1 00:00:12,880 --> 00:00:16,160 Speaker 1: Hello, and welcome to What Goes Up, a Bloomberg weekly 2 00:00:16,200 --> 00:00:19,840 Speaker 1: market podcast. I'm Sara Ponzec, our porter on the Cross 3 00:00:19,880 --> 00:00:22,560 Speaker 1: Asset team, and I'm Mike Reagan, a senior editor on 4 00:00:22,560 --> 00:00:25,360 Speaker 1: the Markets Team. This week on the show, a respiratory 5 00:00:25,440 --> 00:00:29,080 Speaker 1: virus spreads from China, stirring concerns and contributing to a 6 00:00:29,200 --> 00:00:32,239 Speaker 1: slight pause in the equity rally. But how much may 7 00:00:32,280 --> 00:00:36,120 Speaker 1: it actually affect your investments? Plus the global elite descend 8 00:00:36,159 --> 00:00:39,680 Speaker 1: on Davos, Switzerland for the annual World Economic Forum. What 9 00:00:39,800 --> 00:00:42,800 Speaker 1: some attendees have to say about markets, And of course 10 00:00:42,880 --> 00:00:45,760 Speaker 1: we'll close out the episode with our tradition, the craziest 11 00:00:45,760 --> 00:00:48,400 Speaker 1: thing I saw in markets this week? Sarah, I'm gonna 12 00:00:48,440 --> 00:00:51,559 Speaker 1: just concede defeat up front. Okay, that's that's not what 13 00:00:51,600 --> 00:00:53,800 Speaker 1: I was going Actually, I wear myself the winner of 14 00:00:53,800 --> 00:00:57,640 Speaker 1: the crazy Usually we come right into the show, Mike says, 15 00:00:57,680 --> 00:00:59,600 Speaker 1: you know what I'm gonna say right out front. You 16 00:00:59,680 --> 00:01:01,480 Speaker 1: might as will not even share your craziest thing because 17 00:01:01,480 --> 00:01:07,039 Speaker 1: I'm the winner. So the holiday shortened week I think 18 00:01:07,080 --> 00:01:09,000 Speaker 1: threw me off my game. I had to go reach 19 00:01:09,000 --> 00:01:11,560 Speaker 1: out to Vall Donna high Rich for my crazy thing 20 00:01:11,640 --> 00:01:14,360 Speaker 1: that's how bad it was, and uh she came through, 21 00:01:14,360 --> 00:01:17,720 Speaker 1: but it's it's it's no winner. Hopefully hopefully you can, 22 00:01:18,000 --> 00:01:22,759 Speaker 1: uh you know, with something really crazy. I'll try my best, 23 00:01:23,440 --> 00:01:27,200 Speaker 1: but uh, you know, as you said, crazy week in 24 00:01:27,280 --> 00:01:30,080 Speaker 1: markets as far as the general news flow, and we've 25 00:01:30,120 --> 00:01:33,080 Speaker 1: got some really good guests to break it down. Uh. 26 00:01:33,200 --> 00:01:37,120 Speaker 1: First joining us from the Texas Investment Managers is their 27 00:01:37,760 --> 00:01:41,199 Speaker 1: chief market strategist, David Lafferty. Dave, Welcome to the show, 28 00:01:41,440 --> 00:01:44,720 Speaker 1: Thanks for having me on. Thanks And the guy we 29 00:01:44,760 --> 00:01:49,000 Speaker 1: always turned to when markets and and China collide, our 30 00:01:49,080 --> 00:01:52,400 Speaker 1: very own Yee She a blogger for Markets Live and 31 00:01:52,560 --> 00:01:55,600 Speaker 1: a former reporter in uh China who will will tell 32 00:01:55,680 --> 00:01:58,240 Speaker 1: us a little bit about how this latest health scare 33 00:01:58,760 --> 00:02:01,680 Speaker 1: compares to the stars uh scared that he actually covered 34 00:02:01,720 --> 00:02:04,480 Speaker 1: in in what two oh three? Right? Yes, yeah, glad 35 00:02:04,480 --> 00:02:06,880 Speaker 1: to be good. And he also found some good pictures 36 00:02:06,960 --> 00:02:09,640 Speaker 1: of the market where this all started. So I don't 37 00:02:09,720 --> 00:02:11,560 Speaker 1: want to I don't want a front running your crazy thing? 38 00:02:11,600 --> 00:02:13,600 Speaker 1: Was that is that your crazy thing? Okay? Good, good, 39 00:02:13,639 --> 00:02:15,400 Speaker 1: we'll talk about that, no front running at all. That 40 00:02:15,639 --> 00:02:17,440 Speaker 1: maybe you should steal that for your crazy thing, and 41 00:02:17,480 --> 00:02:20,560 Speaker 1: you don't have to. I think it's pretty good. But Dave, 42 00:02:20,680 --> 00:02:23,880 Speaker 1: let's start with you. I mean, everything I've read this 43 00:02:23,960 --> 00:02:28,120 Speaker 1: week is that, oh, it's it's just another pandemic. As 44 00:02:28,160 --> 00:02:31,079 Speaker 1: crazy as that sounds, you know, we've seen this before 45 00:02:31,160 --> 00:02:34,320 Speaker 1: with the Bola scared about five years ago, uh, this 46 00:02:34,600 --> 00:02:38,040 Speaker 1: Star scared day. The general consensus seems to be that, 47 00:02:38,120 --> 00:02:41,160 Speaker 1: you know, these things cause a little bit of very 48 00:02:41,200 --> 00:02:43,960 Speaker 1: short term uh selling in the market that seems to 49 00:02:44,320 --> 00:02:46,360 Speaker 1: blow over in a couple of weeks. I mean, is 50 00:02:46,400 --> 00:02:48,919 Speaker 1: it that simple uh this time? Do you think, uh, 51 00:02:48,960 --> 00:02:51,160 Speaker 1: you know, I know you're no health expert, but is 52 00:02:51,200 --> 00:02:53,639 Speaker 1: that a pretty base case scenario for you, that this 53 00:02:53,760 --> 00:02:58,920 Speaker 1: is sort of just uh minor momentary distraction for investors. 54 00:02:59,320 --> 00:03:01,200 Speaker 1: I mean, I think that the way the market usually 55 00:03:01,240 --> 00:03:04,000 Speaker 1: handicaps it, and I think there's a reasonable reason for that, 56 00:03:04,080 --> 00:03:08,000 Speaker 1: which is it's it's sort of assumes policy success that 57 00:03:08,000 --> 00:03:11,960 Speaker 1: that government agencies, healthcare professionals will eventually be able to 58 00:03:12,120 --> 00:03:14,760 Speaker 1: ring fence it. And it does make it. It tends 59 00:03:14,760 --> 00:03:17,440 Speaker 1: to make it more of a short term story. Now 60 00:03:17,639 --> 00:03:20,760 Speaker 1: we have to put sort of some caveat around short term. 61 00:03:20,760 --> 00:03:23,360 Speaker 1: It could be a couple of weeks. The Stars story 62 00:03:23,440 --> 00:03:26,840 Speaker 1: was about a six month long story so relatively short. 63 00:03:26,880 --> 00:03:30,280 Speaker 1: We never know exactly what that means for me. Uh, 64 00:03:30,480 --> 00:03:32,400 Speaker 1: we always want to see when it begins to spill 65 00:03:32,440 --> 00:03:35,040 Speaker 1: into the real economy, and we don't exactly know when 66 00:03:35,080 --> 00:03:37,760 Speaker 1: that will be. A lot depends on how well it's contained. 67 00:03:37,800 --> 00:03:40,320 Speaker 1: So I always think there's always sort of two phases. 68 00:03:40,360 --> 00:03:43,160 Speaker 1: There's the knee jerk sort of risk off markets go 69 00:03:43,200 --> 00:03:46,240 Speaker 1: down one, two percent, three percent, something like that, and 70 00:03:46,280 --> 00:03:48,400 Speaker 1: then there's a waiting period where we find out if 71 00:03:48,440 --> 00:03:52,680 Speaker 1: it's actually a more systemic problem. By and large, in history, 72 00:03:53,240 --> 00:03:56,120 Speaker 1: policy makers have gotten their arms around it. Market tends 73 00:03:56,160 --> 00:03:58,560 Speaker 1: to rally back, you know. I I look back on 74 00:03:58,640 --> 00:04:01,600 Speaker 1: the Stars uh episode, and you know, the market was 75 00:04:01,640 --> 00:04:03,360 Speaker 1: kind of trying to find a bottom there after the 76 00:04:03,400 --> 00:04:07,080 Speaker 1: dot com bubble and oh two oh three. On the 77 00:04:07,120 --> 00:04:09,360 Speaker 1: other hand, here we are at what many people believe 78 00:04:09,440 --> 00:04:11,400 Speaker 1: to be this sort of euphoric top. I mean, is 79 00:04:11,400 --> 00:04:14,560 Speaker 1: it scarier when something like this hits at sort of 80 00:04:14,600 --> 00:04:17,320 Speaker 1: this euphoric period in the in the markets compared to 81 00:04:17,320 --> 00:04:20,920 Speaker 1: when the markets are bottoming like they were in oh three. Yeah, 82 00:04:20,920 --> 00:04:24,120 Speaker 1: I mean, I guess the thing that worries me is that, uh, 83 00:04:24,200 --> 00:04:27,080 Speaker 1: you know, there's so much optimism priced in and people 84 00:04:27,080 --> 00:04:30,320 Speaker 1: are worried about