WEBVTT - A Market Immune From Illness 0:00:12.880 --> 0:00:16.160 Hello, and welcome to What Goes Up, a Bloomberg weekly 0:00:16.200 --> 0:00:19.840 market podcast. I'm Sara Ponzec, our porter on the Cross 0:00:19.880 --> 0:00:22.560 Asset team, and I'm Mike Reagan, a senior editor on 0:00:22.560 --> 0:00:25.360 the Markets Team. This week on the show, a respiratory 0:00:25.440 --> 0:00:29.080 virus spreads from China, stirring concerns and contributing to a 0:00:29.200 --> 0:00:32.239 slight pause in the equity rally. But how much may 0:00:32.280 --> 0:00:36.120 it actually affect your investments? Plus the global elite descend 0:00:36.159 --> 0:00:39.680 on Davos, Switzerland for the annual World Economic Forum. What 0:00:39.800 --> 0:00:42.800 some attendees have to say about markets, And of course 0:00:42.880 --> 0:00:45.760 we'll close out the episode with our tradition, the craziest 0:00:45.760 --> 0:00:48.400 thing I saw in markets this week? Sarah, I'm gonna 0:00:48.440 --> 0:00:51.559 just concede defeat up front. Okay, that's that's not what 0:00:51.600 --> 0:00:53.800 I was going Actually, I wear myself the winner of 0:00:53.800 --> 0:00:57.640 the crazy Usually we come right into the show, Mike says, 0:00:57.680 --> 0:00:59.600 you know what I'm gonna say right out front. You 0:00:59.680 --> 0:01:01.480 might as will not even share your craziest thing because 0:01:01.480 --> 0:01:07.039 I'm the winner. So the holiday shortened week I think 0:01:07.080 --> 0:01:09.000 threw me off my game. I had to go reach 0:01:09.000 --> 0:01:11.560 out to Vall Donna high Rich for my crazy thing 0:01:11.640 --> 0:01:14.360 that's how bad it was, and uh she came through, 0:01:14.360 --> 0:01:17.720 but it's it's it's no winner. Hopefully hopefully you can, 0:01:18.000 --> 0:01:22.759 uh you know, with something really crazy. I'll try my best, 0:01:23.440 --> 0:01:27.200 but uh, you know, as you said, crazy week in 0:01:27.280 --> 0:01:30.080 markets as far as the general news flow, and we've 0:01:30.120 --> 0:01:33.080 got some really good guests to break it down. Uh. 0:01:33.200 --> 0:01:37.120 First joining us from the Texas Investment Managers is their 0:01:37.760 --> 0:01:41.199 chief market strategist, David Lafferty. Dave, Welcome to the show, 0:01:41.440 --> 0:01:44.720 Thanks for having me on. Thanks And the guy we 0:01:44.760 --> 0:01:49.000 always turned to when markets and and China collide, our 0:01:49.080 --> 0:01:52.400 very own Yee She a blogger for Markets Live and 0:01:52.560 --> 0:01:55.600 a former reporter in uh China who will will tell 0:01:55.680 --> 0:01:58.240 us a little bit about how this latest health scare 0:01:58.760 --> 0:02:01.680 compares to the stars uh scared that he actually covered 0:02:01.720 --> 0:02:04.480 in in what two oh three? Right? Yes, yeah, glad 0:02:04.480 --> 0:02:06.880 to be good. And he also found some good pictures 0:02:06.960 --> 0:02:09.640 of the market where this all started. So I don't 0:02:09.720 --> 0:02:11.560 want to I don't want a front running your crazy thing? 0:02:11.600 --> 0:02:13.600 Was that is that your crazy thing? Okay? Good, good, 0:02:13.639 --> 0:02:15.400 we'll talk about that, no front running at all. That 0:02:15.639 --> 0:02:17.440 maybe you should steal that for your crazy thing, and 0:02:17.480 --> 0:02:20.560 you don't have to. I think it's pretty good. But Dave, 0:02:20.680 --> 0:02:23.880 let's start with you. I mean, everything I've read this 0:02:23.960 --> 0:02:28.120 week is that, oh, it's it's just another pandemic. As 0:02:28.160 --> 0:02:31.079 crazy as that sounds, you know, we've seen this before 0:02:31.160 --> 0:02:34.320 with the Bola scared about five years ago, uh, this 0:02:34.600 --> 0:02:38.040 Star scared day. The general consensus seems to be that, 0:02:38.120 --> 0:02:41.160 you know, these things cause a little bit of very 0:02:41.200 --> 0:02:43.960 short term uh selling in the market that seems to 0:02:44.320 --> 0:02:46.360 blow over in a couple of weeks. I mean, is 0:02:46.400 --> 0:02:48.919 it that simple uh this time? Do you think, uh, 0:02:48.960 --> 0:02:51.160 you know, I know you're no health expert, but is 0:02:51.200 --> 0:02:53.639 that a pretty base case scenario for you, that this 0:02:53.760 --> 0:02:58.920 is sort of just uh minor momentary distraction for investors. 