Speaker 1: Welcome to Bloomberg Opinion. I'm Vonnie Quinn this week. You know,
Speaker 1: it's always easy to tell what the bottom looks like
Speaker 1: after the fact, and it always feels like there's something
Speaker 1: waning in the wings. Barry riddles on the last eleven
Speaker 1: months in markets and what we may not know maybe coming.
Speaker 1: We will also review the year in FED decisions and
Speaker 1: preview three Central Bank choices. But first to China were
Speaker 1: visible maths. Anti COVID lockdown protests broke out this week
Speaker 1: in major cities and universities after nearly three years of
Speaker 1: rolling lockdowns. I spoke with Bloomberg Opinions at Clara Ferra Marquez.
Speaker 1: Klara will obviously be seeing references to Tianamen Square in
Speaker 1: nine for the foreseeable future as this continues. Are those
Speaker 1: comparisons warranted? So I think it's important to understand the
Speaker 1: context of protesting and authoritarians to Surman and protests in China.
Speaker 1: So protests and China is actually less unusual than people think.
Speaker 1: So it does happen, It is tolerated, but in very
Speaker 1: specific circumstances. So it tends to be around livelihood issues,
Speaker 1: the bread and butter issues, where the government does allow
Speaker 1: people a bit of space. It also tends to happen
Speaker 1: within particular groups, so students, workers, ethnic minorities. What's particular
Speaker 1: about the last few days is really that all of
Speaker 1: this is happening simultaneously. All of these groups are protesting
Speaker 1: at the same time, united by the COVID factor. And
Speaker 1: also importantly and dangerously for the government, you have the
Speaker 1: livelihood issues overlapping with political issues that very quickly the
Speaker 1: slogans you hear on the streets are not a stop
Speaker 1: mask testing, it's become a shooting. Things stepped down very quickly,
Speaker 1: and I think that is what creates a combustible situation.
Speaker 1: I really think this comparisons of nine nine are very
Speaker 1: premature and a little bit hyperbolic, very easy, especially from
Speaker 1: the western um point of view, to see these images
Speaker 1: on Twitter and where on social media and really jumped
Speaker 1: to that. And while I wouldn't take anything away from
Speaker 1: the incredible bravery of people who are standing outside even
Speaker 1: with blank sheets of paper, um, you know, that's that's
Speaker 1: a very very difficult thing to do. And I would
Speaker 1: also highlight that small numbers are still significant in authoritarian
Speaker 1: systems in a way that you know, a hundred people
Speaker 1: might not be much of a protest in Washington, d C.
Speaker 1: Or in em Paris, but it's certainly and I think
Speaker 1: it's really too soon to get to that stage. But
Speaker 1: it is particularly striking that they are actually targeting season
Speaker 1: Ping himself right after his consolidated power and has never
Speaker 1: been in a more powerful position in China. In some ways, Um, well,
Speaker 1: it's striking in this note. I mean, if you're a
Speaker 1: highly personal system, highly centralized, you're ultimately the person responsible,
Speaker 1: right and I think you're the target. And I think
Speaker 1: that's is both the strength and the weakness here. And
Speaker 1: it's obviously where people go in terms of attributing blame,
Speaker 1: which makes the situation dangerous. It's also what's made the
Speaker 1: COVID situation very difficult to handle because it's quite hard
Speaker 1: to be responsive. And remember China was famous for its
Speaker 1: responsive authoritarian system. It's very hard to be responsive when
Speaker 1: you're taking all the decisions invaging very distance from a
Speaker 1: lot of your billion people. So um, and it's also
Speaker 1: very hard to modulate. So if you look at countries
Speaker 1: have done well then their COVID responses and done well
Speaker 1: and emerging from recently draconian regime to manage COVID. They've
Speaker 1: done well because they have been responsive. They have done
Speaker 1: it quatually, but surely they've managed education. There is absolutely
Speaker 1: no way that China can do that without empowering local government,
Speaker 1: local officials, neighborhood committees to some extent, and that isn't happening.
