WEBVTT - Surveillance: Fed Skip with Luzzetti 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.120 --> 0:00:32.800 Joining us now is really one of the key calls 0:00:32.800 --> 0:00:36.159 within the Bloomberg Surveillance world. It's rarely that you get 0:00:36.200 --> 0:00:39.600 somebody to give you a statistic or directional call and 0:00:39.720 --> 0:00:42.120 also throw a date on it. Matthew Lizetti and the 0:00:42.159 --> 0:00:44.800 team led by Peter Hooper and David Fokers Landau Deutsche 0:00:44.880 --> 0:00:48.120 Bank had the courage to do that a long long 0:00:48.159 --> 0:00:50.800 time ago. They said, there is going to be a slowdown, 0:00:51.200 --> 0:00:54.840 some form of Nber recession, but it's going to be 0:00:55.000 --> 0:00:58.120 out there. He nailed that call. We get an update 0:00:58.160 --> 0:01:02.040 this morning with mister Okay, let's go to the time delement. 0:01:02.120 --> 0:01:04.560 Now which week, which day, which hour do we get 0:01:04.560 --> 0:01:05.200 a recession? 0:01:05.680 --> 0:01:09.240 Yeah, you know that the timing is always very difficult 0:01:09.240 --> 0:01:10.560 to a month. 0:01:10.840 --> 0:01:11.679 We're still Q four. 0:01:11.760 --> 0:01:16.039 We updated our outlook this week, kept the recession timing 0:01:16.080 --> 0:01:18.440 in Q four. You know, I think it's based on 0:01:18.520 --> 0:01:21.600 we've seen the FED titan obviously very aggressively. You've seen 0:01:21.640 --> 0:01:25.720 credit conditions titan. You've seen some breadcrumbs within the labor 0:01:25.760 --> 0:01:28.640 market data of some softening. I'd be cautious about this 0:01:28.720 --> 0:01:31.039 morning's data just because there's a lot of volatility, there's 0:01:31.040 --> 0:01:33.679 seasonal adjustment issues, there's states that are they're moving around. 0:01:33.880 --> 0:01:35.640 But if you look at the last Friday's jobs report, 0:01:35.680 --> 0:01:38.679 it showed the permanent job losers really rising, and that's 0:01:38.880 --> 0:01:41.520 I think an important important indicator. And then as you 0:01:41.560 --> 0:01:44.960 look forward for the consumer, you have excess savings dissipating 0:01:45.000 --> 0:01:46.320 by the end of the year, you have student debt 0:01:46.319 --> 0:01:48.559 payments coming back, and so we think it's a consumer 0:01:48.600 --> 0:01:50.360 that looks a lot weaker by the end of the year. 0:01:50.640 --> 0:01:53.360 What gives you confidence, especially since people have been pushing 0:01:53.360 --> 0:01:56.919 out this date again and again and again. 0:01:57.240 --> 0:01:58.840 Yeah, I don't think you want to express too much 0:01:58.840 --> 0:02:01.240 confidence on any particular month or quarter, to be honest. 0:02:01.280 --> 0:02:03.640 You know, the labor market has proven to be more resilient, 0:02:03.680 --> 0:02:06.000 the consumer has proven to be more resilient, but I think, 0:02:06.040 --> 0:02:09.560 unfortunately for the Fed, so has inflation. And that was 0:02:09.600 --> 0:02:11.720 kind of our expectation as you go back to last year. 0:02:12.200 --> 0:02:14.000 It was that the labor market was strong, it was 0:02:14.000 --> 0:02:16.040 that the consumer was strong, and then therefore inflation was 0:02:16.080 --> 0:02:17.519 going to be more persistent and the Fed would have 0:02:17.560 --> 0:02:21.200 to move more aggressively. I think looking ahead, I think 0:02:21.200 --> 0:02:24.200 the Fed skips next week, barring a big upside surprise 0:02:24.240 --> 0:02:26.840 to CPI, but I also think that they tee up 0:02:26.840 --> 0:02:28.480 a rate hike over the next several meetings. We think 0:02:28.520 --> 0:02:29.520 that comes in July. 0:02:29.480 --> 0:02:31.800 If they skip. If they go through with that kind 0:02:31.919 --> 0:02:35.120 of shift, do you expect a meaningful move up in 0:02:35.200 --> 0:02:38.120 longer term yields or basically people say, maybe this is 0:02:38.160 --> 0:02:40.560 a sign that this Federal Reserve is willing to accept 0:02:40.600 --> 0:02:45.280 inflation that is a two point something over the longer term. 0:02:45.800 --> 0:02:46.000 Yeah. 0:02:46.200 --> 0:02:48.400 I think that's the worry from their perspective, that you 0:02:48.440 --> 0:02:51.840 get this upward shift in inflation expectations, because the market 0:02:51.840 --> 0:02:54.359 interprets it as they are losing some of their credibility 0:02:54.480 --> 0:02:56.720 or commitment to that two percent objective, and so I 0:02:56.720 --> 0:02:58.560 think they will want to do anything to push back 0:02:58.600 --> 0:03:00.679 or kind of tone that down that that notion. I 0:03:00.680 --> 0:03:02.840 think even from the doves you've heard, you know they 0:03:02.880 --> 0:03:05.240 want to skip, but they want to be very clear 0:03:05.280 --> 0:03:07.120 that this is not the peak of the tightening cycle, 0:03:07.200 --> 0:03:09.839 that there's very likely the potential for more rate hikes 0:03:09.880 --> 0:03:10.120 to come. 0:03:10.160 --> 0:03:13.160 We've given short shrifts this week to the crew, including 0:03:13.200 --> 0:03:16.160 Adheim and at evercore Isi, who say, look, we're going 0:03:16.400 --> 0:03:19.799 to disinflate with clarity in your note, and again you've 0:03:19.840 --> 0:03:22.079 got the courage to put a date on it year 0:03:22.160 --> 0:03:26.280 in twenty twenty four, December of two and twenty four, 0:03:26.639 --> 0:03:30.160 some kind of sub three percent inflation. How does our 0:03:30.160 --> 0:03:33.399 world change with say two point sixty five percent inflation. 0:03:34.080 --> 0:03:35.640 I think it's all about how you get to there. 0:03:36.680 --> 0:03:38.640 We for our forecast at the end of next year 0:03:38.720 --> 0:03:40.320 are down at two and a quarter percent core pc. 0:03:40.720 --> 0:03:42.520 So it looks like the Fed no one. 0:03:42.480 --> 0:03:44.680 Is very close to the way sing that in right now. 0:03:44.720 --> 0:03:46.080 Well, I think it depends on how you get there. 0:03:46.080 --> 0:03:46.160 Now. 0:03:46.240 --> 0:03:48.800 If it's an immaculate disinflation where a labor market stays 0:03:48.800 --> 0:03:50.720 where it is and that's in a kind of a 0:03:50.760 --> 0:03:53.720 fantastic outcome for the economy, for markets, If it's a 0:03:53.720 --> 0:03:56.200 recession that is needed to get you there that it's 0:03:56.200 --> 0:03:59.160 a labor market that very sure much needs to weekend. 0:03:59.200 --> 0:04:02.520 I think it's a very different dynamic the FED, you know, 0:04:02.560 --> 0:04:05.160 I think their own forecasts have shown a need for 0:04:05.560 --> 0:04:08.200 sum recession and rising unemployment. It's clear that the staff 0:04:08.200 --> 0:04:10.800 for the past several meetings have come to that conclusion 0:04:10.800 --> 0:04:13.360 as well. We still hold that view that they really 0:04:13.400 --> 0:04:16.080 do need this economy to slow materially the labor market 0:04:16.080 --> 0:04:17.520 the weekend to get close to two percent. 0:04:17.440 --> 0:04:19.960 And the legacy of Deutsche Bank analysis, it even goes 0:04:19.960 --> 0:04:22.920 back to Adam Siminsky and oil years ago, is always 0:04:23.000 --> 0:04:26.800 think dynamics. So I've got wage growth coming down, but 0:04:26.839 --> 0:04:30.640 I've got inflation screaming down to two point x percent. 0:04:30.920 --> 0:04:34.880 Can we have a quote unquote Lazetti recession with actual 0:04:35.160 --> 0:04:38.680 real wage stability or real wage growth. 