valuations. But valuation in and of itself 85 00:04:30,360 --> 00:04:33,479 Speaker 1: isn't a catalyst. So in that vacuum, people tend to 86 00:04:33,520 --> 00:04:36,800 Speaker 1: look for catalysts, and may maybe some type of epidemic 87 00:04:36,880 --> 00:04:40,279 Speaker 1: or pandemic becomes the excuse they've been looking for to 88 00:04:40,360 --> 00:04:43,040 Speaker 1: either profit take or sell down assets that they think 89 00:04:43,080 --> 00:04:46,400 Speaker 1: are expensive. So I don't think it's uh necessarily the 90 00:04:46,400 --> 00:04:48,920 Speaker 1: thing that makes or breaks the market, but I would 91 00:04:48,920 --> 00:04:51,760 Speaker 1: agree that these valuations, with the way the market has 92 00:04:51,960 --> 00:04:55,200 Speaker 1: has run, it does make for kind of a convenient 93 00:04:55,200 --> 00:04:57,400 Speaker 1: excuse to take a little bit of profit here here. 94 00:04:57,600 --> 00:04:59,560 Speaker 1: So as it relates to the coronavirus, we did see 95 00:04:59,560 --> 00:05:03,279 Speaker 1: airlines stocks a little bit, we saw casino operators hit 96 00:05:03,760 --> 00:05:06,920 Speaker 1: just a tad uh. But looking at research that tried 97 00:05:06,960 --> 00:05:10,279 Speaker 1: to really compare what we might see from the current 98 00:05:10,279 --> 00:05:13,840 Speaker 1: events to different epidemics or pandemics of the past, I 99 00:05:13,920 --> 00:05:17,800 Speaker 1: constantly kept coming across research or investors saying that it's 100 00:05:17,839 --> 00:05:21,440 Speaker 1: really hard to isolate the ongoings and markets at that 101 00:05:21,560 --> 00:05:24,960 Speaker 1: time and separate it from other events that were already 102 00:05:25,000 --> 00:05:28,640 Speaker 1: going on. So, yeah, I'm really curious when you've been 103 00:05:28,640 --> 00:05:32,960 Speaker 1: looking at epidemics past pandemics pass and trying to figure 104 00:05:33,000 --> 00:05:37,360 Speaker 1: out what this current Wuhan virus could mean for markets. 105 00:05:37,360 --> 00:05:40,000 Speaker 1: What have you really found? Dude? Is absolutely right in 106 00:05:40,080 --> 00:05:42,880 Speaker 1: term impact on the US market is probably quite limited 107 00:05:42,960 --> 00:05:47,200 Speaker 1: or short lived, but there's a apparent impact on the 108 00:05:47,240 --> 00:05:49,680 Speaker 1: local market, particularly Asia. If you look at it, if 109 00:05:49,680 --> 00:05:52,719 Speaker 1: you use the template of sauce into sound three, the 110 00:05:52,760 --> 00:05:55,960 Speaker 1: Asian market on the performed when the sauce become really 111 00:05:56,000 --> 00:05:59,880 Speaker 1: intensive by in February two sound three and the mark 112 00:06:00,000 --> 00:06:03,080 Speaker 1: it down, the performed actually stopped and the market's bottom 113 00:06:03,279 --> 00:06:05,640 Speaker 1: on the exact day when the number of the cases 114 00:06:05,800 --> 00:06:10,159 Speaker 1: infection peaked, that was in late April two sound and three. 115 00:06:10,680 --> 00:06:15,200 Speaker 1: So apparently is there's some localized impact, particularly on Asia, 116 00:06:15,440 --> 00:06:19,520 Speaker 1: especially considered China now is mostly service and consumption driven. 117 00:06:19,920 --> 00:06:24,039 Speaker 1: If MAXI they're like, OHI eleven million people lockdown, people 118 00:06:24,080 --> 00:06:27,320 Speaker 1: cannot go out shopping, going to theaters, it's going to 119 00:06:27,520 --> 00:06:30,760 Speaker 1: affect that economy at least in Q one, GDP is 120 00:06:30,760 --> 00:06:34,160 Speaker 1: going to be hit. That's amazing to me. Eleven million 121 00:06:34,240 --> 00:06:36,200 Speaker 1: people in Muhana, I mean it's bigger than New York, 122 00:06:36,279 --> 00:06:38,000 Speaker 1: you know, and it's it's a city we've heard of, 123 00:06:38,000 --> 00:06:39,719 Speaker 1: but you never think of it on on that sort 124 00:06:39,720 --> 00:06:42,440 Speaker 1: of scale. But we're talking before the show e about 125 00:06:42,440 --> 00:06:46,680 Speaker 1: sort of comparing and contrasting the Stars. How the China 126 00:06:46,760 --> 00:06:50,960 Speaker 1: government handled the Stars episode in UH two thousand to 127 00:06:51,040 --> 00:06:53,120 Speaker 1: two thousand and three, and how they're handling it now. 128 00:06:53,920 --> 00:06:57,640 Speaker 1: Much more aggressive response this time, you know, but when 129 00:06:57,680 --> 00:06:59,800 Speaker 1: you try to quarantine a whole city like that, as 130 00:06:59,839 --> 00:07:03,600 Speaker 1: you said, I feel like this aggressive response almost threatens 131 00:07:03,680 --> 00:07:05,760 Speaker 1: to do more damage to the economy than the than 132 00:07:05,800 --> 00:07:08,960 Speaker 1: the Stars epidemic. Is that safe to say? Yeah? Yeah? 133 00:07:08,960 --> 00:07:12,080 Speaker 1: In Q one two thousand three they comed down like 134 00:07:12,080 --> 00:07:15,640 Speaker 1: two percentage points for eleven percent to nine percent, but 135 00:07:15,760 --> 00:07:21,000 Speaker 1: economy quickly rebonded that when the when things get under control. Um, 136 00:07:21,080 --> 00:07:25,560 Speaker 1: in q Q Q three they actually did pretty well. Um, 137 00:07:25,600 --> 00:07:28,160 Speaker 1: it's that actually a question for you. Can you guess 138 00:07:28,200 --> 00:07:31,800 Speaker 1: which year did the MSCI China performed did the best ever? 139 00:07:31,880 --> 00:07:35,160 Speaker 1: Hurning the tables? I actually know because I've been following 140 00:07:35,200 --> 00:07:39,600 Speaker 1: your report. I thought that maybe maybe data has to 141 00:07:39,640 --> 00:07:45,400 Speaker 1: guess that probably close to them in two thou three. 142 00:07:46,040 --> 00:07:49,040 Speaker 1: So that tells you these type of events tend to 143 00:07:49,040 --> 00:07:51,480 Speaker 1: have very short, short term impact instead of the long 144 00:07:51,600 --> 00:07:54,480 Speaker 1: lasting impact. So you mentioned how the Chinese economy now 145 00:07:54,720 --> 00:07:57,920 Speaker 1: is more so services based, more so than it was 146 00:07:58,000 --> 00:08:01,080 Speaker 1: back in two thousand and three, UH during the stars epidemic. 147 00:08:01,120 --> 00:08:03,320 Speaker 1: But there was also a great rundown from Mark Cudmore, 148 00:08:03,400 --> 00:08:06,280 Speaker 1: one of our macro strategist here at Bloomberg, and he 149 00:08:06,800 --> 00:08:09,880 Speaker 1: alluded to a research note put out by Rabble Bank, 150 00:08:10,000 --> 00:08:13,160 Speaker 1: and what they basically say is the fact that back 151 00:08:13,160 --> 00:08:16,920 Speaker 1: in two thousand and three, China share of GDP was 152 00:08:17,000 --> 00:08:21,560 Speaker 1: only four point three. Now it's closer to So if 153 00:08:21,600 --> 00:08:24,920 Speaker 1: this were to go on longer, Dave, does that kind 154 00:08:24,960 --> 00:08:27,520 Speaker 1: of show you that should we see more of an 155 00:08:27,520 --> 00:08:31,080 Speaker 1: economic effect, more of an ecomic downturn on China, that 156 00:08:31,160 --> 00:08:35,079 Speaker 1: we could see a larger feed through to the global economy. 157 00:08:35,200 --> 00:08:38,160 Speaker 1: There's certainly a possibility. Obviously, with China being so much 158 00:08:38,320 --> 00:08:41,079 Speaker 1: larger in the global economy, the bleed through of f 159 00:08:41,320 --> 00:08:45,320 Speaker 1: effects obviously could be more significant. But again, as he said, 160 00:08:45,320 --> 00:08:47,959 Speaker 1: they tend to be more temporary, because what's really going 161 00:08:48,000 --> 00:08:51,480 Speaker 1: on here is it sort of inhibits behavior, you know, 162 00:08:51,559 --> 00:08:54,320 Speaker 1: sort of demand gets pent up, but then after the 163 00:08:54,400 --> 00:08:57,560 Speaker 1: scare passes, people usually go out and spend again. So 164 00:08:57,640 --> 00:08:59,840 Speaker 1: more often than not, you have a pretty good rebound. 