Speaker 1: The incentives of the people have not changed. It is
Speaker 1: still COVID zero. How will the Communist Party and presidency
Speaker 1: deal with this? How long will they let it go
Speaker 1: on for and build? Because I'm sure if something isn't done,
Speaker 1: then it will continue to build. And obviously media coverage,
Speaker 1: ole and so on will build, and that's not good
Speaker 1: for she's reputation. Um. I mean remember that people in
Speaker 1: China not seeing exactly what we are seeing. I suspect
Speaker 1: the government would very much like dis tocive about I
Speaker 1: think it is unlikely to do so without some sort
Speaker 1: of COVID response. I think they have a number of
Speaker 1: leavers at their disposal. Obviously, exactly how they respond is
Speaker 1: the million dollar questions. We do not know the answer
Speaker 1: to that. I would just point out that they have
Speaker 1: a lot of levers still at their disposal, including the
Speaker 1: response was force a response using either COVID or just
Speaker 1: police forces they used in Hong Kong in but the
Speaker 1: precedents are not good here, and all of that remains
Speaker 1: in Shijing ping arsenal as it were. I mean, all
Speaker 1: of that remains at his disposals. He has not used
Speaker 1: those responses yet. I mean, they're really hoping that with
Speaker 1: a few tweaks here and there, they can get it through.
Speaker 1: But I think that's quite hard to quite hard to see.
Speaker 1: It's very hard to get inside his head, obviously, But
Speaker 1: I mean, what do you imagine his instinct would be.
Speaker 1: Would it be to be harsh and to crack down
Speaker 1: on this in a harsh way immediately, or to respond
Speaker 1: with some kind of as you say, COVID response, in
Speaker 1: other words, more easing, giving people what they want, what
Speaker 1: they saw desire, even if it means additional deaths. No,
Speaker 1: I think it is very unlikely that he will give
Speaker 1: people what they want. I mean that there's a very
Speaker 1: There's two things that I would frame you're thinking around that,
Speaker 1: and one is because she's thinking there are very few
Speaker 1: events more important than the collapse of the Soviet Union,
Speaker 1: and the way he always lookeded that, and he gave
Speaker 1: a famous speech not long after he came to power
Speaker 1: that he where he basically said it collapsed because the
Speaker 1: party didn't control the military and because and I think
Speaker 1: his effect words are something like no one was mad
Speaker 1: enough to stand up. So I think given mass and
Speaker 1: given what we've seen elsewhere, his instincts are absolutely to
Speaker 1: deal with this in a repressive way. And when I
Speaker 1: say a COVID response, I actually mean exactly that. So
Speaker 1: extra lockdown, extra testing, you know, other ways of repressing
Speaker 1: people that are not police force. I mean, you can
Speaker 1: still do that with the stretches that are in place
Speaker 1: in China today. I think it would be very dangerous
Speaker 1: for somebody in his position to very quickly yield to protest,
Speaker 1: because if you do that, then you know the message
Speaker 1: that it's sending to people is not one that I
Speaker 1: think the government will be very happy to the stand,
Speaker 1: which basically, you protest and we give you what you want. Exactly. So,
Speaker 1: is there an appetite if he does crack down in
Speaker 1: a harsher way? Is there an appetite for a continued
Speaker 1: protest and for he just say it, but for people
Speaker 1: to defy his orders no matter what that might entail.
Speaker 1: I think that really will depend on how they respond.
Speaker 1: So if you have an excessively harsh which protect can trigger,
Speaker 1: you know, as it did in Iran and as it
Speaker 1: has in other places, it can trigger more protest. But
Speaker 1: you could also have a Hong Kong situation where it
Speaker 1: actually does bother to count down at least silence, you know,
Speaker 1: don't deal with the discontent by any means you stop
Speaker 1: people coming out into the street. So the answer, I
Speaker 1: don't really know how he will rundlebod, but I would
Speaker 1: certainly play. Both of those are possible. Noomerg opinions at
Speaker 1: Clara Ferro Marquez. Stay tuned Barry Riddles of Riddle's Wealth
Speaker 1: Management and Bloomberg Radio's Masters in Business next on Bloomberg Opinion.
