty twenty three that was a unique aspect to
Speaker 2: this market performance this year.
Speaker 9: There's always been leaders, they're still leading. You know, there
Speaker 9: was the nifty to fifty back in the late sixties.
Speaker 9: You know, these companies are doing you know, fabulous things.
Speaker 9: We're using their software and their their products right now
Speaker 9: as we speak. They some of the other you know,
Speaker 9: industries are catching up. But I mean, you've always got leaders.
Speaker 9: I'm not so concerned that the markets, you know, being
Speaker 9: led by seven stocks. There's plenty of other positive you know,
Speaker 9: advancing declining situations and new highs. And you know, I
Speaker 9: think we had the most new high since twenty one
Speaker 9: on the S and P. You know, it's it's not
Speaker 9: just the Magnificen seven. That's an old story. It's kind
Speaker 9: of like the people who are calling for the bear
Speaker 9: mar kid looking at that. It's yield, you know, curb
Speaker 9: in version from from O two, from twenty two. So
Speaker 9: I'm not afraid of the Magnificent seven.
Speaker 3: Let them lead. There'll be other people stepping in.
Speaker 5: We only have about twenty seconds left. But you were
Speaker 5: talking to us earlier about how coming into this year
Speaker 5: you should have been even more bullish, even though you're
Speaker 5: already seeing a fifteen to twenty percent rise in stocks
Speaker 5: this year. What percentage are you expecting in twenty twenty four.
Speaker 9: My early handicapping is about eight to twelve percent on
Speaker 9: the Dow maybe a little bit more at SMP and
Speaker 9: NASDAK and I'll be fine tuning that over the next
Speaker 9: couple of days.
Speaker 3: As we finalize our annual forecast in the newsletter.
Speaker 9: So yeah, I mean above average the election year performance.
Speaker 3: You know what a sitting president's running.
Speaker 9: The Dow's up twelve point eight percent on average, when
Speaker 9: it's an open field it's minus one and a half percent.
Speaker 3: I think we've got a lot of tailwinds here going
Speaker 3: into twenty twenty.
Speaker 9: Four election, technology, AI and a rising market.
Speaker 2: All right, jeff, thanks so much for being with us,
Speaker 2: really appreciated. Jeffrey Hirsch, CEO of Hirsh Holdings and editor
Speaker 2: in chief of The Stock Traders Almanac.
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Speaker 2: Only in my career, Jess, I was at lead Chasemanton Bank,
Speaker 2: and I survived their credit training program, which is a
Speaker 2: beast on the street still is, and we were in
Speaker 2: the media group. So we lent not against assets, not
Speaker 2: against like receivables and stuff like that. Cash flow baby
Speaker 2: leverage lending. That's how we did. We go up to
Speaker 2: six times leverage lending on some of these stupid things.
Speaker 2: We did fleet call, which was we'd give them five
Speaker 2: hundred million dollars and we went to our credit committee
Speaker 2: and said, we want to lend them. They have no assets,
Speaker 2: no cash flow, no revenue, but they have air, so
Speaker 2: we were lending against air. Wow, you got that deal done.
Speaker 2: So I love the leverage lending business for Bertic austroians
Speaker 2: a scene managing director at pre Team Partners. I have
Speaker 2: no idea what predium means. What does pretty mean means?
Speaker 9: Value?
Speaker 2: Value in Latin will go? Yes, good enough from me.
Speaker 2: How do you guys talk to us about twenty twenty
Speaker 2: three in kind of the credit market, because you know,
Speaker 2: I'm looking at across a lot of fixing come positive
Speaker 2: returns this year, which is good versus twenty twenty two
Speaker 2: when it wasn't so much, but how was How do
Speaker 2: you view the kind of the credit markets out there?
Speaker 2: So we've had.
Speaker 10: A pretty volatile two years but twenty twenty three very
Speaker 10: strong across the board for leverage. Credit leverage loans as
Speaker 10: of now up almost twelve and a half percent after
Speaker 10: effectively a flat year in twenty twenty two. Most of
Speaker 10: that coming from the absolute yield, so you know, all
Speaker 10: loans are floating rate, and so the base rate at
Speaker 10: over five percent provides a lot of carry in the
Speaker 10: current market. I think as we go forward into twenty
Speaker 10: twenty four, it's going to be, you know, a different
Speaker 10: type of year in terms of of earnings and dispersion
Speaker 10: across the board in terms of credit selection.
Speaker 5: Talk to us more about the earnings picture. What do
Speaker 5: you foresee and where do you see areas of weakness?
Speaker 5: Where do you see areas of strength?
Speaker 10: Sure, so, as we've gone through twenty twenty three, and
Speaker 10: in particular Q three earnings, I think surprised to the upside,
Speaker 10: and that's not surprising as we look back with very
Speaker 10: strong GDP numbers here in the US. I think as
Speaker 10: we go into twenty four, we're going to see more differentiation.
Speaker 10: What we've seen over the last couple of years is
Speaker 10: normalization as we've dealt with inflation factors, be it supply chain, labor,
Speaker 10: and just cost of inputs. I think as we go
Speaker 10: through twenty twenty four and the US consumer is going
Speaker 10: to play a big part in this, does that start
Speaker 10: to impact top line? We've had very strong top line
Speaker 10: for the last couple of years, margins have been on
Speaker 10: all over the place. But I think, uh, you know,
Speaker 10: we're going to have, you know, some sort of slow
Speaker 10: down in the top line, and the degree to that
Speaker 10: slow down is what's going to be most impactful.
Speaker 2: Private credit, Yes, I knew this is guys. How do
Speaker 2: you guys interact with the private credit business?