0:02:59.320 --> 0:03:01.200 I mean, I think that the way the market usually 0:03:01.240 --> 0:03:04.000 handicaps it, and I think there's a reasonable reason for that, 0:03:04.080 --> 0:03:08.000 which is it's it's sort of assumes policy success that 0:03:08.000 --> 0:03:11.960 that government agencies, healthcare professionals will eventually be able to 0:03:12.120 --> 0:03:14.760 ring fence it. And it does make it. It tends 0:03:14.760 --> 0:03:17.440 to make it more of a short term story. Now 0:03:17.639 --> 0:03:20.760 we have to put sort of some caveat around short term. 0:03:20.760 --> 0:03:23.360 It could be a couple of weeks. The Stars story 0:03:23.440 --> 0:03:26.840 was about a six month long story so relatively short. 0:03:26.880 --> 0:03:30.280 We never know exactly what that means for me. Uh, 0:03:30.480 --> 0:03:32.400 we always want to see when it begins to spill 0:03:32.440 --> 0:03:35.040 into the real economy, and we don't exactly know when 0:03:35.080 --> 0:03:37.760 that will be. A lot depends on how well it's contained. 0:03:37.800 --> 0:03:40.320 So I always think there's always sort of two phases. 0:03:40.360 --> 0:03:43.160 There's the knee jerk sort of risk off markets go 0:03:43.200 --> 0:03:46.240 down one, two percent, three percent, something like that, and 0:03:46.280 --> 0:03:48.400 then there's a waiting period where we find out if 0:03:48.440 --> 0:03:52.680 it's actually a more systemic problem. By and large, in history, 0:03:53.240 --> 0:03:56.120 policy makers have gotten their arms around it. Market tends 0:03:56.160 --> 0:03:58.560 to rally back, you know. I I look back on 0:03:58.640 --> 0:04:01.600 the Stars uh episode, and you know, the market was 0:04:01.640 --> 0:04:03.360 kind of trying to find a bottom there after the 0:04:03.400 --> 0:04:07.080 dot com bubble and oh two oh three. On the 0:04:07.120 --> 0:04:09.360 other hand, here we are at what many people believe 0:04:09.440 --> 0:04:11.400 to be this sort of euphoric top. I mean, is 0:04:11.400 --> 0:04:14.560 it scarier when something like this hits at sort of 0:04:14.600 --> 0:04:17.320 this euphoric period in the in the markets compared to 0:04:17.320 --> 0:04:20.920 when the markets are bottoming like they were in oh three. Yeah, 0:04:20.920 --> 0:04:24.120 I mean, I guess the thing that worries me is that, uh, 0:04:24.200 --> 0:04:27.080 you know, there's so much optimism priced in and people 0:04:27.080 --> 0:04:30.320 are worried about valuations. But valuation in and of itself 0:04:30.360 --> 0:04:33.479 isn't a catalyst. So in that vacuum, people tend to 0:04:33.520 --> 0:04:36.800 look for catalysts, and may maybe some type of epidemic 0:04:36.880 --> 0:04:40.279 or pandemic becomes the excuse they've been looking for to 0:04:40.360 --> 0:04:43.040 either profit take or sell down assets that they think 0:04:43.080 --> 0:04:46.400 are expensive. So I don't think it's uh necessarily the 0:04:46.400 --> 0:04:48.920 thing that makes or breaks the market, but I would 0:04:48.920 --> 0:04:51.760 agree that these valuations, with the way the market has 0:04:51.960 --> 0:04:55.200 has run, it does make for kind of a convenient 0:04:55.200 --> 0:04:57.400 excuse to take a little bit of profit here here. 0:04:57.600 --> 0:04:59.560 So as it relates to the coronavirus, we did see 0:04:59.560 --> 0:05:03.279 airlines stocks a little bit, we saw casino operators hit 0:05:03.760 --> 0:05:06.920 just a tad uh. But looking at research that tried 0:05:06.960 --> 0:05:10.279 to really compare what we might see from the current 0:05:10.279 --> 0:05:13.840 events to different epidemics or pandemics of the past, I 0:05:13.920 --> 0:05:17.800 constantly kept coming across research or investors saying that it's 0:05:17.839 --> 0:05:21.440 really hard to isolate the ongoings and markets at that 0:05:21.560 --> 0:05:24.960 time and separate it from other events that were already 0:05:25.000 --> 0:05:28.640 going on. So, yeah, I'm really curious when you've been 0:05:28.640 --> 0:05:32.960 looking at epidemics past pandemics pass and trying to figure 0:05:33.000 --> 0:05:37.360 out what this current Wuhan virus could mean for markets. 