Speaker 1: You're listening to Bloomberg Opinion. I'm Vannie Quinn. Hard to believe,
Speaker 1: but there's just one month left in twenty twenty two,
Speaker 1: so it seems fitting to chat with Barry Riddles of
Speaker 1: Riddles Wealth Management and Bloomberg Radio's Masters in Business for
Speaker 1: a look back at the year. That was, how markets
Speaker 1: responded and what we should anticipate for the rest two. Okay, Barry,
Speaker 1: we've had this period of huge volatility that seems to
Speaker 1: have died down. What are we supposed to do between
Speaker 1: now and the end of the year. Nothing. I mean,
Speaker 1: I was half expecting you to say that, But it's
Speaker 1: really the case that there's nothing to be done now
Speaker 1: that we're post all the catalysts. So so let's put
Speaker 1: this into a little broader context. Right twenty huge market
Speaker 1: returns thirteen fourteen percent a year on average, far above
Speaker 1: the eight percent we typically see in any given year
Speaker 1: over long periods of time, and then hits and the
Speaker 1: market drops, recovers sixty eight percent by the end of
Speaker 1: the year to finish the year up almost one plus
Speaker 1: twenty eight percent. We have been spoiled by twelve years
Speaker 1: of amazing returns. Hey, you know, if that means we
Speaker 1: have to one out of thirteen years down on the
Speaker 1: equity market down in the bond market, that's a trade off.
Speaker 1: Take every decade for the rest of eternity, a little
Speaker 1: bit of mean reversion is to be expected, especially if
Speaker 1: we're expecting some kind of an earnings recession or a
Speaker 1: worse period for earnings, which we are, And yet we
Speaker 1: really haven't seen earnings numbers that bad. Every now and
Speaker 1: then there's a mess, and those companies get punished, but
Speaker 1: for the most part, earnings have been holding up pretty well.
Speaker 1: It seems like a companies are able of passing through
Speaker 1: input cost increases to their end customers and be even
Speaker 1: companies without input costs increases have been passing price increases along.
Speaker 1: And so there was a recent study done by e
Speaker 1: p I that found that typically something like fifty percent
Speaker 1: of inflation is wage related and eight is corporate margin related.
Speaker 1: The past two years, it's been the opposite. You've had,
Speaker 1: you know, ten percent has been wage related, but over
Speaker 1: fifty has been due to corporate profit ability. When we
Speaker 1: look at inflation, a surprising amount of it is what's
Speaker 1: holding up corporate earnings. Companies are raising their their fees,
Speaker 1: they're raising their prices, and consumers are paying it, and
Speaker 1: inventories are pretty high. Now it feels like there's something
Speaker 1: waiting in the wings. Have we seen the worst of
Speaker 1: it or are we in for another huge downturn? I mean,
Speaker 1: we are down still in the NASTAC and six so
Speaker 1: in the SNP. But might that not be the end
Speaker 1: of it? You know, it's always easy to tell what
Speaker 1: the bottom looks like after the fact, and it always
Speaker 1: feels like there's something waiting in the wings, isn't there always?
Speaker 1: So you don't know what's going to happen with the
Speaker 1: whole crypto blow up. We have no idea when the
Speaker 1: Russian invasion of Ukraine is going to end. No one
Speaker 1: knows what's going on in China and the zero COVID
Speaker 1: policy and how aggressive they're going to be towards Taiwan.