Speaker 10: Right, So we're focused at Predium almost exclusively on the
Speaker 10: broadly syndicated market.
Speaker 2: I think, so you buy loans from banks from banks,
Speaker 2: So I would do my chase Manhattan Bank. I'd syndicate
Speaker 2: ninety percent because I don't want take any risk. I'm
Speaker 2: in the business degenerating fees, right, so I would sell
Speaker 2: it to you. Yes, nice.
Speaker 10: And so private credits now creating more competition for the
Speaker 10: likes of JP Morgan. What that for sponsors? What they're
Speaker 10: prepared to do is pay up for certainty of execution,
Speaker 10: and that was very important in twenty two twenty three
Speaker 10: when the broadly syndicated market was you know, pretty much
Speaker 10: shut for parts for parts of the year.
Speaker 2: Why was it shut?
Speaker 10: We've seen substantial outflows and COLO creation, which lateralized loan
Speaker 10: obligations represent about three quarters of the buying base for
Speaker 10: broadly syndicated loans, and issuance was slow to start this year.
Speaker 10: So the private credit market generally cost sponsors about two
Speaker 10: hundred basis points more in terms of yeah.
Speaker 2: And why go there because I can't get a bank
Speaker 2: to do it?
Speaker 10: Certainty of execution?
Speaker 6: Okay?
Speaker 10: And I think that that started to shift as the
Speaker 10: broadly syndicated primary markets opened up and is quite strong
Speaker 10: right now. So I think the sponsors want both markets
Speaker 10: and include high yield as well, to be you know,
Speaker 10: are you accessible?
Speaker 2: Are you surprised that the banks have allowed that business
Speaker 2: to walk across the street. I never would have done that.
Speaker 10: Yeah, I think they've been surprised as well. So private
Speaker 10: credit now is comparable in size, you know, a trillion
Speaker 10: plus to high yield and loans. I think they're the
Speaker 10: banks are playing catch up in terms of what role
Speaker 10: they have in that market.
Speaker 5: Yes, private debt was thought to be really pressured as
Speaker 5: rates were going to rise, but that didn't happen. Walk
Speaker 5: us through why that didn't happen.
Speaker 2: Yeah.
Speaker 10: So I think that, you know, one thing with private
Speaker 10: debt that we've experienced or not experienced, but seen over
Speaker 10: the last uh, you know, a few quarters, is they're
Speaker 10: very aggressive in terms of terms and as rates have risen,
Speaker 10: and I think some of these companies and multiples that
Speaker 10: sponsors are paying, they're having a hard time dealing with
Speaker 10: the increased interest cost and so we're starting to see
Speaker 10: and this I think is scary. And I was also
Speaker 10: trained at JP Martin so goes back to my training days.
Speaker 10: First lean pick loans, Oh boy, sixteen percent first lian
Speaker 10: pick that.
Speaker 5: Yes, is.
Speaker 10: You know, put in place because they don't have the
Speaker 10: cash flow to service and cash interest. I think setting
Speaker 10: up for you know, volatility in the future, but as
Speaker 10: purely a function of where rates sit today.
Speaker 2: How do you think that twenty twenty four deal market
Speaker 2: will be ergo the kind of the stuff that you
Speaker 2: guys are going to see coming out of the bank syndication.
Speaker 10: Yeah, I think we're going to see a real pick
Speaker 10: up in primary activity next year. I think the biggest
Speaker 10: factor this year has just been the gap between buy
Speaker 10: and sell side multiples. I think that started to contract.
Speaker 10: We've started to see m and a pick up. I
Speaker 10: would expect that to continue next year. And I think
Speaker 10: as you know, as our market you know, continues to
Speaker 10: remain open and is active, you'll see a resurgence of.
Speaker 2: Are you guys at Predium raising capital now?
Speaker 10: Yes, yes, we are raising capital across all products.
Speaker 2: And what's the pitch here, like, what's the what's the
Speaker 2: reason that.
Speaker 8: You get right?
Speaker 10: So we think that next year we're going to have
Speaker 10: a lot of dispersion and that credit selection is going
Speaker 10: to be a big differentiator among performance. And I think
Speaker 10: this goes to sector selection and individual name selection, and
Speaker 10: that's our strong suit.
Speaker 5: Yes, So looking at credit, what do you think is
Speaker 5: tells us about economic growth?
Speaker 10: Well, I think as we saw in Q three earnings
Speaker 10: were you know, continue to be strong and actually accelerated
Speaker 10: from the first half. I actually think the US economy
Speaker 10: is doing quite well. And that's what we've experienced in
Speaker 10: in pretty broad based industries.
Speaker 5: What would you need to see in the credit space
Speaker 5: to raise any sort of red flags to you? I
Speaker 5: mean it seems like you're not seeing those yet, But
Speaker 5: what particular indicators would you need to see for them
Speaker 5: kind of alarms go off in your mind. As far
Speaker 5: as growth stalling out.
Speaker 10: Yeah, so what we haven't seen is a deceleration of
Speaker 10: the top line, and that to me is a function
Speaker 10: of strength in the US consumer. We've seen a deceleration
Speaker 10: of growth to some degree, but not negative growth year
Speaker 10: on year, quarter and quarter. I think we'd need to
Speaker 10: see that in a more broad based way across consumer
Speaker 10: driven sectors, which we haven't seen at all.
Speaker 2: Interesting. Roberta, thank you so much for joining us. Roberta
Speaker 2: os She's a senior managing director at Pretium Partners, which
Speaker 2: again means value value. Thank you listening the new language. Yeah,
Speaker 2: maybe one ear and other ear.
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