0:05:37.360 --> 0:05:40.000 What have you really found? Dude? Is absolutely right in 0:05:40.080 --> 0:05:42.880 term impact on the US market is probably quite limited 0:05:42.960 --> 0:05:47.200 or short lived, but there's a apparent impact on the 0:05:47.240 --> 0:05:49.680 local market, particularly Asia. If you look at it, if 0:05:49.680 --> 0:05:52.719 you use the template of sauce into sound three, the 0:05:52.760 --> 0:05:55.960 Asian market on the performed when the sauce become really 0:05:56.000 --> 0:05:59.880 intensive by in February two sound three and the mark 0:06:00.000 --> 0:06:03.080 it down, the performed actually stopped and the market's bottom 0:06:03.279 --> 0:06:05.640 on the exact day when the number of the cases 0:06:05.800 --> 0:06:10.159 infection peaked, that was in late April two sound and three. 0:06:10.680 --> 0:06:15.200 So apparently is there's some localized impact, particularly on Asia, 0:06:15.440 --> 0:06:19.520 especially considered China now is mostly service and consumption driven. 0:06:19.920 --> 0:06:24.039 If MAXI they're like, OHI eleven million people lockdown, people 0:06:24.080 --> 0:06:27.320 cannot go out shopping, going to theaters, it's going to 0:06:27.520 --> 0:06:30.760 affect that economy at least in Q one, GDP is 0:06:30.760 --> 0:06:34.160 going to be hit. That's amazing to me. Eleven million 0:06:34.240 --> 0:06:36.200 people in Muhana, I mean it's bigger than New York, 0:06:36.279 --> 0:06:38.000 you know, and it's it's a city we've heard of, 0:06:38.000 --> 0:06:39.719 but you never think of it on on that sort 0:06:39.720 --> 0:06:42.440 of scale. But we're talking before the show e about 0:06:42.440 --> 0:06:46.680 sort of comparing and contrasting the Stars. How the China 0:06:46.760 --> 0:06:50.960 government handled the Stars episode in UH two thousand to 0:06:51.040 --> 0:06:53.120 two thousand and three, and how they're handling it now. 0:06:53.920 --> 0:06:57.640 Much more aggressive response this time, you know, but when 0:06:57.680 --> 0:06:59.800 you try to quarantine a whole city like that, as 0:06:59.839 --> 0:07:03.600 you said, I feel like this aggressive response almost threatens 0:07:03.680 --> 0:07:05.760 to do more damage to the economy than the than 0:07:05.800 --> 0:07:08.960 the Stars epidemic. Is that safe to say? Yeah? Yeah? 0:07:08.960 --> 0:07:12.080 In Q one two thousand three they comed down like 0:07:12.080 --> 0:07:15.640 two percentage points for eleven percent to nine percent, but 0:07:15.760 --> 0:07:21.000 economy quickly rebonded that when the when things get under control. Um, 0:07:21.080 --> 0:07:25.560 in q Q Q three they actually did pretty well. Um, 0:07:25.600 --> 0:07:28.160 it's that actually a question for you. Can you guess 0:07:28.200 --> 0:07:31.800 which year did the MSCI China performed did the best ever? 0:07:31.880 --> 0:07:35.160 Hurning the tables? I actually know because I've been following 0:07:35.200 --> 0:07:39.600 your report. I thought that maybe maybe data has to 0:07:39.640 --> 0:07:45.400 guess that probably close to them in two thou three. 0:07:46.040 --> 0:07:49.040 So that tells you these type of events tend to 0:07:49.040 --> 0:07:51.480 have very short, short term impact instead of the long 0:07:51.600 --> 0:07:54.480 lasting impact. So you mentioned how the Chinese economy now 0:07:54.720 --> 0:07:57.920 is more so services based, more so than it was 0:07:58.000 --> 0:08:01.080 back in two thousand and three, UH during the stars epidemic. 