Speaker 1: And the funny thing is, whenever you see the year
Speaker 1: in advance forecasts, there's always a list of horribles that
Speaker 1: could happen, and then when you look backwards, it's always
Speaker 1: this unexpected horrible thing. I don't remember anybody at the
Speaker 1: December year ahead saying, hey, global pandemic shut the economy,
Speaker 1: markets drop. So if you have been watching China really
Speaker 1: really closely, you might have anticipated something like that. You
Speaker 1: have to be looking in the right place at the
Speaker 1: right time and receptive to maybe a global pandemic is
Speaker 1: coming out of this. Now. I think we're, you know,
Speaker 1: every general fights the last war. Now we're definitely more
Speaker 1: receptive to a global pandemic. But in other than Bill Gates,
Speaker 1: how many people were really talking about the risk of
Speaker 1: a global pandemic? Not a lot of people outside of
Speaker 1: you know, world of epidemiology. So we've stopped seeing plus
Speaker 1: one percent moves. Do we try and pick up a
Speaker 1: few basis points before the end of the year. Is
Speaker 1: the arizonta Cal's rally coming? So forget the one percent
Speaker 1: moves and think back when we had this giant seven
Speaker 1: percent gain in NASDAC five or six percent on the
Speaker 1: SMP in the TAO. Not only was it a giant
Speaker 1: move up, but it was on massive volume and very
Speaker 1: very strong breath, meaning many, many more stocks were going
Speaker 1: up than going down. So we looked at the history
Speaker 1: of those sort of moves, and when you look at
Speaker 1: the past, going back to seventy one, you look at
Speaker 1: the twenty largest moves on the NASDAC and as it
Speaker 1: turns out, about twenty five percent of them and take
Speaker 1: place as markets are bottoming. So that's not enough to say, hey,
Speaker 1: bet the house, it's over. The worst is behind us,
Speaker 1: but it should be enough to get you to pay
Speaker 1: attention and say, and by the way, the other s
Speaker 1: all took place during bear markets. You don't get those
Speaker 1: giant moves up ard down in a normal healthy bull market.
Speaker 1: It's during a bear market where the market gets deeply oversold.
Speaker 1: The rubber van is stretched too far in one direction
Speaker 1: and then it snaps back in the other direction. So
Speaker 1: you know, almost of of these big moves taking play
Speaker 1: nearer market bottom should be enough to make people think, well,
Speaker 1: I don't know if this cyclical downturn is over, but
Speaker 1: perhaps the Fed is getting closer to the end than
Speaker 1: the beginning of their rate hiking regime. There are all
Speaker 1: sorts of indicators that peak inflation was six months ago.
Speaker 1: Maybe the FED will figure that out. And the economy
Speaker 1: continues to be surprisingly robust. Consumers continue to spend. GDP
Speaker 1: is two pc plus. It's hard to be too negative
Speaker 1: about three. Hopefully we don't have another asteroid from out
Speaker 1: of space like we had with You know, the pandemic
Speaker 1: to me was not a market internal It wasn't an
Speaker 1: economic thing. It was the asteroid that killed the dinosaurs.
Speaker 1: When it's from outside of the market or the economy,
Speaker 1: that's sort of almost random event tends to cause markets
Speaker 1: to wobble and then they go about back to what
Speaker 1: they were doing. You add five trillion dollars in stimulus,
Speaker 1: and and that's how we got way ahead of ourselves.
Speaker 1: Lots of fiscal stimulus, lots of monetary stimulus, and as
Speaker 1: often is the case, investors got a little carried away. Barry,
Speaker 1: You've seen the implosion of FTX and that whole farrago,
Speaker 1: like really just a terrible story, particularly for retail investors
Speaker 1: that would have gotten involved in this is this sort
Speaker 1: of the unveiling of the emperor with no clothes when
Speaker 1: it comes to at least crypto, not defy, but crypto.
Speaker 1: So when you look at some of the exchanges that
Speaker 1: have been offering ten fifteen guaranteed in air quotes, guaranteed
Speaker 1: yields um you know, you would have thought we learned
Speaker 1: the lesson in the financial crisis when people were promising, hey,
Speaker 1: the ten years yielding two percent, we'll give you four percent,
Speaker 1: every bit as safe as h as treasuries and you
Speaker 1: just have to buy this securitized subprime mortgage debt. And
Speaker 1: that turned out that two hundred basis points was a fantasy.