165 00:08:59,880 --> 00:09:02,640 Speaker 1: So the question really becomes, how much of this is 166 00:09:02,679 --> 00:09:07,360 Speaker 1: about these these type of pandemics or epidemics are about volatility, 167 00:09:07,440 --> 00:09:10,200 Speaker 1: a bad quarter, a bad month, maybe even a bad 168 00:09:10,200 --> 00:09:13,280 Speaker 1: two quarters, And how much is about real long term 169 00:09:13,360 --> 00:09:16,600 Speaker 1: damage to the economy. I suspect that there's very little 170 00:09:16,880 --> 00:09:19,720 Speaker 1: long term damage to the economy, but in the short 171 00:09:19,800 --> 00:09:22,599 Speaker 1: run that loss of activity hits, but you get a 172 00:09:22,679 --> 00:09:25,080 Speaker 1: lot of it back later. And if I was reading 173 00:09:25,080 --> 00:09:29,080 Speaker 1: one of your recent notes, uh, great title, Confessions of 174 00:09:29,120 --> 00:09:32,800 Speaker 1: a Reluctant Bull, and uh, the first sort of subtitle 175 00:09:32,880 --> 00:09:36,920 Speaker 1: you you give is a party like it's I keep 176 00:09:36,960 --> 00:09:39,160 Speaker 1: hearing that over and over again. I think Paul twitter 177 00:09:39,280 --> 00:09:43,160 Speaker 1: Jones was out saying it it feels like this year. 178 00:09:44,200 --> 00:09:47,040 Speaker 1: I think Cameron christ on our own Markets Live blog 179 00:09:47,120 --> 00:09:50,520 Speaker 1: made a similar comparison. What about the current environment. I 180 00:09:50,559 --> 00:09:53,120 Speaker 1: know we talked about the high value valuations and sort 181 00:09:53,160 --> 00:09:57,160 Speaker 1: of this never ending grind higher? Is that basically it is? 182 00:09:57,160 --> 00:10:00,080 Speaker 1: Is there anything else that really makes you start to 183 00:10:00,120 --> 00:10:04,719 Speaker 1: bring out that comparison? So it's it's interesting, it's not 184 00:10:04,880 --> 00:10:07,960 Speaker 1: really it's partially about the valuations. But I wasn't really 185 00:10:08,040 --> 00:10:12,080 Speaker 1: making a historical comparison. I really just wanted a pully 186 00:10:12,160 --> 00:10:14,679 Speaker 1: year that was sort of the end of a raging 187 00:10:14,800 --> 00:10:17,880 Speaker 1: bull market. That was the only sort of historical thing, 188 00:10:17,880 --> 00:10:19,920 Speaker 1: because what I was really posing was sort of this 189 00:10:20,200 --> 00:10:23,320 Speaker 1: hypothetical question, which is, if you had the chance to 190 00:10:23,360 --> 00:10:26,960 Speaker 1: get into the market at the beginning of knowing it 191 00:10:27,080 --> 00:10:29,560 Speaker 1: was a good year, but you gave up all of 192 00:10:29,600 --> 00:10:32,440 Speaker 1: those gains within the next eighteen months knowing what you 193 00:10:32,520 --> 00:10:35,439 Speaker 1: know today, is that still a good time to invest? 194 00:10:35,720 --> 00:10:37,240 Speaker 1: And I was trying to get at the idea that 195 00:10:37,440 --> 00:10:40,520 Speaker 1: there are different types of investors out there. Some investors 196 00:10:40,559 --> 00:10:43,400 Speaker 1: want to ride it to the end. Other investors, and 197 00:10:43,440 --> 00:10:45,960 Speaker 1: this is probably closer to my way of thinking, would 198 00:10:46,040 --> 00:10:48,559 Speaker 1: rather get off the train a little bit. I you know, 199 00:10:48,600 --> 00:10:50,400 Speaker 1: a lot of people I think are kind of they 200 00:10:50,440 --> 00:10:53,000 Speaker 1: want to Fellman Louise this thing right off the edge, 201 00:10:53,600 --> 00:10:56,080 Speaker 1: and and I'm a little bit more, uh, you know, 202 00:10:56,120 --> 00:10:59,679 Speaker 1: maybe I'm more risk averse than others. So, yes, valuation 203 00:10:59,720 --> 00:11:03,720 Speaker 1: has similarity to the tech the idea that it's tech 204 00:11:03,800 --> 00:11:06,880 Speaker 1: driven and it's mega cab driven. But I wasn't really 205 00:11:06,920 --> 00:11:10,040 Speaker 1: making a historical comparison. I was really just saying, think 206 00:11:10,080 --> 00:11:14,240 Speaker 1: back to a time when you got great returns close 207 00:11:14,360 --> 00:11:17,200 Speaker 1: to the end. How does that make you feel if 208 00:11:17,240 --> 00:11:19,640 Speaker 1: you and by the way, we're not barrish, I'm not 209 00:11:19,640 --> 00:11:23,160 Speaker 1: saying we're at the end, but as the possibility rises 210 00:11:23,520 --> 00:11:26,640 Speaker 1: and the damage could be worse because you're at higher valuations, 211 00:11:26,840 --> 00:11:29,280 Speaker 1: how does that make you feel as an investor? That 212 00:11:29,360 --> 00:11:31,600 Speaker 1: was sort of the behavioral issue I was trying to 213 00:11:31,640 --> 00:11:33,480 Speaker 1: get at. It's kind of that, you know, are we 214 00:11:33,520 --> 00:11:35,480 Speaker 1: picking up dimes in front of the steam roller? That'll 215 00:11:35,520 --> 00:11:37,600 Speaker 1: cliche at at this point, and yeah, we are we 216 00:11:37,640 --> 00:11:39,760 Speaker 1: picking up dimes that you know I mentioned in the 217 00:11:39,800 --> 00:11:42,000 Speaker 1: research note, it's a little bit like chicken. When do 218 00:11:42,040 --> 00:11:44,680 Speaker 1: you swerve? Is kind of the key and I was 219 00:11:44,880 --> 00:11:49,000 Speaker 1: in is a great year to ask when when should 220 00:11:49,000 --> 00:11:52,800 Speaker 1: you have swerved? Uh? Knowing that you never actually know 221 00:11:52,920 --> 00:11:55,319 Speaker 1: when the market's going to turn down, But Sarah, I 222 00:11:55,360 --> 00:11:57,280 Speaker 1: used to think I could outrun a steam roller. As 223 00:11:57,280 --> 00:12:03,160 Speaker 1: I get older on that explains. But even you were 224 00:12:03,160 --> 00:12:05,959 Speaker 1: wind back from and you saw evaluations maybe start to 225 00:12:06,000 --> 00:12:08,560 Speaker 1: get stretched a couple of years before, and you had 226 00:12:08,600 --> 00:12:10,920 Speaker 1: five years of double digit gains in the lead up. 227 00:12:10,920 --> 00:12:14,079 Speaker 1: And there's another line in that same note that really 228 00:12:14,120 --> 00:12:16,240 Speaker 1: stood out to me. You say, bowls will rightly point 229 00:12:16,280 --> 00:12:19,240 Speaker 1: out that the valuation is a poor timing tool Confession 230 00:12:19,320 --> 00:12:22,040 Speaker 1: number two, even as it died in the wool value proponent. 231 00:12:22,120 --> 00:12:24,240 Speaker 1: This is hard to argue with. History shows that in 232 00:12:24,280 --> 00:12:26,520 Speaker 1: the short run up cheap stocks can always get cheaper, 233 00:12:26,559 --> 00:12:30,840 Speaker 1: and expensive stocks can always get more expensive. So when 234 00:12:30,840 --> 00:12:33,640 Speaker 1: you're speaking with investors at this point in time, say 235 00:12:33,640 --> 00:12:35,920 Speaker 1: they have been invested, they booked great profits so far, 236 00:12:36,040 --> 00:12:40,400 Speaker 1: they were in had a great run, what's the tone like, 237 00:12:40,480 --> 00:12:43,520 Speaker 1: our people still worry that this just can go on 238 00:12:43,640 --> 00:12:45,920 Speaker 1: for years longer, like we saw in the late nineties, 239 00:12:46,160 --> 00:12:48,800 Speaker 1: and you just don't want to miss out on that. Well, 240 00:12:48,840 --> 00:12:51,280 Speaker 1: I think there's almost two mindsets here. There's sort of 241 00:12:51,360 --> 00:12:55,920 Speaker 1: in the business the asset managers, financial strategists, economists. We 242 00:12:56,000 --> 00:12:58,400 Speaker 1: look at the things that are driving the market, and 243 00:12:58,400 --> 00:13:00,400 Speaker 1: those are things like you know, the FEDS one eight, 244 00:13:00,600 --> 00:13:02,880 Speaker 1: the fact that all the other central banks, most of 245 00:13:02,880 --> 00:13:05,600 Speaker 1: them are either on hold or of turned dovish. Every 246 00:13:05,800 --> 00:13:08,640 Speaker 1: everybody talks about the suppression of interest rates. You know, 247 00:13:08,720 --> 00:13:11,160 Speaker 1: this idea that there is no alternative, So there's a 248 00:13:11,160 --> 00:13:14,800 Speaker 1: constant bid to equities because nobody loves bonds. And then 249 00:13:14,840 --> 00:13:18,319 Speaker 1: you have things like technicals like momentum, and things like that. 250 00:13:18,559 --> 00:13:20,520 Speaker 1: So when you talk in the business, you can come 251 00:13:20,600 --> 00:13:23,400 Speaker 1: up with all these reasons why, hey, this this party 252 00:13:23,400 --> 00:13:25,480 Speaker 1: could keep going on for a while. You go out 253 00:13:25,480 --> 00:13:27,600 Speaker 1: and meet with clients and it's been talked about for 254 00:13:27,600 --> 00:13:30,680 Speaker 1: a while. You know, the most unlovabull market. I hear 255 00:13:30,720 --> 00:13:33,080 Speaker 1: a lot more of that today. The the You know, 256 00:13:33,240 --> 00:13:36,240 Speaker 1: people were worried at seventeen times earnings, They're worried a 257 00:13:36,320 --> 00:13:38,760 Speaker 1: little bit more at eighteen. They're worried a lot at 258 00:13:38,840 --> 00:13:41,760 Speaker 1: nineteen times earnings. I think nobody wants to be the 259 00:13:41,800 --> 00:13:44,400 Speaker 1: guy that jumps in kind of at the top. A 260 00:13:44,440 --> 00:13:46,840 Speaker 1: lot of people learn that lesson and we're burned in 261 00:13:46,880 --> 00:13:49,960 Speaker 1: the late nineties. So I I see, you know, two 262 00:13:50,000 --> 00:13:51,640 Speaker 1: types of people out there. I see people in the 263 00:13:51,679 --> 00:13:54,439 Speaker 1: business saying, hey, this can keep going for a little while. 264 00:13:54,520 --> 00:13:57,240 Speaker 1: Expensive can get a little bit more expensive. This is 265 00:13:57,360 --> 00:14:01,559 Speaker 1: uncharted territory. When you take into restrates down so low 266 00:14:01,600 --> 00:14:05,199 Speaker 1: and so much policy accommodation, this can last longer than 267 00:14:05,240 --> 00:14:09,040 Speaker 1: we all think. The average retail investor is a little 268 00:14:09,040 --> 00:14:11,760 Speaker 1: bit more reticent than that. I think they they understand 269 00:14:11,800 --> 00:14:14,920 Speaker 1: things like pe ratios and being eleven years into a 270 00:14:14,920 --> 00:14:17,079 Speaker 1: bowl market. At some point, does it do you think 271 00:14:17,080 --> 00:14:19,200 Speaker 1: it starts to we'll start to become a talking point 272 00:14:19,240 --> 00:14:21,520 Speaker 1: for the FED. You know, we'll start hearing about irrational 273 00:14:21,560 --> 00:14:23,880 Speaker 1: exuberance again. That that sort of thing I mean, And 274 00:14:24,440 --> 00:14:27,640 Speaker 1: if so, is that um is that the type of 275 00:14:27,680 --> 00:14:30,760 Speaker 1: thing that could sort of cause a pause in this rally? 276 00:14:31,360 --> 00:14:34,440 Speaker 1: It could, But I I think you won't hear irrational 277 00:14:34,440 --> 00:14:38,160 Speaker 1: exuberance again. They might have a different, different phrase. They 278 00:14:38,200 --> 00:14:40,640 Speaker 1: like to be a little bit more original that. But 279 00:14:40,640 --> 00:14:43,000 Speaker 1: but what I think has gone on in the last decade, 280 00:14:43,080 --> 00:14:46,040 Speaker 1: largely since the financial crisis, is a subtle change at 281 00:14:46,120 --> 00:14:50,120 Speaker 1: central banks, which is they now do pay explicit attention 282 00:14:50,160 --> 00:14:53,880 Speaker 1: to financial conditions. So it's not that it's an addition 283 00:14:53,920 --> 00:14:56,200 Speaker 1: to their mandate, but they certainly look at it. So 284 00:14:56,240 --> 00:14:59,760 Speaker 1: instead of just you know, stable employment and stable prices, 285 00:15:00,040 --> 00:15:03,960 Speaker 1: there is a there is a balancing act between systemic risk. 286 00:15:04,040 --> 00:15:09,040 Speaker 1: Are they pumping up and creating bubbles? And uh, we 287 00:15:09,160 --> 00:15:13,560 Speaker 1: know that investors and will naturally pull back when asset 288 00:15:13,640 --> 00:15:16,200 Speaker 1: prices fall. When you see four ohn ks dropping in 289 00:15:16,240 --> 00:15:19,480 Speaker 1: there are r a s dropping. So there is kind 290 00:15:19,480 --> 00:15:22,320 Speaker 1: of this informal mandate at the FED to at least 291 00:15:22,520 --> 00:15:26,080 Speaker 1: look at financial conditions. And so I think that more 292 00:15:26,160 --> 00:15:28,720 Speaker 1: so than than in the past, and I think that 293 00:15:28,960 --> 00:15:33,000 Speaker 1: naturally kind of leads them. I don't want to say that, uh, 294 00:15:33,240 --> 00:15:36,640 Speaker 1: they might be less likely to talk down some of 295 00:15:36,680 --> 00:15:39,280 Speaker 1: the systemic risk. I don't think they want markets going 296 00:15:39,280 --> 00:15:41,320 Speaker 1: through the roof, but they kind of want to put 297 00:15:41,320 --> 00:15:44,560 Speaker 1: a floor under it because financial conditions are more important 298 00:15:44,560 --> 00:15:46,920 Speaker 1: in their thinking than they would have been ten or 299 00:15:46,920 --> 00:16:05,400 Speaker 1: fifteen years ago. In a spinoff of a rational exuberance, 300 00:16:05,480 --> 00:16:09,000 Speaker 1: you had a pieceless week that called to a Bank 301 00:16:09,040 --> 00:16:12,520 Speaker 1: of America reports saying, irrationally bullish is the stock markets 302 00:16:12,920 --> 00:16:16,440 Speaker 1: new catchphrase. I might be misunderstanding this potentially, but is 303 00:16:16,480 --> 00:16:18,720 Speaker 1: it the idea that you almost feel like you have 304 00:16:18,840 --> 00:16:20,520 Speaker 1: to be bullish at this point in time because you 305 00:16:20,600 --> 00:16:23,680 Speaker 1: have a fed that it's extremely accommodative. Central banks around 306 00:16:23,680 --> 00:16:26,120 Speaker 1: the world are extremely accommodative, and you have very low 307 00:16:26,160 --> 00:16:28,160 Speaker 1: interest rate, low inflation, so it's almost as if what 308 00:16:28,200 --> 00:16:31,400 Speaker 1: else are you gonna do? Yeah, exactly as Dave said earlier, 309 00:16:31,440 --> 00:16:34,920 Speaker 1: that there's a few of missing out. That's a mental 310 00:16:35,400 --> 00:16:39,160 Speaker 1: especially when you don't have apparent catalyst for the market 311 00:16:39,240 --> 00:16:43,760 Speaker 1: to really scared of um in all these awash of 312 00:16:43,920 --> 00:16:47,400 Speaker 1: liquidity in the markets, economic data seems to be turned 313 00:16:47,440 --> 00:16:51,360 Speaker 1: into better and all these tail risk trade war bresent, 314 00:16:51,520 --> 00:16:54,400 Speaker 1: all these tail risk is not to fade. You don't 315 00:16:54,400 --> 00:16:58,920 Speaker 1: really see adding catalysts for people to really to to 316 00:16:58,960 --> 00:17:02,000 Speaker 1: move with treat of on the stomackt to to put 317 00:17:02,040 --> 00:17:06,120 Speaker 1: into the cash so at the media continue to play 318 00:17:06,160 --> 00:17:10,280 Speaker 1: you have to get up and dance. Yeah, I wonder 319 00:17:10,440 --> 00:17:15,320 Speaker 1: as you mentioned, during the Stars epidemic, Chinese gd GDP 320 00:17:15,440 --> 00:17:17,800 Speaker 1: growth went from like eleven to nine percent um. You know, 321 00:17:17,960 --> 00:17:21,280 Speaker 1: oh the horrors of nine percent GDP. But you know 322 00:17:21,359 --> 00:17:24,480 Speaker 1: now we're looking at closer to six you shape two 323 00:17:24,480 --> 00:17:27,560 Speaker 1: off of that, it's starting to get kind of dicey. 324 00:17:27,600 --> 00:17:31,000 Speaker 1: Is there uh talk in the Chinese media and social media? 325 00:17:31,040 --> 00:17:34,280 Speaker 1: I know you you followed pretty closely. Are people thinking, well, 326 00:17:34,520 --> 00:17:36,359 Speaker 1: China's gonna throw a lot of money at this problem 327 00:17:36,440 --> 00:17:39,200 Speaker 1: and and that will be a stimulu of reinforcement on 328 00:17:39,320 --> 00:17:41,800 Speaker 1: the markets? Is that is it two early? For that 329 00:17:41,800 --> 00:17:45,000 Speaker 1: second time? I think this is a still develop developing stories. 