0:04:39.440 --> 0:04:41.719 I think what you will see is that wages will 0:04:41.720 --> 0:04:46.000 come down materially as the labor market weekends, and that 0:04:46.160 --> 0:04:48.680 is I think part of the Fed's game plan. They 0:04:48.800 --> 0:04:51.160 talk about, you know, wages being a very important input 0:04:51.240 --> 0:04:54.919 into that X service core services, X shelter component. We 0:04:54.960 --> 0:04:57.359 think it's an important the overall labor market is an 0:04:57.400 --> 0:05:00.479 important input into too. Rental inflation to get back to 0:05:00.480 --> 0:05:04.000 two percent sustainably, I think you need a softer labor 0:05:04.040 --> 0:05:06.920 market and the FED needs wage growth to come down 0:05:06.960 --> 0:05:09.359 closer to that that metric that shairpalse site to three percent. 0:05:09.480 --> 0:05:11.000 Do you think that if they go again in July, 0:05:11.520 --> 0:05:13.920 assuming they skip next week, that the FED is done 0:05:14.120 --> 0:05:14.560 after that? 0:05:15.279 --> 0:05:18.640 I think there's still upside risks. You know, we have 0:05:18.880 --> 0:05:23.080 been I think everybody has been consistently surprised, and those 0:05:23.120 --> 0:05:26.760 surprises have all been in one direction, which is inflation, 0:05:26.880 --> 0:05:32.200 stickier labor market, stronger consumer, a bit more resilient than anticipated, 0:05:32.240 --> 0:05:34.599 and so you don't want to discount the kind of 0:05:34.800 --> 0:05:38.440 serial correlation in those in those surprises. Could we get 0:05:38.440 --> 0:05:40.280 more I think it's it's certainly possible, which could push 0:05:40.320 --> 0:05:40.680 the FED. 0:05:40.560 --> 0:05:44.280 To raise rates and yeah, again behind five and a 0:05:44.279 --> 0:05:46.479 half percent. I'm just wondering, though, from your perspective, as 0:05:46.520 --> 0:05:48.440 we headed to this mid year point and everybody writes 0:05:48.480 --> 0:05:51.400 their mid year outlooks, whether there's anything that you're kind 0:05:51.440 --> 0:05:55.640 of changing shifting second guessing from the first half that 0:05:55.920 --> 0:05:57.880 you think will be a driving theme heading into the 0:05:57.920 --> 0:05:58.479 next six months. 0:05:58.560 --> 0:06:00.880 Yeah, for us, it's definitely that the potential that this 0:06:01.279 --> 0:06:03.240 cycle takes a little bit longer to play out, and 0:06:03.279 --> 0:06:05.160 that therefore their session doesn't come by in this year, 0:06:05.160 --> 0:06:07.200 but but a little bit later. I think for us 0:06:07.240 --> 0:06:09.599 a key has been that we've pushed back the timing 0:06:09.600 --> 0:06:12.080 of rate cuts. We're now in March of next year, 0:06:12.480 --> 0:06:15.000 in part because the unemployment rate takes a bit longer 0:06:15.040 --> 0:06:18.640 to get there. I think just one important counterfactual here 0:06:18.680 --> 0:06:21.400 is that if we had not had these banking stresses emerge, 0:06:21.760 --> 0:06:23.200 it looked likely that the FED was going to raise 0:06:23.240 --> 0:06:26.040 rates by fifty basis points in March, and having done that, 0:06:26.080 --> 0:06:27.599 I think they probably would have done so in May, 0:06:27.640 --> 0:06:30.200 and so the counterfactions we'd probably be fifty basis points 0:06:30.279 --> 0:06:31.080 higher on the FED funds. 0:06:31.120 --> 0:06:31.280 Right. 0:06:31.400 --> 0:06:33.800 The key question for them is our credit condition is 0:06:33.800 --> 0:06:35.160 tightening enough to offset that. 0:06:35.240 --> 0:06:39.360 What's the counterfactual of China? Do the export disinflation even 0:06:39.480 --> 0:06:44.200 outright deflation? What do they do with the struggles they seem. 0:06:44.040 --> 0:06:46.800 To be having. How does that change the American model? 0:06:47.480 --> 0:06:50.440 Certainly the global growth impulse that people are expecting from 0:06:50.560 --> 0:06:55.479 China is seemingly not there as much as anticipated. I 0:06:55.480 --> 0:06:57.880 think the real concern from an inflation perspective in the 0:06:57.960 --> 0:07:02.600 US however, has been not only is services elevated, we've 0:07:02.640 --> 0:07:04.520 seen core goods inflation over the past three or four 0:07:04.520 --> 0:07:06.839 months also bounce back. Now, last month it was all 0:07:06.839 --> 0:07:08.760 about used cars, so you want to discount that a 0:07:08.800 --> 0:07:10.920 little bit. But go back three or four months before that, 0:07:11.320 --> 0:07:13.440 it was broad based. It was household furnishings, it. 0:07:13.440 --> 0:07:14.200 Was medical goods. 