Speaker 1: How is fifteen hundred asis points not a fantasy? It's
Speaker 1: you know, finance and investing is unique, not just because
Speaker 1: the lessons come along every generation, but nobody ever wants
Speaker 1: to learn from them. If you learned anything from the
Speaker 1: Financial crisis, is that risk and reward or two sides
Speaker 1: of the same coin. There is no free lunch. And
Speaker 1: if you're gonna go chasing yields, you're taking on a
Speaker 1: whole lot more risk. And that's going from two hundred
Speaker 1: based points to four hundred, from two percent to four
Speaker 1: per someone's guaranteeing you fift in a zero percent environment,
Speaker 1: which is when that began. Either there's a Nobel prize
Speaker 1: there or someone's going to jail. There's nothing in between.
Speaker 1: More fallout, though it does appear to be slightly contained.
Speaker 1: You know, the thing about crypto is it's relatively small
Speaker 1: compared to fixed income real estate equities. At its peak,
Speaker 1: what was bitcoin two and a have three trillion dollars,
Speaker 1: So it's an apple and a half, it's two amazons.
Speaker 1: And so I think of crypto as a specific company
Speaker 1: as opposed to one giant um asset class. And so
Speaker 1: if you think about that, hey, any given company can
Speaker 1: blow up and it doesn't mean the world is coming
Speaker 1: to an end. So contained is still a dirty word
Speaker 1: post financial crisis. Remember subprime is contained. Yeah, it was
Speaker 1: contained to planet Earth. Other than that that one place,
Speaker 1: the rest of the Solar System wasn't infected with it.
Speaker 1: Crypto really seems to be much First of all, nobody
Speaker 1: has to buy bitcoin, but you have to live somewhere,
Speaker 1: whether it's a house or an apartment. So that's a
Speaker 1: huge difference. And and the other thing is, you know,
Speaker 1: the whole crypto defied sector, it's a speculative trade. It
Speaker 1: attracts people who are I'm gonna gamble and hope to
Speaker 1: see ten x or a hundred x or whatever it was.
Speaker 1: That's very different than people who are historically fixed income
Speaker 1: buyers or even equity buyers. And so yeah, I a
Speaker 1: group of people who are speculating in a specific space
Speaker 1: end up getting run over because the space is down
Speaker 1: six that that's the nature of speculation, you know, you
Speaker 1: you buy a ticket and you take the good with
Speaker 1: the bad. That said, it doesn't mean that DeFi is dead.
Speaker 1: It doesn't mean that crypto has no future, and it
Speaker 1: doesn't mean that the blockchain isn't a really interesting technology.
Speaker 1: But you have to be specific tokens and coins right
Speaker 1: there and n f t s and you know, I
Speaker 1: kind of came up on a trading desk right into
Speaker 1: the teeth of the dot com implosion and when all
Speaker 1: the dot COM's dropped and people forget the NASDAC from
Speaker 1: from its peak to the bottom in in March two
Speaker 1: thousand and three fell. It doesn't mean that that's the
Speaker 1: end of technology. There's no more Internet, there's no more
Speaker 1: software companies. It means we got wildly speculative and how
Speaker 1: to be taken out to the woodshed and punished. I
Speaker 1: kind of get the sense that crypto is going through
Speaker 1: its own dot com implosion. It doesn't mean the space
Speaker 1: is invalid. It means the speculation got a little crazy,
Speaker 1: and now that things need to come back down to
Speaker 1: earth right, stay tuned. Barry Riddles continues with us. Next
Speaker 1: you kind of have to say to yourself, is the
Speaker 1: stock market saying, hey, the Fed doesn't have a clue
Speaker 1: about inflation, and we think that the market will force
Speaker 1: them to recognize that inflation has passed, and that's why
Speaker 1: we think the tonal rate is not five and a half.
Speaker 1: Don't listen to what they're saying. Look at what they're doing.
Speaker 1: We discussed the federal reserves performance in two and how
Speaker 1: the Fed will proceed through three. This is Bloomberg opinion.