0:08:01.120 --> 0:08:03.320 But there was also a great rundown from Mark Cudmore, 0:08:03.400 --> 0:08:06.280 one of our macro strategist here at Bloomberg, and he 0:08:06.800 --> 0:08:09.880 alluded to a research note put out by Rabble Bank, 0:08:10.000 --> 0:08:13.160 and what they basically say is the fact that back 0:08:13.160 --> 0:08:16.920 in two thousand and three, China share of GDP was 0:08:17.000 --> 0:08:21.560 only four point three. Now it's closer to So if 0:08:21.600 --> 0:08:24.920 this were to go on longer, Dave, does that kind 0:08:24.960 --> 0:08:27.520 of show you that should we see more of an 0:08:27.520 --> 0:08:31.080 economic effect, more of an ecomic downturn on China, that 0:08:31.160 --> 0:08:35.079 we could see a larger feed through to the global economy. 0:08:35.200 --> 0:08:38.160 There's certainly a possibility. Obviously, with China being so much 0:08:38.320 --> 0:08:41.079 larger in the global economy, the bleed through of f 0:08:41.320 --> 0:08:45.320 effects obviously could be more significant. But again, as he said, 0:08:45.320 --> 0:08:47.959 they tend to be more temporary, because what's really going 0:08:48.000 --> 0:08:51.480 on here is it sort of inhibits behavior, you know, 0:08:51.559 --> 0:08:54.320 sort of demand gets pent up, but then after the 0:08:54.400 --> 0:08:57.560 scare passes, people usually go out and spend again. So 0:08:57.640 --> 0:08:59.840 more often than not, you have a pretty good rebound. 0:08:59.880 --> 0:09:02.640 So the question really becomes, how much of this is 0:09:02.679 --> 0:09:07.360 about these these type of pandemics or epidemics are about volatility, 0:09:07.440 --> 0:09:10.200 a bad quarter, a bad month, maybe even a bad 0:09:10.200 --> 0:09:13.280 two quarters, And how much is about real long term 0:09:13.360 --> 0:09:16.600 damage to the economy. I suspect that there's very little 0:09:16.880 --> 0:09:19.720 long term damage to the economy, but in the short 0:09:19.800 --> 0:09:22.599 run that loss of activity hits, but you get a 0:09:22.679 --> 0:09:25.080 lot of it back later. And if I was reading 0:09:25.080 --> 0:09:29.080 one of your recent notes, uh, great title, Confessions of 0:09:29.120 --> 0:09:32.800 a Reluctant Bull, and uh, the first sort of subtitle 0:09:32.880 --> 0:09:36.920 you you give is a party like it's I keep 0:09:36.960 --> 0:09:39.160 hearing that over and over again. I think Paul twitter 0:09:39.280 --> 0:09:43.160 Jones was out saying it it feels like this year. 0:09:44.200 --> 0:09:47.040 I think Cameron christ on our own Markets Live blog 0:09:47.120 --> 0:09:50.520 made a similar comparison. What about the current environment. I 0:09:50.559 --> 0:09:53.120 know we talked about the high value valuations and sort 0:09:53.160 --> 0:09:57.160 of this never ending grind higher? Is that basically it is? 0:09:57.160 --> 0:10:00.080 Is there anything else that really makes you start to 0:10:00.120 --> 0:10:04.719 bring out that comparison? So it's it's interesting, it's not 0:10:04.880 --> 0:10:07.960 really it's partially about the valuations. But I wasn't really 0:10:08.040 --> 0:10:12.080 making a historical comparison. I really just wanted a pully 0:10:12.160 --> 0:10:14.679 year that was sort of the end of a raging 0:10:14.800 --> 0:10:17.880 bull market. That was the only sort of historical thing, 0:10:17.880 --> 0:10:19.920 because what I was really posing was sort of this 0:10:20.200 --> 0:10:23.320 hypothetical question, which is, if you had the chance to 0:10:23.360 --> 0:10:26.960 get into the market at the beginning of knowing it 0:10:27.080 --> 0:10:29.560 was a good year, but you gave up all of 0:10:29.600 --> 0:10:32.440 those gains within the next eighteen months knowing what you 0:10:32.520 --> 0:10:35.439 know today, is that still a good time to invest? 