0:07:14.240 --> 0:07:16.200 And so there's even in that category that we have 0:07:16.240 --> 0:07:18.320 the most confidence that you're going to get this big disinflation. 0:07:18.360 --> 0:07:20.840 Aymils, tell me that you're not walking back to the office. 0:07:21.040 --> 0:07:21.320 I am. 0:07:21.360 --> 0:07:24.160 Actually you come on this. It's like deadly out there. 0:07:24.520 --> 0:07:26.160 You have a mask, and you do a mask. 0:07:26.520 --> 0:07:27.680 You guys have some down in the lobby. 0:07:29.000 --> 0:07:31.600 You're taking one of Mike's last mask. I brought myself. 0:07:31.600 --> 0:07:32.760 I'm going to go out there and die today. 0:07:33.360 --> 0:07:34.080 I'll leave one for you. 0:07:34.120 --> 0:07:35.040 I'll take you for you. 0:07:35.400 --> 0:07:38.000 Matt Zetti walking across Central Park. But what do you 0:07:38.000 --> 0:07:38.640 call the building? 0:07:39.040 --> 0:07:44.080 The deutsch Bank Center the time warne deutsch Center, just 0:07:44.120 --> 0:07:44.920 the deut Back Center. 0:07:45.080 --> 0:07:47.239 Very exciting. Well, we looked at we we'll do something 0:07:47.280 --> 0:07:55.480 over there. Sometimes Misteretti is a Deutsche Bank. But right 0:07:55.520 --> 0:07:58.200 now and this is really important. And radio on television. 0:07:58.240 --> 0:08:00.880 If you want to know what the margin were caate next, 0:08:01.040 --> 0:08:04.840 listen carefully to Kristin Bidderley, head of North America investments 0:08:04.840 --> 0:08:07.240 at City Global Wealth. Were thrilled she could join us today. 0:08:07.240 --> 0:08:10.400 There's a very sentence in the usual blatherer of a 0:08:10.480 --> 0:08:14.200 mid year outlook that you're released today, which is are 0:08:14.240 --> 0:08:18.360 you playing defense or you being on the sidelines. That 0:08:18.560 --> 0:08:21.640 is a perfect metaphor for the emotion right now. 0:08:21.800 --> 0:08:22.800 I think that's exactly right. 0:08:22.840 --> 0:08:25.000 There's this feeling out there that you're either all in 0:08:25.160 --> 0:08:26.640 or all out of the market that I think you 0:08:26.640 --> 0:08:28.480 guys were talking about this earlier on the program, this 0:08:28.520 --> 0:08:30.960 idea that you're either all in T bills and sitting 0:08:30.960 --> 0:08:33.720 in that five percent, or somehow you're chasing and finding 0:08:33.760 --> 0:08:36.720 a defensive play in tech stocks. And so what we've done, 0:08:36.720 --> 0:08:38.000 and this is something that we've done from the very 0:08:38.000 --> 0:08:40.120 beginning of the years, we've actually been very balanced in 0:08:40.200 --> 0:08:43.800 terms of our fixing come portfolios, our equity portfolios where 0:08:43.800 --> 0:08:46.520 we are fully invested, but we're picking our spots in 0:08:46.559 --> 0:08:49.280 those asset classes in terms of quality. And when you 0:08:49.360 --> 0:08:51.520 look at the performance of something like that year to date, 0:08:51.840 --> 0:08:54.760 it's actually high single digit returns for a balanced portfolio. 0:08:54.960 --> 0:08:57.240 It's not the twenty five percent of the NASDAC, but 0:08:57.280 --> 0:08:58.559 it's certainly strong returns. 0:08:58.360 --> 0:08:58.760 Here to date. 0:08:58.880 --> 0:09:01.440 Stan Jokimena was great, ye said, I with Shnali Basseki 0:09:01.480 --> 0:09:04.400 talked about the prospect of going into recession and compared 0:09:04.440 --> 0:09:08.720 almost staples to what's happening with AI in Nvidia. Can 0:09:08.760 --> 0:09:11.000 I compare can I put in the same bucket some 0:09:11.040 --> 0:09:13.079 of these tech names with consumer staples. 