330 00:17:45,359 --> 00:17:49,960 Speaker 1: UM the strategy China helping UM taking to uh trying 331 00:17:49,960 --> 00:17:52,920 Speaker 1: to slow down this kind of growth moderation, is trying 332 00:17:52,960 --> 00:17:56,880 Speaker 1: to avoid a large stimulus. They are pretty aware of 333 00:17:56,920 --> 00:17:59,719 Speaker 1: all these leverage issues they had, so they have been 334 00:17:59,760 --> 00:18:03,040 Speaker 1: trying into to take all these piecemeal steps instead of 335 00:18:03,040 --> 00:18:07,080 Speaker 1: a large liquidity stimulus. So I think at this point 336 00:18:07,119 --> 00:18:08,719 Speaker 1: is they seems to be still have a lot of 337 00:18:08,760 --> 00:18:12,639 Speaker 1: the tools in their toolbox UM, fiscal spendings, UM, some 338 00:18:12,800 --> 00:18:16,520 Speaker 1: of instruct projects to be probably moved ahead, but at 339 00:18:16,560 --> 00:18:18,800 Speaker 1: this point it's probably too still too early to assess 340 00:18:18,840 --> 00:18:22,359 Speaker 1: the damage. So he said, leverage issues. Uh. And I 341 00:18:22,400 --> 00:18:26,160 Speaker 1: think some would hold a debate about how much debt 342 00:18:26,200 --> 00:18:29,240 Speaker 1: has been built up, not just overseas but also on 343 00:18:29,520 --> 00:18:32,720 Speaker 1: corporate balance sheets state side as well. And it reminds 344 00:18:32,760 --> 00:18:36,840 Speaker 1: me of something we did here over at the Davos conference. 345 00:18:36,880 --> 00:18:39,280 Speaker 1: And this came from Scott Minord over at Googanheide and 346 00:18:39,320 --> 00:18:43,080 Speaker 1: I want to share two uh different lines with you, 347 00:18:43,160 --> 00:18:44,840 Speaker 1: one from him on from someone else that is also 348 00:18:44,920 --> 00:18:47,359 Speaker 1: very well known. So Scott Minord said, the market is 349 00:18:47,359 --> 00:18:50,280 Speaker 1: a Ponzi scheme UM, saying that it's been built up, 350 00:18:50,320 --> 00:18:53,280 Speaker 1: been up and up, and so much leverage. Central banks 351 00:18:53,280 --> 00:18:56,160 Speaker 1: have provided so much liquidity, he said, the markets Ponzi scheme. 352 00:18:56,200 --> 00:18:58,320 Speaker 1: Then on the other side you have the likes of 353 00:18:58,440 --> 00:19:00,919 Speaker 1: Jamie Diamond at JP Morgan into talking about the markets 354 00:19:00,920 --> 00:19:03,040 Speaker 1: being in a goldilocks place, And I just want to 355 00:19:03,040 --> 00:19:05,640 Speaker 1: get your take, Dave, on how you can have too 356 00:19:06,480 --> 00:19:10,359 Speaker 1: very well known names in the financial financial industry and 357 00:19:10,640 --> 00:19:14,400 Speaker 1: you can just have to completely different takes in a way. 358 00:19:14,400 --> 00:19:17,440 Speaker 1: Maybe sure you can find a link somewhere, but clearly 359 00:19:17,560 --> 00:19:22,080 Speaker 1: Ponzi skiing Goldilocks not the same. Yeah, I think you 360 00:19:22,119 --> 00:19:24,760 Speaker 1: know everybody. What makes markets is that we all approach 361 00:19:24,840 --> 00:19:27,600 Speaker 1: them with different perspectives, right And I think if you're 362 00:19:27,720 --> 00:19:31,120 Speaker 1: if you're of a cynical nature, you can always ask 363 00:19:31,200 --> 00:19:34,200 Speaker 1: the question how did we get here? What imbalances were 364 00:19:34,240 --> 00:19:37,760 Speaker 1: built up? And and frankly, there are plenty of things 365 00:19:37,800 --> 00:19:41,000 Speaker 1: to point at right now. However, when you look at 366 00:19:41,040 --> 00:19:44,680 Speaker 1: what central banks have done, the more the more optimistic 367 00:19:45,040 --> 00:19:47,280 Speaker 1: side of that coin is to say, well, look at 368 00:19:47,320 --> 00:19:51,080 Speaker 1: why things are so solid. Central banks have suppressed interest rates, 369 00:19:51,480 --> 00:19:55,159 Speaker 1: markets have can continue to rise. Uh, the cost of 370 00:19:55,240 --> 00:19:59,200 Speaker 1: capital is very low, inflation is muted, not doing much 371 00:19:59,200 --> 00:20:01,120 Speaker 1: in places. So when you look at sort of a 372 00:20:01,160 --> 00:20:05,959 Speaker 1: fundamental background, somebody can make a very good goldilocks case. Hey, 373 00:20:06,240 --> 00:20:09,360 Speaker 1: I think of it as sort of contemporaneous right now, Hey, 374 00:20:09,359 --> 00:20:12,520 Speaker 1: look at it, it's goldilocks. Somebody steps back from that 375 00:20:12,560 --> 00:20:15,440 Speaker 1: and says, yeah, but look what's been going on around 376 00:20:15,520 --> 00:20:18,800 Speaker 1: the goldilocks. Uh. And I think there's elements of truth 377 00:20:18,840 --> 00:20:21,520 Speaker 1: to both. Again, I'm I'm sort of a bond guy 378 00:20:21,600 --> 00:20:24,199 Speaker 1: by training. I leaned towards too, a little bit of 379 00:20:24,200 --> 00:20:27,520 Speaker 1: the worried side. I wouldn't call it a Ponzi scheme. 380 00:20:27,560 --> 00:20:30,280 Speaker 1: That's that's a little aggressive for for for for my 381 00:20:30,359 --> 00:20:33,800 Speaker 1: style and the people that I report to, probably not 382 00:20:33,880 --> 00:20:40,120 Speaker 1: great for business. But but to suggest that there are brewing, uh, 383 00:20:40,280 --> 00:20:43,760 Speaker 1: systemic risks out there is not an outlier opinion by 384 00:20:43,800 --> 00:20:47,359 Speaker 1: any stretch of the imagination. I prefer good Ponzac scheme. 385 00:20:48,280 --> 00:20:50,800 Speaker 1: You know that. I will let you all in a 386 00:20:50,880 --> 00:20:54,320 Speaker 1: little secret. My nickname somehow through every stage of life 387 00:20:54,359 --> 00:20:59,600 Speaker 1: has been Ponzi. I wanted to call the pod podcast 388 00:20:59,640 --> 00:21:07,200 Speaker 1: the puns People, but but so boil it all down 389 00:21:07,280 --> 00:21:11,080 Speaker 1: to us from sort of an allocation perspective, I mean, 390 00:21:11,160 --> 00:21:15,679 Speaker 1: what what should a portfolio given high valuations both in 391 00:21:15,720 --> 00:21:18,840 Speaker 1: equities and bonds right now? What? What what should it 392 00:21:18,880 --> 00:21:21,040 Speaker 1: look like? To you? Yeah? Well, this this was you 393 00:21:21,080 --> 00:21:23,359 Speaker 1: know why we call the note, you know, confessions of 394 00:21:23,400 --> 00:21:26,560 Speaker 1: a reluctant bull. I think the market and risk assets 395 00:21:26,560 --> 00:21:29,480 Speaker 1: like a lot of people because of you know, there 396 00:21:29,560 --> 00:21:32,760 Speaker 1: is no alternative central banks things like that. The momentum, 397 00:21:33,240 --> 00:21:35,400 Speaker 1: I think the path of least resistance is we kind 398 00:21:35,400 --> 00:21:38,080 Speaker 1: of grind higher from there. Uh he kind of hit 399 00:21:38,119 --> 00:21:41,840 Speaker 1: the nail on the head. Where's the downside catalyst? And 400 00:21:41,880 --> 00:21:45,400 Speaker 1: as we mentioned earlier, valuation is worrisome, but valuation isn't 401 00:21:45,400 --> 00:21:48,480 Speaker 1: the catalyst. Valuation is the thing that you worry about. Well, 402 00:21:48,520 --> 00:21:50,679 Speaker 1: when markets start to go down, how far can they 403 00:21:50,720 --> 00:21:53,400 Speaker 1: go down? But valuation isn't the thing that makes them 404 00:21:53,440 --> 00:21:56,480 Speaker 1: go down. So what I've been spending a lot of 405 00:21:56,480 --> 00:21:59,919 Speaker 1: time thinking about is just the upside versus downside trade off. 406 00:22:00,520 --> 00:22:03,720 Speaker 1: And I'm rare amongst strategists that I usually think my 407 00:22:03,800 --> 00:22:09,400 Speaker 1: base case is not going to come true. Uh yeah, 408 00:22:09,440 --> 00:22:11,920 Speaker 1: it's uh, you know, are we all have crystal balls 409 00:22:11,920 --> 00:22:15,399 Speaker 1: and they've worked, And so I always ask the question, 410 00:22:15,440 --> 00:22:17,240 Speaker 1: you know, our base cases, like a lot of people, 411 00:22:17,359 --> 00:22:20,960 Speaker 1: market kind of grinds higher. Economy is okay but not great. Okay, Well, 412 00:22:20,960 --> 00:22:23,800 Speaker 1: what if we're wrong and the global economy does much 413 00:22:23,840 --> 00:22:27,199 Speaker 1: better than we