0:10:35.720 --> 0:10:37.240 And I was trying to get at the idea that 0:10:37.440 --> 0:10:40.520 there are different types of investors out there. Some investors 0:10:40.559 --> 0:10:43.400 want to ride it to the end. Other investors, and 0:10:43.440 --> 0:10:45.960 this is probably closer to my way of thinking, would 0:10:46.040 --> 0:10:48.559 rather get off the train a little bit. I you know, 0:10:48.600 --> 0:10:50.400 a lot of people I think are kind of they 0:10:50.440 --> 0:10:53.000 want to Fellman Louise this thing right off the edge, 0:10:53.600 --> 0:10:56.080 and and I'm a little bit more, uh, you know, 0:10:56.120 --> 0:10:59.679 maybe I'm more risk averse than others. So, yes, valuation 0:10:59.720 --> 0:11:03.720 has similarity to the tech the idea that it's tech 0:11:03.800 --> 0:11:06.880 driven and it's mega cab driven. But I wasn't really 0:11:06.920 --> 0:11:10.040 making a historical comparison. I was really just saying, think 0:11:10.080 --> 0:11:14.240 back to a time when you got great returns close 0:11:14.360 --> 0:11:17.200 to the end. How does that make you feel if 0:11:17.240 --> 0:11:19.640 you and by the way, we're not barrish, I'm not 0:11:19.640 --> 0:11:23.160 saying we're at the end, but as the possibility rises 0:11:23.520 --> 0:11:26.640 and the damage could be worse because you're at higher valuations, 0:11:26.840 --> 0:11:29.280 how does that make you feel as an investor? That 0:11:29.360 --> 0:11:31.600 was sort of the behavioral issue I was trying to 0:11:31.640 --> 0:11:33.480 get at. It's kind of that, you know, are we 0:11:33.520 --> 0:11:35.480 picking up dimes in front of the steam roller? That'll 0:11:35.520 --> 0:11:37.600 cliche at at this point, and yeah, we are we 0:11:37.640 --> 0:11:39.760 picking up dimes that you know I mentioned in the 0:11:39.800 --> 0:11:42.000 research note, it's a little bit like chicken. When do 0:11:42.040 --> 0:11:44.680 you swerve? Is kind of the key and I was 0:11:44.880 --> 0:11:49.000 in is a great year to ask when when should 0:11:49.000 --> 0:11:52.800 you have swerved? Uh? Knowing that you never actually know 0:11:52.920 --> 0:11:55.319 when the market's going to turn down, But Sarah, I 0:11:55.360 --> 0:11:57.280 used to think I could outrun a steam roller. As 0:11:57.280 --> 0:12:03.160 I get older on that explains. But even you were 0:12:03.160 --> 0:12:05.959 wind back from and you saw evaluations maybe start to 0:12:06.000 --> 0:12:08.560 get stretched a couple of years before, and you had 0:12:08.600 --> 0:12:10.920 five years of double digit gains in the lead up. 0:12:10.920 --> 0:12:14.079 And there's another line in that same note that really 0:12:14.120 --> 0:12:16.240 stood out to me. You say, bowls will rightly point 0:12:16.280 --> 0:12:19.240 out that the valuation is a poor timing tool Confession 0:12:19.320 --> 0:12:22.040 number two, even as it died in the wool value proponent. 0:12:22.120 --> 0:12:24.240 This is hard to argue with. History shows that in 0:12:24.280 --> 0:12:26.520 the short run up cheap stocks can always get cheaper, 0:12:26.559 --> 0:12:30.840 and expensive stocks can always get more expensive. So when 0:12:30.840 --> 0:12:33.640 you're speaking with investors at this point in time, say 0:12:33.640 --> 0:12:35.920 they have been invested, they booked great profits so far, 0:12:36.040 --> 0:12:40.400 they were in had a great run, what's the tone like, 0:12:40.480 --> 0:12:43.520 our people still worry that this just can go on 0:12:43.640 --> 0:12:45.920 for years longer, like we saw in the late nineties, 0:12:46.160 --> 0:12:48.800 and you just don't want to miss out on that. Well, 0:12:48.840 --> 0:12:51.280 I think there's almost two mindsets here. There's sort of 0:12:51.360 --> 0:12:55.920 in the business the asset managers, financial strategists, economists. We 0:12:56.000 --> 0:12:58.400 look at the things that are driving the market, and 0:12:58.400 --> 0:13:00.400 those are things like you know, the FEDS one eight, 0:13:00.600 --> 0:13:02.880 the fact that all the other central banks, most of 0:13:02.880 --> 0:13:05.600 them are either on hold or of turned dovish. Every 0:13:05.800 --> 0:13:08.640 everybody talks about the suppression of interest rates. You know, 0:13:08.720 --> 0:13:11.160 this idea that there is no alternative, So there's a 0:13:11.160 --> 0:13:14.800 constant bid to equities because nobody loves bonds. And then 0:13:14.840 --> 0:13:18.319 you have things like technicals like momentum, and things like that. 0:13:18.559 --> 0:13:20.520 So when you talk in the business, you can come 