0:09:14.400 --> 0:09:16.120 I would love to hear that in more detail. I 0:09:16.120 --> 0:09:18.080 think that would be a challenging analysis to do. But 0:09:18.120 --> 0:09:20.400 I think when we talk about what's happened within the 0:09:20.440 --> 0:09:24.040 market more broadly, I do think this concentration and everyone's 0:09:24.080 --> 0:09:25.840 talking about this, this is not a new story about 0:09:25.840 --> 0:09:27.760 the breadth and the market. The breadth in the market, 0:09:27.800 --> 0:09:30.520 those seven stocks representing more than one hundred percent. 0:09:30.280 --> 0:09:30.959 Of the gains. 0:09:31.160 --> 0:09:33.200 Even if you look it's not a uniquely US story. 0:09:33.200 --> 0:09:35.840 That's a global story as well, that there's ten companies 0:09:36.160 --> 0:09:39.320 representing eighty five percent of the global gains. And so 0:09:39.400 --> 0:09:41.320 what does that tell me? It actually tells me that 0:09:41.360 --> 0:09:44.199 the market is pretty rational. Where the money has been 0:09:44.240 --> 0:09:48.080 going into has been these megacap companies with strong free 0:09:48.080 --> 0:09:52.120 cash flow generation, the ability to fund growth not dependent 0:09:52.160 --> 0:09:54.640 on credit. Markets have their balance sheets in order, and 0:09:54.679 --> 0:09:56.640 that a lot of them have raised guidance going forward. 0:09:57.240 --> 0:09:59.680 So given that, right, given that, maybe there's rationality, but 0:09:59.679 --> 0:10:01.480 maybe I want to play that because you can't really 0:10:01.480 --> 0:10:04.760 predict the AI future. Are you starting to now say 0:10:04.840 --> 0:10:08.320 that the rational plays of say regional banks, of say 0:10:08.440 --> 0:10:12.319 just generally financials. Areas that have gotten beaten up are 0:10:12.360 --> 0:10:14.040 looking good again if things aren't that bad. 0:10:14.120 --> 0:10:16.160 That's one of the themes in our outlook is actually 0:10:16.160 --> 0:10:19.199 this coming rotation within equity. So as I mentioned earlier, 0:10:19.280 --> 0:10:21.760 we have been playing defense. We've been invested in areas 0:10:22.120 --> 0:10:24.400 like global dividend growers, but some of the areas that 0:10:24.400 --> 0:10:29.400 we've been eyeing and adding exposure, so something like MidCap. Right, 0:10:29.440 --> 0:10:33.080 So looking at MidCap and the valuation differential trading at 0:10:33.120 --> 0:10:36.160 about a twenty eight percent discount to larger cap, looking 0:10:36.240 --> 0:10:38.280 at some of those themes, you have to be selective. 0:10:38.320 --> 0:10:40.400 This isn't just kind of a broad brush. You want 0:10:40.400 --> 0:10:44.520 profitable companies just like you want profitable companies in large cap. 0:10:44.720 --> 0:10:46.800 But that's an area when people ask the question, has 0:10:46.840 --> 0:10:49.360 this theme gotten away from me? You can actually find 0:10:49.400 --> 0:10:51.520 opportunities just going down the cap structure. 0:10:51.960 --> 0:10:54.320 One thing we've been talking about throughout the morning is 0:10:54.679 --> 0:10:57.280 the weight of people who have been hiding in T 0:10:57.480 --> 0:11:01.120 bills to go into Nvidia, to go into big tech, 0:11:01.240 --> 0:11:03.280 to look for those double digit returns that you were 0:11:03.280 --> 0:11:06.200 talking about, and not be happy with single digit returns 0:11:06.240 --> 0:11:08.280 even if they look pretty pretty good on a risk 0:11:08.280 --> 0:11:12.040 adjusted level. You've been traveling a lot talking with clients. 0:11:12.320 --> 0:11:14.520 What do they say? How much pressure are you hearing 0:11:14.800 --> 0:11:17.480 to get a little bit more with respect to earnings. 