Speaker 1: You're listening to Bloomberg opinion. I'm Vonnie Quinn the time
Speaker 1: for modern rating. The pace of rate increases may come
Speaker 1: as soon as the December meeting. Given our our progress
Speaker 1: in tightening policy, the timing of that moderation is far
Speaker 1: less significant. The Fed ered your own Powell there, and
Speaker 1: we're back with Barry Riddles of Riddles, wealth Management and
Speaker 1: Boomberg Radio's Masters and Business. Well, with just one more
Speaker 1: f OMC meeting on deck for two. I asked Barry
Speaker 1: about the Central Bank's reaction function and how the bank
Speaker 1: will continue to react to higher than desired inflation and
Speaker 1: markets digesting higher rates for the first time in fifteen years.
Speaker 1: Let's talk a little bit about the federal reserves. So
Speaker 1: the terminal rate the market is pricing in five percent now,
Speaker 1: which seems a little optimistic in the sense that maybe
Speaker 1: it should be a little higher. So let me um,
Speaker 1: let me channel my inner FED critic voice. And you
Speaker 1: know I'm fond of telling people my job isn't criticize
Speaker 1: the Fed. I don't work in a think tank. I
Speaker 1: manage assets for clients. But still you can't help but
Speaker 1: look at the FED and say, let me make sure
Speaker 1: I understand the history here. So the pandemic happens. You
Speaker 1: take rates to zero, and as the market begins to
Speaker 1: recover and from the lows in March, just for the
Speaker 1: rest of that year, the same sixty eight percent to
Speaker 1: finish the year plus eighteen percent. That's a giant market
Speaker 1: signal that the Federal Reserve completely ignored. They stay at zero.
Speaker 1: Despite on apparent recovery. Inflation ticks up that year, it
Speaker 1: goes through two percent, which is their target. They're still
Speaker 1: at zero. They stay at zero through all of one
Speaker 1: into this year. And the question is, how did you miss,
Speaker 1: at the very least the fact that inflation was elevated.
Speaker 1: Forget the spike. We know a lot of this is
Speaker 1: pandemic related and reopening and supply chains and all those
Speaker 1: fun things. But so they miss inflation. They stay on
Speaker 1: emergency footing too long. They're just way late to begin
Speaker 1: raising rates. And then once they begin raising rates at
Speaker 1: a very belated period, a ton of indicators come out
Speaker 1: that show inflation is peaked and falling. Houses, use cars,
Speaker 1: new cars, copper, lumber, food, oil go down the list.
Speaker 1: Just item after item shows us that inflation peaked May
Speaker 1: June and has been falling and the biggest contributor to CPI,
Speaker 1: inflation is owners equivalent rent. It's about the total and
Speaker 1: it's being driven higher by the Federal Reserve, who are
Speaker 1: pricing people out of the housing market and sending them
Speaker 1: into the rental market. And so you kind of have
Speaker 1: to say to yourself, is the stock market saying, hey,
Speaker 1: the Fed doesn't have a clue about inflation, and we
Speaker 1: think that the market will force them to recognize that
Speaker 1: inflation is has passed. And that's why we think the
Speaker 1: terminal rate is four and a half, four and three quarters,
Speaker 1: not five and a half. Don't listen to what they're saying.
Speaker 1: Look at what they're doing. So you're a market believer,
Speaker 1: then you think that inflation definitely has peaked. We are
Speaker 1: not going to see spikes up again in CPI or
Speaker 1: pp I or prices paid or any of that kind
Speaker 1: of thing, even after inventories. They'll get sort of worn
Speaker 1: down and that the Fed won't have to be more hawkish.
Speaker 1: So it's yeah, I'm I'm a market believer up into
Speaker 1: a point. Markets occasionally get things wrong. But when we
Speaker 1: look at prices wherever I look in the good side
Speaker 1: of the equation, the peak was six months ago. It's
Speaker 1: hard to find something that is as elevated today as
Speaker 1: it was six months ago. Forget prices increasing, we're starting
Speaker 1: to see disinflation and outright deflation and certain things lumber
Speaker 1: is now back to pre pandemic levels. When you look
Speaker 1: at shipping containers, the cost of moving goods, they've dropped
Speaker 1: fifty six. That was a giant cost push through pretty
Speaker 1: much wherever we look. The spike in in prices and wages.