0:13:20.600 --> 0:13:23.400 up with all these reasons why, hey, this this party 0:13:23.400 --> 0:13:25.480 could keep going on for a while. You go out 0:13:25.480 --> 0:13:27.600 and meet with clients and it's been talked about for 0:13:27.600 --> 0:13:30.680 a while. You know, the most unlovabull market. I hear 0:13:30.720 --> 0:13:33.080 a lot more of that today. The the You know, 0:13:33.240 --> 0:13:36.240 people were worried at seventeen times earnings, They're worried a 0:13:36.320 --> 0:13:38.760 little bit more at eighteen. They're worried a lot at 0:13:38.840 --> 0:13:41.760 nineteen times earnings. I think nobody wants to be the 0:13:41.800 --> 0:13:44.400 guy that jumps in kind of at the top. A 0:13:44.440 --> 0:13:46.840 lot of people learn that lesson and we're burned in 0:13:46.880 --> 0:13:49.960 the late nineties. So I I see, you know, two 0:13:50.000 --> 0:13:51.640 types of people out there. I see people in the 0:13:51.679 --> 0:13:54.439 business saying, hey, this can keep going for a little while. 0:13:54.520 --> 0:13:57.240 Expensive can get a little bit more expensive. This is 0:13:57.360 --> 0:14:01.559 uncharted territory. When you take into restrates down so low 0:14:01.600 --> 0:14:05.199 and so much policy accommodation, this can last longer than 0:14:05.240 --> 0:14:09.040 we all think. The average retail investor is a little 0:14:09.040 --> 0:14:11.760 bit more reticent than that. I think they they understand 0:14:11.800 --> 0:14:14.920 things like pe ratios and being eleven years into a 0:14:14.920 --> 0:14:17.079 bowl market. At some point, does it do you think 0:14:17.080 --> 0:14:19.200 it starts to we'll start to become a talking point 0:14:19.240 --> 0:14:21.520 for the FED. You know, we'll start hearing about irrational 0:14:21.560 --> 0:14:23.880 exuberance again. That that sort of thing I mean, And 0:14:24.440 --> 0:14:27.640 if so, is that um is that the type of 0:14:27.680 --> 0:14:30.760 thing that could sort of cause a pause in this rally? 0:14:31.360 --> 0:14:34.440 It could, But I I think you won't hear irrational 0:14:34.440 --> 0:14:38.160 exuberance again. They might have a different, different phrase. They 0:14:38.200 --> 0:14:40.640 like to be a little bit more original that. But 0:14:40.640 --> 0:14:43.000 but what I think has gone on in the last decade, 0:14:43.080 --> 0:14:46.040 largely since the financial crisis, is a subtle change at 0:14:46.120 --> 0:14:50.120 central banks, which is they now do pay explicit attention 0:14:50.160 --> 0:14:53.880 to financial conditions. So it's not that it's an addition 0:14:53.920 --> 0:14:56.200 to their mandate, but they certainly look at it. So 0:14:56.240 --> 0:14:59.760 instead of just you know, stable employment and stable prices, 0:15:00.040 --> 0:15:03.960 there is a there is a balancing act between systemic risk. 0:15:04.040 --> 0:15:09.040 Are they pumping up and creating bubbles? And uh, we 0:15:09.160 --> 0:15:13.560 know that investors and will naturally pull back when asset 0:15:13.640 --> 0:15:16.200 prices fall. When you see four ohn ks dropping in 0:15:16.240 --> 0:15:19.480 there are r a s dropping. So there is kind 0:15:19.480 --> 0:15:22.320 of this informal mandate at the FED to at least 0:15:22.520 --> 0:15:26.080 look at financial conditions. And so I think that more 0:15:26.160 --> 0:15:28.720 so than than in the past, and I think that 0:15:28.960 --> 0:15:33.000 naturally kind of leads them. I don't want to say that, uh, 0:15:33.240 --> 0:15:36.640 they might be less likely to talk down some of 0:15:36.680 --> 0:15:39.280 the systemic risk. I don't think they want markets going 0:15:39.280 --> 0:15:41.320 through the roof, but they kind of want to put 0:15:41.320 --> 0:15:44.560 a floor under it because financial conditions are more important 0:15:44.560 --> 0:15:46.920 in their thinking than they would have been ten or 0:15:46.920 --> 0:16:05.400 fifteen years ago. In a spinoff of a rational exuberance, 0:16:05.480 --> 0:16:09.000 you had a pieceless week that called to a Bank 0:16:09.040 --> 0:16:12.520 of America