0:11:17.559 --> 0:11:19.800 I think everyone is asking that question of is tech 0:11:19.840 --> 0:11:22.560 a buy? Should I continue to chase this rally? And 0:11:22.640 --> 0:11:24.440 I think one of the most interesting things bringing it 0:11:24.440 --> 0:11:26.600 back to the AI conversation because we have to, right 0:11:26.679 --> 0:11:30.280 that's just the dominant conversation right now. I think there 0:11:30.320 --> 0:11:34.000 are fabulous companies out there, but they're valued at, you know, 0:11:34.040 --> 0:11:36.600 in even more extreme level, and so in terms of 0:11:36.640 --> 0:11:40.000 making money in any type of market, it's really that differential. 0:11:40.280 --> 0:11:42.280 And so some of the areas that if you think 0:11:42.280 --> 0:11:45.760 of the net beneficiaries of AI, the concentration has really 0:11:45.800 --> 0:11:48.559 been in those megacap companies. But then when you look 0:11:48.559 --> 0:11:50.920 at areas like cybersecurity that's going to have to come 0:11:50.920 --> 0:11:53.280 along for the ride. Areas like one of our long 0:11:53.360 --> 0:11:56.960 term term unstoppable trends is investing in longevity, a net 0:11:57.000 --> 0:12:01.240 beneficiary of this technology, where you have haven't seen that 0:12:01.320 --> 0:12:03.640 type of valuation and you haven't seen the funds really 0:12:03.640 --> 0:12:06.280 come into those areas. Those are ways to be invested, 0:12:06.480 --> 0:12:07.960 but not in a pure play. 0:12:08.280 --> 0:12:10.959 Just quickly, what's special about forty three hundred on the 0:12:11.080 --> 0:12:11.360 S and P. 0:12:11.960 --> 0:12:14.319 I don't think anything special about forty three hundred. 0:12:14.920 --> 0:12:17.800 Act this way, you could just stop in them pulling back. 0:12:18.920 --> 0:12:20.920 I think Look, I think the major conversation is once 0:12:20.920 --> 0:12:24.240 we hit that twenty percent appreciation level and this idea 0:12:24.280 --> 0:12:25.760 that all of a sudden it would turn into a 0:12:25.760 --> 0:12:28.040 true bull market, I think we have to look at 0:12:28.040 --> 0:12:30.040 whether you're in the camp of higher for longer in 0:12:30.040 --> 0:12:32.000 interest rates, or you're in the camp that we could 0:12:32.040 --> 0:12:34.400 see a cut at the end of this year. If 0:12:34.400 --> 0:12:37.319 there is some type of recession ultimately and some type 0:12:37.360 --> 0:12:39.440 of it has to signal that we're going to see 0:12:39.440 --> 0:12:42.520 further contraction within earnings. And that's something that I think 0:12:42.559 --> 0:12:44.400 the outlook right now is a little bit too rosy. 0:12:44.760 --> 0:12:46.719 We actually that was one thing. Coming into this year, 0:12:46.720 --> 0:12:48.000 we thought we were going to see about a ten 0:12:48.040 --> 0:12:51.199 percent contraction in earnings. We've reduced that. We think is 0:12:51.200 --> 0:12:52.960 about going to be about a six percent based on 0:12:53.000 --> 0:12:55.400 the strong Q one, but still a contraction. 0:12:55.800 --> 0:12:59.920 This conversation is of fifteen years ago. I'm not used 0:12:59.920 --> 0:13:05.480 to a normal conversation that was in fabosi or in 0:13:05.720 --> 0:13:09.000 you know, the CFA curricula. I mean, it's shocking to 0:13:09.080 --> 0:13:12.760 hear this. It's like, oh, a normal conversation after fifteen 0:13:12.840 --> 0:13:14.160 years of oddity. 0:13:14.320 --> 0:13:16.160 We're all recalibrating. 0:13:15.480 --> 0:13:17.040 Fifteen years Is there a rights? Is that what you're 0:13:17.080 --> 0:13:17.480 referring to. 0:13:17.640 --> 0:13:19.560 Yeah, and there was no risk free rate. The sharp 0:13:19.679 --> 0:13:21.560 ratio didn't work. I mean, it's all there is to it. 0:13:21.600 --> 0:13:23.880 And we all made it up as we went. And 0:13:23.920 --> 0:13:26.200 what's so important here, John, is all the focus of 0:13:26.200 --> 0:13:29.560 the media, the financial press is on short covering a 0:13:29.640 --> 0:13:33.880 short squeeze convexity to the upside stuff I don't even understand. 