Speaker 1: You know, good good luck negotiating a big wage increase
Speaker 1: these days. It's not what it was six months ago.
Speaker 1: And let me remind people we've had thirty to forty
Speaker 1: years of wages as a deflationary impact. The fact that
Speaker 1: you've had two years of wages going up after decades
Speaker 1: of them lagging inflation. I can't get too bent out
Speaker 1: of shape over that reset. What do you have confidence
Speaker 1: the Fed won't overdo it? Then? Has the Fed got
Speaker 1: its finger on the pulse? Uh? No, I don't have
Speaker 1: confidence that they won't overdo it. In fact, the probabilistic
Speaker 1: bet that markets are making is the bulls are saying
Speaker 1: the FED will find religion. They'll realize they've raised enough.
Speaker 1: Listen to what Lele brainer, a vice chairperson of the
Speaker 1: FED is saying she's recognizing that, hey, lots of signs
Speaker 1: that inflation has already peaked UM. And then the bear
Speaker 1: argument has been the Fed is always late to the party.
Speaker 1: They were late to get off zero, they were late
Speaker 1: to begin recognize inflation, they were late to begin raising,
Speaker 1: and they're going to tighten pass the point they have
Speaker 1: to and cause a recession. Those are the two warring
Speaker 1: um arguments, and the question is which one is going
Speaker 1: to be right. I think there's a lot of data
Speaker 1: between now and let's call at the beginning of the
Speaker 1: second quarter, where we'll have a much better idea of
Speaker 1: which side is calling both the economy and the FEDS
Speaker 1: recognition of the economy correctly. Do you have confidence that
Speaker 1: we'll avoid a long and deep recession right now? If
Speaker 1: we continue on the path to five five and quarter
Speaker 1: five and a half percent, that sounds more like a
Speaker 1: mild recession that lasts a couple of months. However, you
Speaker 1: don't know what's going to happen with the war in
Speaker 1: Russian and Ukraine. You don't know what other random events
Speaker 1: are coming up. You know, historically a robust economy can
Speaker 1: suffer UM, a solid hit and and come back from it.
Speaker 1: You know. It's it's like a healthy football player. They
Speaker 1: can take a solid tackle and get up. The problem
Speaker 1: is when you get a weak, wounded, um fragile economy,
Speaker 1: it just takes one solid bump and it it sends
Speaker 1: it off the path. Right now, the economy continues to
Speaker 1: be fairly robust. Consumers continue to spend, there's plenty of cash.
Speaker 1: Balance sheets look pretty good, both at the household and
Speaker 1: corporate level. But you have to wonder, at what point
Speaker 1: does four or four and a half, five five and
Speaker 1: a half really cause people to say, hey, you know,
Speaker 1: I'm going to really throttle back and and see what comes.
Speaker 1: It becomes um a vicious cycle, very self reinforcement. So
Speaker 1: you manage three billion dollars, what have you been doing
Speaker 1: with it? In the last couple of months. We shortened
Speaker 1: up our duration on fixed income just because the Fed
Speaker 1: has told us they're going to continue raising UM. That's
Speaker 1: probably the biggest change we've made. For the most part,
Speaker 1: everything else we've done has been, hey, you know, we've
Speaker 1: had a great decade. This is an off year. The
Speaker 1: assumption is this isn't the start of five or ten
Speaker 1: years of of bad markets. The the the economy continues to
Speaker 1: be strong enough, and there's enough appetite for risk assets
Speaker 1: like equities that you know, sometime it wouldn't surprise me.