reports saying, irrationally bullish is the stock markets 0:16:12.920 --> 0:16:16.440 new catchphrase. I might be misunderstanding this potentially, but is 0:16:16.480 --> 0:16:18.720 it the idea that you almost feel like you have 0:16:18.840 --> 0:16:20.520 to be bullish at this point in time because you 0:16:20.600 --> 0:16:23.680 have a fed that it's extremely accommodative. Central banks around 0:16:23.680 --> 0:16:26.120 the world are extremely accommodative, and you have very low 0:16:26.160 --> 0:16:28.160 interest rate, low inflation, so it's almost as if what 0:16:28.200 --> 0:16:31.400 else are you gonna do? Yeah, exactly as Dave said earlier, 0:16:31.440 --> 0:16:34.920 that there's a few of missing out. That's a mental 0:16:35.400 --> 0:16:39.160 especially when you don't have apparent catalyst for the market 0:16:39.240 --> 0:16:43.760 to really scared of um in all these awash of 0:16:43.920 --> 0:16:47.400 liquidity in the markets, economic data seems to be turned 0:16:47.440 --> 0:16:51.360 into better and all these tail risk trade war bresent, 0:16:51.520 --> 0:16:54.400 all these tail risk is not to fade. You don't 0:16:54.400 --> 0:16:58.920 really see adding catalysts for people to really to to 0:16:58.960 --> 0:17:02.000 move with treat of on the stomackt to to put 0:17:02.040 --> 0:17:06.120 into the cash so at the media continue to play 0:17:06.160 --> 0:17:10.280 you have to get up and dance. Yeah, I wonder 0:17:10.440 --> 0:17:15.320 as you mentioned, during the Stars epidemic, Chinese gd GDP 0:17:15.440 --> 0:17:17.800 growth went from like eleven to nine percent um. You know, 0:17:17.960 --> 0:17:21.280 oh the horrors of nine percent GDP. But you know 0:17:21.359 --> 0:17:24.480 now we're looking at closer to six you shape two 0:17:24.480 --> 0:17:27.560 off of that, it's starting to get kind of dicey. 0:17:27.600 --> 0:17:31.000 Is there uh talk in the Chinese media and social media? 0:17:31.040 --> 0:17:34.280 I know you you followed pretty closely. Are people thinking, well, 0:17:34.520 --> 0:17:36.359 China's gonna throw a lot of money at this problem 0:17:36.440 --> 0:17:39.200 and and that will be a stimulu of reinforcement on 0:17:39.320 --> 0:17:41.800 the markets? Is that is it two early? For that 0:17:41.800 --> 0:17:45.000 second time? I think this is a still develop developing stories. 0:17:45.359 --> 0:17:49.960 UM the strategy China helping UM taking to uh trying 0:17:49.960 --> 0:17:52.920 to slow down this kind of growth moderation, is trying 0:17:52.960 --> 0:17:56.880 to avoid a large stimulus. They are pretty aware of 0:17:56.920 --> 0:17:59.719 all these leverage issues they had, so they have been 0:17:59.760 --> 0:18:03.040 trying into to take all these piecemeal steps instead of 0:18:03.040 --> 0:18:07.080 a large liquidity stimulus. So I think at this point 0:18:07.119 --> 0:18:08.719 is they seems to be still have a lot of 0:18:08.760 --> 0:18:12.639 the tools in their toolbox UM, fiscal spendings, UM, some 0:18:12.800 --> 0:18:16.520 of instruct projects to be probably moved ahead, but at 0:18:16.560 --> 0:18:18.800 this point it's probably too still too early to assess 0:18:18.840 --> 0:18:22.359 the damage. So he said, leverage issues. Uh. And I 0:18:22.400 --> 0:18:26.160 think some would hold a debate about how much debt 0:18:26.200 --> 0:18:29.240 has been built up, not just overseas but also on 0:18:29.520 --> 0:18:32.720 corporate balance sheets state side as well. And it reminds 0:18:32.760 --> 0:18:36.840 me of something we did here over at the Davos conference. 0:18:36.880 --> 0:18:39.280 And this came from Scott Minord over at Googanheide and 0:18:39.320 --> 0:18:43.080 I want to share two uh different lines with you, 0:18:43.160 --> 0:18:44.840 one from him on from someone else that is also 0:18:44.920 --> 0:18:47.359 very well known. So Scott Minord said, the market is 0:18:47.359 --> 0:18:50.280 a Ponzi scheme UM, saying that it's been built up, 0:18:50.320 --> 0:18:53.280 been up and up, and so much leverage. Central banks 0:18:53.280 --> 0:18:56.160 have provided so much liquidity, he said, the markets Ponzi scheme. 