expected? How much do equities rise? How 414 00:22:27,320 --> 00:22:31,000 Speaker 1: much do credit spreads contract? Or if we're wrong and 415 00:22:31,040 --> 00:22:34,240 Speaker 1: the economy is worse than what our base cases. How 416 00:22:34,280 --> 00:22:37,040 Speaker 1: much do equities lose, how much do pees fall? How 417 00:22:37,119 --> 00:22:39,719 Speaker 1: much to credit spreads widen? So when I look at 418 00:22:39,800 --> 00:22:42,440 Speaker 1: risk assets, I don't like that trade off right now. 419 00:22:42,520 --> 00:22:44,959 Speaker 1: I don't like the fact that when I'm wrong, and 420 00:22:45,000 --> 00:22:47,640 Speaker 1: I may very well be wrong and the base case 421 00:22:47,800 --> 00:22:50,159 Speaker 1: rarely turns out to be true. I don't like the 422 00:22:50,200 --> 00:22:52,439 Speaker 1: fact that it costs me a lot more money on 423 00:22:52,480 --> 00:22:55,280 Speaker 1: the downside than I make on the upside. So again, 424 00:22:55,400 --> 00:22:59,320 Speaker 1: I'm bullish, but I'm reluctantly bullish, And directly to your question, Mike, 425 00:22:59,400 --> 00:23:01,360 Speaker 1: what that is me is to be a little bit 426 00:23:01,520 --> 00:23:05,199 Speaker 1: underweight risk. I think it's I think the goldilocks. As 427 00:23:05,200 --> 00:23:07,800 Speaker 1: you mentioned, Sarah, there's an argument you want to be 428 00:23:07,880 --> 00:23:10,720 Speaker 1: in markets, you want to participate, there's no reason it 429 00:23:10,800 --> 00:23:12,760 Speaker 1: has to fall out of bed. But I think you 430 00:23:12,840 --> 00:23:15,040 Speaker 1: just want to do it a little bit more cautiously. 431 00:23:15,119 --> 00:23:17,800 Speaker 1: The later we get in the cycle, the higher these 432 00:23:17,880 --> 00:23:23,560 Speaker 1: valuations get, and that this tradeoff doesn't seem really attractive 433 00:23:23,600 --> 00:23:26,640 Speaker 1: to me. Frankly, and I'm not saying bail out of markets, 434 00:23:27,200 --> 00:23:29,199 Speaker 1: but I might use the year end rally is a 435 00:23:29,200 --> 00:23:31,600 Speaker 1: good time to kind of rebalance get back to where 436 00:23:31,640 --> 00:23:33,879 Speaker 1: you were. If you're a you know, if you're a 437 00:23:33,920 --> 00:23:37,080 Speaker 1: sixty forty portfolio, you probably don't want to be more 438 00:23:37,119 --> 00:23:40,400 Speaker 1: than sixty forty, maybe fifty five, you know, forty five, 439 00:23:40,520 --> 00:23:43,359 Speaker 1: something like that. Fifty fifty. I personally am kind of 440 00:23:43,680 --> 00:23:47,240 Speaker 1: mildly underweight risk. You know, it's funny, I think I 441 00:23:47,240 --> 00:23:49,960 Speaker 1: wrote a blog post on this expecting some kind of 442 00:23:50,359 --> 00:23:53,040 Speaker 1: rebalancing in the new year. I mean, I obviously institutions 443 00:23:53,160 --> 00:23:56,560 Speaker 1: and hedge funds rebalance monthly or quarly. You know, I 444 00:23:56,640 --> 00:24:00,320 Speaker 1: kept reading notes advising retail investors to rebalance. It's at 445 00:24:00,320 --> 00:24:02,520 Speaker 1: the year end, and you know, you wouldn't see any 446 00:24:02,560 --> 00:24:04,399 Speaker 1: sign of it in the markets we've seen right now. 447 00:24:04,440 --> 00:24:08,040 Speaker 1: So it makes me really think that those sixty portfolios 448 00:24:08,040 --> 00:24:11,080 Speaker 1: are really, you know, skewing closer to right now. I 449 00:24:11,080 --> 00:24:13,680 Speaker 1: mean for a lot of people, I think the evidence 450 00:24:13,720 --> 00:24:15,720 Speaker 1: is is a little mixed because what I think, what 451 00:24:15,880 --> 00:24:18,640 Speaker 1: I think you do see some rebalancing, because we've we've 452 00:24:18,640 --> 00:24:21,560 Speaker 1: obviously noted that divergence as the stock market has kind 453 00:24:21,560 --> 00:24:24,920 Speaker 1: of gone through the roof since October November, the bond 454 00:24:24,960 --> 00:24:27,920 Speaker 1: market really hasn't gone anywhere, meaning meaning something like ten 455 00:24:28,000 --> 00:24:31,280 Speaker 1: year treasury yield, and so what that tells me is 456 00:24:31,359 --> 00:24:33,720 Speaker 1: is the market's going up. We always talk about this 457 00:24:33,800 --> 00:24:37,000 Speaker 1: kind of relentless bid to equities, but as equities go 458 00:24:37,080 --> 00:24:39,879 Speaker 1: up and people rebalance, the byproduct of that is that 459 00:24:39,920 --> 00:24:42,760 Speaker 1: there's a relentless bid to bonds as well, which is 460 00:24:42,800 --> 00:24:46,440 Speaker 1: basically sending both asset classes up in this sort of 461 00:24:46,680 --> 00:24:50,679 Speaker 1: wonderful Goldilocks spiral when it ends. Who knows something that 462 00:24:50,720 --> 00:24:52,720 Speaker 1: makes me curious those because you talk about the risk 463 00:24:52,760 --> 00:24:55,600 Speaker 1: reward and the idea that if something's gone up more well, 464 00:24:55,600 --> 00:24:57,920 Speaker 1: then if they have stretched valuations on the way down, 465 00:24:58,320 --> 00:25:00,960 Speaker 1: they have further to fall. And in equities, you say 466 00:25:01,000 --> 00:25:02,879 Speaker 1: that you guys like financials and banks, and you like 467 00:25:02,960 --> 00:25:07,080 Speaker 1: healthcare stocks because they're relatively cheaper, but you still like tech. 468 00:25:07,480 --> 00:25:09,399 Speaker 1: So what is it about tech right now? Because of 469 00:25:09,400 --> 00:25:11,920 Speaker 1: course tech has had a pretty unbelievable ride. We'll hear 470 00:25:11,920 --> 00:25:13,640 Speaker 1: from some of the big tech names next week when 471 00:25:13,640 --> 00:25:16,119 Speaker 1: they are port earnings. But what is it about tech 472 00:25:16,520 --> 00:25:19,320 Speaker 1: that you and many other investors just can't really shy 473 00:25:19,359 --> 00:25:22,479 Speaker 1: away from quite yet? So for me, what what I happened? 474 00:25:22,640 --> 00:25:25,000 Speaker 1: And I'm not buying the individual stocks. Those are our 475 00:25:25,600 --> 00:25:28,840 Speaker 1: money managers underneath the NA Tixus umbrella. But what I 476 00:25:28,920 --> 00:25:31,280 Speaker 1: love about the tech sector is, to me, it just 477 00:25:31,440 --> 00:25:35,560 Speaker 1: looks like as the world becomes more sort of need 478 00:25:35,600 --> 00:25:40,439 Speaker 1: for efficiencies, innovation scale, things like that, everyone wants to 479 00:25:40,440 --> 00:25:44,720 Speaker 1: be more social, more digital, more virtual, more efficient, lower cost. 480 00:25:45,040 --> 00:25:47,040 Speaker 1: So what happens is and when you think about just 481 00:25:47,119 --> 00:25:50,639 Speaker 1: the sector breakdown, everybody else in the other ten sectors 482 00:25:50,680 --> 00:25:53,639 Speaker 1: are taking their profits and funneling them to become the 483 00:25:53,680 --> 00:25:57,600 Speaker 1: revenues of the tech sector. So so because because I mean, 484 00:25:57,640 --> 00:25:59,960 Speaker 1: you've got cold companies that want to be more EFFICI 485 00:26:00,040 --> 00:26:03,200 Speaker 1: and you've got automotive manufacturers want to be more efficient. Uh, 486 00:26:03,200 --> 00:26:05,240 Speaker 1: you know, retail players want to be more efficient. What 487 00:26:05,280 --> 00:26:07,520 Speaker 1: do we all do it? You know, asset managers, We're 488 00:26:07,600 --> 00:26:11,919 Speaker 1: tapping technology, buying more software, big data, you you name it, 489 00:26:12,040 --> 00:26:14,399 Speaker 1: you know, trying to build social media whatever it might be, 490 00:26:14,440 --> 00:26:18,280 Speaker 1: tapping into advertising. So to me, that's that that you know, 491 00:26:18,320 --> 00:26:21,760 Speaker 1: almost never ending bid for tech. The problem is is 492 00:26:21,800 --> 00:26:25,160 Speaker 1: the valuations. And that's where I've really changed on tech, 493 00:26:25,200 --> 00:26:27,600 Speaker 1: which is it's still one of our favorite sectors, but 494 00:26:27,680 --> 00:26:29,760 Speaker 1: it's gone from being a beta play two and a 495 00:26:29,800 --> 00:26:33,280 Speaker 1: half three years ago when the SMP Tech sector was 496 00:26:33,320 --> 00:26:37,399 Speaker 1: trading it nine of the SMPS multiple. Today it's trading 497 00:26:37,400 --> 00:26:41,000 Speaker 1: at a hundred and of the SMP multiple. So while 498 00:26:41,080 --> 00:26:43,479 Speaker 1: I still like tech, I think you have to be 499 00:26:43,720 --> 00:26:46,400 Speaker 1: far more selective. You know, I would have come in 500 00:26:46,640 --> 00:26:48,520 Speaker 1: three years ago or two years ago and said we 501 00:26:48,600 --> 00:26:52,240 Speaker 1: love tech sort of universally. We love tech Today, I 502 00:26:52,280 --> 00:26:54,880 Speaker 1: would say we like tech for all the reasons I mentioned, 503 00:26:55,400 --> 00:26:58,160 Speaker 1: but it's a much more selective. You really come down 504 00:26:58,200 --> 00:27:01,760 Speaker 1: to security selection. Stocked by stock. Not my specialty, to 505 00:27:01,840 --> 00:27:04,639 Speaker 1: be sure, but that's how I think about the tech sector. 