0:13:34.160 --> 0:13:37.280 And you know what it's about, the bitterly world, you know, 0:13:37.360 --> 0:13:40.880 the David Kelly world, which is the basic idea, do 0:13:41.000 --> 0:13:44.360 you have the courage to get off the sidelines. 0:13:44.880 --> 0:13:46.040 That's the heart of the matter. 0:13:46.200 --> 0:13:48.400 The cash trap. Yeah, it's been a fate for the 0:13:48.440 --> 0:13:51.000 shot for the last few weeks. Kristin, thank you, Thank you. 0:13:51.080 --> 0:14:04.680 Kristin Biddley, the City Global Wath Management at Any joining 0:14:04.720 --> 0:14:07.560 Us now the president of Any Research ED. I've loved 0:14:07.559 --> 0:14:10.160 the notes over the last couple of weeks. The mother 0:14:10.720 --> 0:14:12.839 of all mounts ups at a week closer to a 0:14:12.880 --> 0:14:13.920 mount up than a mount down. 0:14:14.240 --> 0:14:16.680 Well, I think we've definitely had a melt up in 0:14:16.800 --> 0:14:22.360 the Megacap eight stocks. As you've been highlighting, these stocks 0:14:22.440 --> 0:14:26.320 have kind of taken over the market in recent weeks. 0:14:26.440 --> 0:14:28.960 I think it really started with the banking crisis right 0:14:29.000 --> 0:14:32.560 in March March eighth or so, when we started having 0:14:32.560 --> 0:14:35.280 the banking crisis, the financials took a dive. Even energy 0:14:35.280 --> 0:14:37.840 took a dive on fears that if the financials are 0:14:37.880 --> 0:14:40.280 going down, that can't be good for the economy. And 0:14:40.440 --> 0:14:44.240 the energy stocks went down. But people still wanted to 0:14:44.280 --> 0:14:46.400 be in the market, and they ran into the Megacap 0:14:46.440 --> 0:14:49.440 eight because they have cash, they have cash flow, and 0:14:49.880 --> 0:14:53.160 they have a good business. I think the market's actually 0:14:53.160 --> 0:14:56.320 got broad now back to the financials. Right now, we've 0:14:56.320 --> 0:14:59.360 got some uncertainty concerns about whether there might be another 0:14:59.440 --> 0:15:02.240 rate hike, but I think the economic outlook is still 0:15:02.320 --> 0:15:05.040 pretty good, and I think that once people get more 0:15:05.040 --> 0:15:07.200 comfortable with the financials, so I think the market will 0:15:07.200 --> 0:15:08.640 broadened out in that direction. 0:15:08.760 --> 0:15:09.360 Yeah, I want to. 0:15:09.360 --> 0:15:11.440 Give a look back here quickly in a victory lab 0:15:11.480 --> 0:15:13.440 for you. You've had a set of victory laps over 0:15:13.480 --> 0:15:18.320 a lengthy career. In October, Ralphan Kampora and Edward Yardanny said, 0:15:18.320 --> 0:15:21.720 climb on board this bottom in the market. You're up 0:15:21.800 --> 0:15:25.920 nineteen percent from your October low. The triple leveraged Yard 0:15:25.960 --> 0:15:28.480 Denny fund. This is something in develop right now. Is 0:15:28.520 --> 0:15:32.880 a fifty seven percent at return since October. Yeah, that's 0:15:32.920 --> 0:15:35.680 before Yard Danny takes out. It's two and twenty. But 0:15:35.760 --> 0:15:38.280 the answer here, d Dar Danny, I want you to 0:15:38.480 --> 0:15:41.240 talk to people who missed it. They didn't listen to 0:15:41.320 --> 0:15:44.400 Ralphan kampor they didn't listen to Ben Ladler, they didn't 0:15:44.440 --> 0:15:47.280 listen to ed Yard Danny. Talk to the people who 0:15:47.320 --> 0:15:49.600 misses rally, how they get on board. 0:15:50.640 --> 0:15:54.120 Well, I'm still optimistic that the market is going to 0:15:54.160 --> 0:15:56.640 move higher by the end of the year into next year. 0:15:56.680 --> 0:16:00.320 I think next year is sort of the environ meant 0:16:00.360 --> 0:16:03.840 that the market is increasingly thinking about discounting, and I 0:16:03.880 --> 0:16:05.440 think the economy is going to be better. I think 0:16:05.480 --> 0:16:08.920 earnings are going to be better. However, we have had 0:16:09.280 --> 0:16:11.040 a heck of a move, and it's been in these 0:16:11.320 --> 0:16:15.080 large cap stocks. I think you know, as