0:18:56.200 --> 0:18:58.320 Then on the other side you have the likes of 0:18:58.440 --> 0:19:00.919 Jamie Diamond at JP Morgan into talking about the markets 0:19:00.920 --> 0:19:03.040 being in a goldilocks place, And I just want to 0:19:03.040 --> 0:19:05.640 get your take, Dave, on how you can have too 0:19:06.480 --> 0:19:10.359 very well known names in the financial financial industry and 0:19:10.640 --> 0:19:14.400 you can just have to completely different takes in a way. 0:19:14.400 --> 0:19:17.440 Maybe sure you can find a link somewhere, but clearly 0:19:17.560 --> 0:19:22.080 Ponzi skiing Goldilocks not the same. Yeah, I think you 0:19:22.119 --> 0:19:24.760 know everybody. What makes markets is that we all approach 0:19:24.840 --> 0:19:27.600 them with different perspectives, right And I think if you're 0:19:27.720 --> 0:19:31.120 if you're of a cynical nature, you can always ask 0:19:31.200 --> 0:19:34.200 the question how did we get here? What imbalances were 0:19:34.240 --> 0:19:37.760 built up? And and frankly, there are plenty of things 0:19:37.800 --> 0:19:41.000 to point at right now. However, when you look at 0:19:41.040 --> 0:19:44.680 what central banks have done, the more the more optimistic 0:19:45.040 --> 0:19:47.280 side of that coin is to say, well, look at 0:19:47.320 --> 0:19:51.080 why things are so solid. Central banks have suppressed interest rates, 0:19:51.480 --> 0:19:55.159 markets have can continue to rise. Uh, the cost of 0:19:55.240 --> 0:19:59.200 capital is very low, inflation is muted, not doing much 0:19:59.200 --> 0:20:01.120 in places. So when you look at sort of a 0:20:01.160 --> 0:20:05.959 fundamental background, somebody can make a very good goldilocks case. Hey, 0:20:06.240 --> 0:20:09.360 I think of it as sort of contemporaneous right now, Hey, 0:20:09.359 --> 0:20:12.520 look at it, it's goldilocks. Somebody steps back from that 0:20:12.560 --> 0:20:15.440 and says, yeah, but look what's been going on around 0:20:15.520 --> 0:20:18.800 the goldilocks. Uh. And I think there's elements of truth 0:20:18.840 --> 0:20:21.520 to both. Again, I'm I'm sort of a bond guy 0:20:21.600 --> 0:20:24.199 by training. I leaned towards too, a little bit of 0:20:24.200 --> 0:20:27.520 the worried side. I wouldn't call it a Ponzi scheme. 0:20:27.560 --> 0:20:30.280 That's that's a little aggressive for for for for my 0:20:30.359 --> 0:20:33.800 style and the people that I report to, probably not 0:20:33.880 --> 0:20:40.120 great for business. But but to suggest that there are brewing, uh, 0:20:40.280 --> 0:20:43.760 systemic risks out there is not an outlier opinion by 0:20:43.800 --> 0:20:47.359 any stretch of the imagination. I prefer good Ponzac scheme. 0:20:48.280 --> 0:20:50.800 You know that. I will let you all in a 0:20:50.880 --> 0:20:54.320 little secret. My nickname somehow through every stage of life 0:20:54.359 --> 0:20:59.600 has been Ponzi. I wanted to call the pod podcast 0:20:59.640 --> 0:21:07.200 the puns People, but but so boil it all down 0:21:07.280 --> 0:21:11.080 to us from sort of an allocation perspective, I mean, 0:21:11.160 --> 0:21:15.679 what what should a portfolio given high valuations both in 0:21:15.720 --> 0:21:18.840 equities and bonds right now? What? What what should it 0:21:18.880 --> 0:21:21.040 look like? To you? Yeah? Well, this this was you 0:21:21.080 --> 0:21:23.359 know why we call the note, you know, confessions of 0:21:23.400 --> 0:21:26.560 a reluctant bull. I think the market and risk assets 0:21:26.560 --> 0:21:29.480 like a lot of people because of you know, there 0:21:29.560 --> 0:21:32.760 is no alternative central banks things like that. The momentum, 0:21:33.240 --> 0:21:35.400 I think the path of least resistance is we kind 0:21:35.400 --> 0:21:38.080 of grind higher from there. Uh he kind of hit 0:21:38.119 --> 0:21:41.840 the nail on the head. Where's the downside catalyst? And 0:21:41.880 --> 0:21:45.400 as we mentioned earlier, valuation is worrisome, but valuation isn't 0:21:45.400 --> 0:21:48.480