506 00:27:04,840 --> 00:27:07,000 Speaker 1: We like it, but it's not. I don't think it's 507 00:27:07,000 --> 00:27:09,920 Speaker 1: the runaway. I think of these valuations the freight trains 508 00:27:09,920 --> 00:27:11,600 Speaker 1: gotta slow down a little bit. You've gotta be a 509 00:27:11,640 --> 00:27:14,800 Speaker 1: little bit more selective, and you sort of centered around 510 00:27:14,960 --> 00:27:17,240 Speaker 1: the themes. I mean, obviously it feels like the cloud. 511 00:27:17,320 --> 00:27:19,239 Speaker 1: The whole story about the software cloud is kind of 512 00:27:19,240 --> 00:27:23,760 Speaker 1: early innings. Five G that game hasn't even started. AI 513 00:27:23,800 --> 00:27:25,640 Speaker 1: and the Internet of Things, those are all sort of 514 00:27:25,840 --> 00:27:28,719 Speaker 1: pretty early innings stories right now. Yeah, I think they 515 00:27:28,760 --> 00:27:31,040 Speaker 1: can be. And I think this is where, you know, 516 00:27:31,160 --> 00:27:34,240 Speaker 1: good security selection within tech is really going to start 517 00:27:34,280 --> 00:27:36,959 Speaker 1: to matter because what we've what the what the Phase 518 00:27:37,000 --> 00:27:41,000 Speaker 1: one trade deal and all the tariff arguments have really 519 00:27:41,080 --> 00:27:44,440 Speaker 1: highlighted to me, is this fight between who's gonna win 520 00:27:44,520 --> 00:27:47,800 Speaker 1: the global tech war between the Chinese and the US. 521 00:27:48,040 --> 00:27:50,560 Speaker 1: The Europeans and the Japanese may play at the margin, 522 00:27:50,800 --> 00:27:53,520 Speaker 1: but we really have a bifurcated tech world. And so 523 00:27:53,560 --> 00:27:56,000 Speaker 1: if I was a tech analyst, I would be thinking 524 00:27:56,040 --> 00:27:58,840 Speaker 1: a lot about is my is my company within the 525 00:27:59,200 --> 00:28:02,679 Speaker 1: sector position and to win this war versus China? Or 526 00:28:02,720 --> 00:28:05,760 Speaker 1: is it position to to not win? Uh? So, So 527 00:28:05,840 --> 00:28:09,360 Speaker 1: that's one issue. The second issue is sort of around regulation, 528 00:28:09,920 --> 00:28:14,440 Speaker 1: uh privacy, anti competitive, antitrust, anti competitive. So I would 529 00:28:14,480 --> 00:28:16,399 Speaker 1: be spending a lot of time thinking about, Hey, is 530 00:28:16,440 --> 00:28:19,280 Speaker 1: that tech name that I love more or less exposed 531 00:28:19,320 --> 00:28:21,080 Speaker 1: to that? And I think they're very I think they're 532 00:28:21,160 --> 00:28:23,720 Speaker 1: very different arguments. I worry a little bit less about 533 00:28:23,720 --> 00:28:26,320 Speaker 1: the anti competitive. A lot of people are worried about 534 00:28:26,359 --> 00:28:29,520 Speaker 1: these these mega tech names being broken up. It might 535 00:28:29,560 --> 00:28:31,800 Speaker 1: be the case that their breakup value is as good, 536 00:28:31,800 --> 00:28:34,639 Speaker 1: if not better than the sum of the parts. The 537 00:28:34,760 --> 00:28:38,360 Speaker 1: privacy issues and the data integrity issues are more problematic 538 00:28:38,400 --> 00:28:40,840 Speaker 1: because a lot of what these companies are doing is 539 00:28:40,880 --> 00:28:44,680 Speaker 1: basically monetizing the data, your personal data, and if there 540 00:28:44,680 --> 00:28:48,440 Speaker 1: are limits on that, there are real downstream implications for 541 00:28:48,480 --> 00:28:50,800 Speaker 1: the way some of these companies make money. I'm a 542 00:28:50,840 --> 00:28:53,280 Speaker 1: little bit more worried about the data issues than the 543 00:28:53,320 --> 00:28:56,640 Speaker 1: anti competitive issues. Alright, Sorry, you know what I'm worried about. 544 00:28:56,840 --> 00:28:59,600 Speaker 1: You're worried about losing. The craziest thing I think I 545 00:28:59,640 --> 00:29:03,720 Speaker 1: was under it wasn't I undefeated because you award yourself 546 00:29:03,760 --> 00:29:08,360 Speaker 1: to win every single week. That's where it worked. But 547 00:29:09,240 --> 00:29:10,720 Speaker 1: you know, you should just go first to get out 548 00:29:10,720 --> 00:29:14,560 Speaker 1: of the way. It's not a bad story, but it's 549 00:29:14,600 --> 00:29:18,640 Speaker 1: a Vildata pointed out to me the story about Goldman 550 00:29:18,720 --> 00:29:22,320 Speaker 1: Sachs chief executive officer David Solomon. I think we've talked 551 00:29:22,320 --> 00:29:26,800 Speaker 1: about this before. He moonlights as a DJ spinning electronic music, 552 00:29:27,280 --> 00:29:29,920 Speaker 1: and he got a gig at this big Sports Illustrated 553 00:29:30,080 --> 00:29:33,440 Speaker 1: party at the super Bowl, which it's pretty crazy. I 554 00:29:33,480 --> 00:29:35,360 Speaker 1: would love to DJ at the Super Bowl. I don't 555 00:29:35,360 --> 00:29:37,720 Speaker 1: think I have any qualifications to do that whatsoever, but 556 00:29:37,880 --> 00:29:40,040 Speaker 1: why not. I really want to see him djaying at 557 00:29:40,040 --> 00:29:42,600 Speaker 1: like a Goldman Sachs party because I feel like everyone's 558 00:29:42,600 --> 00:29:44,800 Speaker 1: got to dance. You know, you'd see these like managing 559 00:29:44,800 --> 00:29:47,760 Speaker 1: directors with their Hermes ties tied around their head cutting 560 00:29:47,760 --> 00:29:49,640 Speaker 1: it up on the floor. So that's that's I'm waiting 561 00:29:49,680 --> 00:29:51,800 Speaker 1: for that. I want to get an invite to that party. 562 00:29:51,880 --> 00:29:54,320 Speaker 1: But ye, how about you do you have a crazy story? First? 563 00:29:54,680 --> 00:29:59,120 Speaker 1: Mis mom moon dang. So the SMP five hundre has 564 00:29:59,200 --> 00:30:03,280 Speaker 1: being they had one percent down day since mid October. 565 00:30:03,440 --> 00:30:08,440 Speaker 1: It's seventy three days and counting it's already the twenty 566 00:30:08,560 --> 00:30:13,160 Speaker 1: five longest in the whole history. Um and also considering 567 00:30:13,160 --> 00:30:15,880 Speaker 1: in the FX market, JP Morgan's FFX volative in the 568 00:30:16,000 --> 00:30:20,160 Speaker 1: XT hit a new racer low and considering not only 569 00:30:20,200 --> 00:30:23,600 Speaker 1: the rally of risk as being impressive, and the volutetive 570 00:30:23,720 --> 00:30:26,120 Speaker 1: is so low. Consider you had the trade wall, the 571 00:30:26,200 --> 00:30:30,880 Speaker 1: tension in the Middle East, impeachment, now the virus do 572 00:30:30,920 --> 00:30:33,160 Speaker 1: you have to one? They're like, what could cause of 573 00:30:33,200 --> 00:30:37,480 Speaker 1: volatinted to wake up again? It's quiet out there? Yeah, 574 00:30:37,880 --> 00:30:39,479 Speaker 1: was breaking out there for a while. We didn't even 575 00:30:39,520 --> 00:30:43,240 Speaker 1: get ex that's a good, good point. Okay, you beat me, 576 00:30:43,360 --> 00:30:48,440 Speaker 1: I know that. Did they tell you about our craziest thing? Yeah? 577 00:30:48,720 --> 00:30:51,080 Speaker 1: A couple