Speaker 1: I'm not in the forecasting business, but the dot com
Speaker 1: enclosion bottomed in March two thousand, the Great Financial Crisis
Speaker 1: bottomed in March two thousand and nine. The pandemic seem
Speaker 1: to have found the bottom in March. I wouldn't be
Speaker 1: surprised to see this cyclical bear market find a bottom
Speaker 1: sometimes towards the end of the first quarter, maybe March,
Speaker 1: and then you know, you shake off the cobwebs and
Speaker 1: the market goes back to worrying about earnings, games and
Speaker 1: and I p O s as opposed to crypto and
Speaker 1: SPACs various Tech overvalued and is more fairly valued now
Speaker 1: or would you go so far as to say it's
Speaker 1: actually undervalued. So it's hard not to say tech was overvalued.
Speaker 1: You know when when pe s go from fifteen to
Speaker 1: twenty to thirty, Hey, that's a little price. Some of
Speaker 1: the strategists will tell you, well, a lot of these
Speaker 1: companies are pricey for a reason. There's tremendous demand for
Speaker 1: the products, for the services people want to own them.
Speaker 1: Indexes have to own them, so that that's one of
Speaker 1: the arguments. I don't see how anyone can look at
Speaker 1: the nasdack down and not say, alright, tech is a
Speaker 1: whole lot more reasonably priced today than it was, especially
Speaker 1: considering prices have fallen. Earnings haven't fallen. They've actually held
Speaker 1: up pretty well. But there are question marks about amount
Speaker 1: of products, about advertising, about reputational risk for some of
Speaker 1: these large companies depends on the company you're talking out.
Speaker 1: Apple just came out and said, hey, you know, we
Speaker 1: have stronger demand than a lot of people realize for iPhones,
Speaker 1: but we have some supply chain issues. You're still dealing
Speaker 1: with the leftover effect from the pandemic, and supply chains
Speaker 1: are tied up. You want to get a new car,
Speaker 1: it's a six to twelve month wait. So these things
Speaker 1: are certainly having having an impact. On the other hand,
Speaker 1: when we look at certain companies, Facebook is probably a
Speaker 1: perfect example. Facebook has a giant Apple size hole in
Speaker 1: their advertising revenue. And then when we look at Tesla,
Speaker 1: Tesla had an amazing run a lot of people sort
Speaker 1: of front running them being added to the SMP five hundred.
Speaker 1: Since then, Tesla, like Facebook has been cut in half.
Speaker 1: Keep in mind they had the market to themselves for
Speaker 1: I don't know, five seven, nine years. Now every major
Speaker 1: automaker for GM, bmw U, Volkswagen, Audie, Porsche, Hundai, even
Speaker 1: Toyota just did the Prius. There is a lot more
Speaker 1: competition in the e V space than there was, So
Speaker 1: it's going to be harder for those sorts of companies
Speaker 1: to maintain, to say nothing by the way of Lucid Orivian,
Speaker 1: it's going to be harder for a company like Tesla
Speaker 1: to maintain the sort of profit margins they've they've been
Speaker 1: able to put together. When we look at companies still
Speaker 1: watching it Almosk for how much more? You know, it's
Speaker 1: hard enough to run one company, let alone three four
Speaker 1: really right if you if you think about it, and
Speaker 1: so I think part of what we're seeing with the
Speaker 1: Tesla stock is how distracted is Zelon And part of
Speaker 1: it is how much more stock is he gonna have
Speaker 1: to sell? Stop and think about it. He sold a
Speaker 1: ton of stock at appreciably higher prices than this Twitter
Speaker 1: may you have just been a great excuse for him
Speaker 1: to lighten up a little bit. Most of his net
Speaker 1: worth is Tesla Stock, Barry Riddles, there of Riddles, wealth management,
Speaker 1: and Bloomberg Radio's Masters in Business. Well that does it
Speaker 1: for this week's Bloomberg Opinion. Don't forget to send us
Speaker 1: your thoughts. You can email me at v Quinn at
Speaker 1: boomberg dot net. Also, we're available as a podcast. Catch
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Speaker 1: We're produced by Eric mollow This is Bloomberg Openion. H