I said, 0:16:15.480 --> 0:16:18.920 look for where there's been laggards, and there certainly have 0:16:19.000 --> 0:16:21.960 been laggers in the financial they have been laggers and energy, 0:16:22.000 --> 0:16:27.440 even in industrials. In addition to the melt up scenario 0:16:28.960 --> 0:16:33.920 for megacaps, I've also been monitoring the situation for construction 0:16:34.360 --> 0:16:37.920 in the United States and it's absolutely booming for non 0:16:38.000 --> 0:16:41.200 residential construction, and I think it's about the boom for 0:16:41.320 --> 0:16:45.600 infrastructure spending, and so I think the industrials are another 0:16:45.640 --> 0:16:46.120 place to be. 0:16:46.800 --> 0:16:48.800 You were saying that the forty six hundred target that 0:16:48.840 --> 0:16:52.160 you currently have might be conservative. If this all bears out, 0:16:52.200 --> 0:16:53.920 what do you say to those who push back and say, 0:16:54.240 --> 0:16:56.440 if that comes to pass and all the people who 0:16:56.440 --> 0:16:58.200 are in cash decide it is the time to throw 0:16:58.240 --> 0:17:00.720 in the towel and go into equities that will give 0:17:00.720 --> 0:17:03.880 the FED more ammunition to high rates further and kill 0:17:03.920 --> 0:17:05.120 this off more quickly. 0:17:06.240 --> 0:17:11.160 Well, I think the Federal Reserve, the Federal official. Federal 0:17:11.160 --> 0:17:14.359 Reserve officials have been saying for quite some time that 0:17:14.400 --> 0:17:16.440 they want to get the interest rate, the Fed fund 0:17:16.520 --> 0:17:19.000 rate up to a restrictive level. I think five to 0:17:19.000 --> 0:17:22.000 five and a quarter percent is proving to be restrictive. 0:17:22.359 --> 0:17:27.440 There has been a banking crisis. We have seen surveys 0:17:27.560 --> 0:17:31.639 of loan officers saying that they are tightening lending standards. 0:17:31.680 --> 0:17:33.480 So I think they're where they want it to be, 0:17:34.000 --> 0:17:36.720 and I think they have to factor in that quantitative 0:17:36.800 --> 0:17:40.600 tightening as well as the tightening of lending standards probably 0:17:40.640 --> 0:17:43.760 amounts to at least another fifty one hundred basis points 0:17:43.800 --> 0:17:46.640 in effective federal funds rate hikes. So if the fund 0:17:46.720 --> 0:17:48.480 rate now is five to five and a quarter percent, 0:17:48.560 --> 0:17:51.600 I think effectively it's already sixty six and a quarter percent. 0:17:51.880 --> 0:17:53.639 But if that's not enough edge to slow any kind 0:17:53.640 --> 0:17:57.960 of growth, And you are seeing construction construction companies actually 0:17:58.119 --> 0:18:00.800 seeing a boom, You're seeing the housing market reignite, You're 0:18:00.840 --> 0:18:04.280 seeing all shoots of possibly some sort of recovery, and 0:18:04.359 --> 0:18:07.320 manufacturing sectors that have been beaten up. Doesn't this go 0:18:07.480 --> 0:18:09.679 against the idea that it is enough, that it is 0:18:09.760 --> 0:18:12.480 restrictive enough to bring about a decline in inflation to 0:18:12.520 --> 0:18:14.680 the degree that the FED would like well. 0:18:14.680 --> 0:18:17.840 Inflation has been coming down, as you know. Maybe it's 0:18:18.080 --> 0:18:21.159 not coming down as rapidly as some people think, but 0:18:21.440 --> 0:18:25.000 I think it's proven to be quite transitory in durable 0:18:25.000 --> 0:18:27.640 goods and even non durable goods. Where we still have 0:18:28.000 --> 0:18:31.600 stickiness or persistence is in services. And we know that 0:18:31.720 --> 0:18:35.440 rent inflation in the real world has come down pretty dramatically, 0:18:35.480 --> 0:18:38.679 and that's likely to mean that we get down to 0:18:38.760 --> 0:18:41.600 something like three to four percent inflation by the end 0:18:41.640 --> 0:18:44.800 of this year. Right now, we're about four to five percent, 0:18:45.240 --> 0:18:48.560