this week. I have a runner up. Yeah, 578 00:30:51,160 --> 00:30:53,800 Speaker 1: my runner up is always sort of the insanity of 579 00:30:53,880 --> 00:30:56,440 Speaker 1: Davos and people probably seeing the story. I think there's 580 00:30:56,480 --> 00:31:00,600 Speaker 1: a hundred nineteen billionaires at Davos in a you know, 581 00:31:00,640 --> 00:31:04,440 Speaker 1: they're they're they're talking about income inequality, you know, after 582 00:31:04,480 --> 00:31:06,760 Speaker 1: they flew in on their private jets and and and 583 00:31:07,160 --> 00:31:09,920 Speaker 1: climate change. So there's that, and then you have the U. S. 584 00:31:09,960 --> 00:31:14,040 Speaker 1: Treasury Secretary sort of going after Greta Tunberg and telling 585 00:31:14,040 --> 00:31:17,960 Speaker 1: her she should I mean, this, this is just this 586 00:31:18,000 --> 00:31:20,440 Speaker 1: doesn't seem like something that would have happened under Reagan 587 00:31:20,560 --> 00:31:24,360 Speaker 1: or Carter. We were in a different with seventeen year 588 00:31:24,360 --> 00:31:26,160 Speaker 1: old girl. But the thing that really caught my eye 589 00:31:26,200 --> 00:31:28,800 Speaker 1: was really around sort of the Phase one trade deal, 590 00:31:28,880 --> 00:31:31,520 Speaker 1: and I've kind of lost track of what the tariffs 591 00:31:31,520 --> 00:31:34,120 Speaker 1: are and how much they're on and what percent, and 592 00:31:34,120 --> 00:31:37,320 Speaker 1: we've just gone back and forth. And the Peterson Institute, uh, 593 00:31:37,480 --> 00:31:39,680 Speaker 1: sort of had a great summary on this updated for 594 00:31:39,720 --> 00:31:41,920 Speaker 1: the Phase one trade deal, noting that if you just 595 00:31:41,960 --> 00:31:46,360 Speaker 1: go back two years, the average tariff on Chinese goods 596 00:31:46,360 --> 00:31:49,000 Speaker 1: in the US used to be three percent and now 597 00:31:49,040 --> 00:31:52,400 Speaker 1: it's nineteen percent, even after the Phase one deal, and 598 00:31:52,440 --> 00:31:55,240 Speaker 1: the average tariff going the other way. Uh, you know, 599 00:31:55,320 --> 00:31:58,400 Speaker 1: the tariff on US goods in China was eight percent 600 00:31:58,520 --> 00:32:01,280 Speaker 1: and now it's twenty percent. So my craziest thing is 601 00:32:01,320 --> 00:32:03,720 Speaker 1: kind of this idea that the Phase one trade deal 602 00:32:04,040 --> 00:32:06,120 Speaker 1: just kind of put you know, the trade issue in 603 00:32:06,200 --> 00:32:08,560 Speaker 1: the rear view mirror, when the reality is that the 604 00:32:08,560 --> 00:32:11,600 Speaker 1: tariffs are still two to three times higher than they 605 00:32:11,600 --> 00:32:14,200 Speaker 1: were just two years ago. So that was kind of 606 00:32:14,640 --> 00:32:16,840 Speaker 1: my craziest thing for the week. That's pretty good. That's 607 00:32:16,840 --> 00:32:18,560 Speaker 1: pretty good. That is a very good one. Speaking of 608 00:32:18,640 --> 00:32:20,400 Speaker 1: that was the one headline that I caught. I think 609 00:32:20,400 --> 00:32:23,000 Speaker 1: it was someone from Bridgewater said that the boom bust 610 00:32:23,080 --> 00:32:28,520 Speaker 1: cycles over one d print that bit Bridgewater. Yeah, that 611 00:32:28,680 --> 00:32:32,240 Speaker 1: that sounds a lot like Sarah's story about the Goldilocks, 612 00:32:32,320 --> 00:32:34,920 Speaker 1: that they are kind that there are some people out 613 00:32:34,920 --> 00:32:38,000 Speaker 1: there flashing the all clear sign, and I would submit 614 00:32:38,080 --> 00:32:40,680 Speaker 1: that they'll be right for a while. But the but 615 00:32:40,760 --> 00:32:43,800 Speaker 1: the for the while is the problem. Eventually a bust 616 00:32:43,840 --> 00:32:47,840 Speaker 1: will come again. They always do one of these days. 617 00:32:48,560 --> 00:32:50,880 Speaker 1: Um So my crazy thing this week, it's actually been 618 00:32:51,120 --> 00:32:54,560 Speaker 1: a pretty big well reported story. Uh but just about 619 00:32:54,760 --> 00:33:01,080 Speaker 1: the hacking potentially uh into Jeff Bezos's phone from Crown Press, 620 00:33:01,160 --> 00:33:06,600 Speaker 1: Mohammed been someone pretty unbelievable. So now the United Nations 621 00:33:06,720 --> 00:33:09,960 Speaker 1: is saying that this needs to be looked into. Supposedly, 622 00:33:10,120 --> 00:33:14,440 Speaker 1: the idea is that Mohammed Been someone had sent a 623 00:33:14,480 --> 00:33:19,240 Speaker 1: message to Bezos over WhatsApp, and shortly after that he 624 00:33:19,320 --> 00:33:21,960 Speaker 1: was able to infiltrate his phone and extract tons and 625 00:33:22,000 --> 00:33:25,360 Speaker 1: tons of data. Um. So, now there's so much conversation 626 00:33:25,440 --> 00:33:29,080 Speaker 1: about one cybersecurity also operating systems on our phones. Is 627 00:33:29,120 --> 00:33:31,680 Speaker 1: this possible if it could happen to Jeff Bezos, I mean, 628 00:33:31,720 --> 00:33:34,160 Speaker 1: it can happen to any of us, right, but yeah, 629 00:33:34,240 --> 00:33:38,400 Speaker 1: pretty crazy and two huge names. Uh so interesting, that's 630 00:33:38,440 --> 00:33:41,280 Speaker 1: pretty crazy. And you know that, and the impeachment story. 631 00:33:41,560 --> 00:33:44,200 Speaker 1: Everyone's on what's app, all these movers and shakers. I 632 00:33:44,280 --> 00:33:46,520 Speaker 1: must be the last guy in the world not using what'sapp. 633 00:33:47,000 --> 00:33:48,520 Speaker 1: I have it, but I don't use I only use 634 00:33:48,560 --> 00:33:52,320 Speaker 1: it if someone is overseas. Really, it's either is it encrypted? 635 00:33:52,400 --> 00:33:55,000 Speaker 1: Is that that? Well? Yeah, that's the appeal of it. 636 00:33:55,000 --> 00:34:00,840 Speaker 1: It's supposed to be. I don't have it, I use it, 637 00:34:00,960 --> 00:34:03,840 Speaker 1: And given all the evidence, I'm waiting for the Really, 638 00:34:04,000 --> 00:34:06,360 Speaker 1: I'm waiting for the story of the really good thing 639 00:34:06,440 --> 00:34:09,279 Speaker 1: that happened because you were on what's app But no 640 00:34:09,320 --> 00:34:11,839 Speaker 1: one ever talks about the good things, so maybe things 641 00:34:11,920 --> 00:34:13,920 Speaker 1: have happened in the past. We just never heard him, right, 642 00:34:15,560 --> 00:34:20,319 Speaker 1: it would be fun to text with MSN videos and 643 00:34:20,320 --> 00:34:22,840 Speaker 1: then whatever you have, have the most boring phone he 644 00:34:22,880 --> 00:34:27,200 Speaker 1: can hack. All right, it's going to come your way. 645 00:34:27,320 --> 00:34:29,720 Speaker 1: All right, Well, I think we're gonna just say this week, 646 00:34:30,320 --> 00:34:37,480 Speaker 1: Mike comes in last. Yeah you, Dave Laberty, thanks so 647 00:34:37,560 --> 00:34:40,760 Speaker 1: much for coming on the show today, Thanks for having thanks. 648 00:34:49,400 --> 00:34:52,040 Speaker 1: What Goes Up will be back next week. Until then, 649 00:34:52,120 --> 00:34:54,760 Speaker 1: you can find us on the Blueback Terminal website and app, 650 00:34:55,000 --> 00:34:57,640 Speaker 1: or wherever you get your podcasts. We love it if 651 00:34:57,640 --> 00:34:59,560 Speaker 1: you took the time to rate interview the show on 652 00:34:59,600 --> 00:35:03,000 Speaker 1: Apple podcast so more listeners can find us, and you 653 00:35:03,040 --> 00:35:06,480 Speaker 1: can find us on Twitter. Follow me at at Sarah Ponzack. 654 00:35:06,880 --> 00:35:10,080 Speaker 1: Mike is a bag anonymous. Our guest, Dave Lafferty is 655 00:35:10,120 --> 00:35:13,200 Speaker 1: at Lafferty in a, Texas and yes she is at 656 00:35:13,360 --> 00:35:18,120 Speaker 1: she Bloomberg. You can also follow Bloomberg Podcasts at podcasts. 657 00:35:18,680 --> 00:35:21,480 Speaker 1: What Goes Up is produced by Tofur Foreheads and edited 658 00:35:21,520 --> 00:35:25,040 Speaker 1: by Darrell Dillard. The head of Bloomberg podcast is Francesco Levi. 659 00:35:25,440 --> 00:35:27,120 Speaker 1: Thanks for listening. See you next time.