WEBVTT - Markets Pricing in Early Trump Policy 0:00:02.520 --> 0:00:08.039 Bloomberg Audio Studios, Podcasts, radio news. 0:00:12.480 --> 0:00:16.560 This is the Bloomberg Surveillance Podcast. Catch us live weekdays 0:00:16.560 --> 0:00:19.880 at seven am Eastern on Apple CarPlay or Android Auto 0:00:19.880 --> 0:00:23.159 with the Bloomberg Business App. Listen on demand wherever you 0:00:23.239 --> 0:00:26.440 get your podcasts, or watch us live on YouTube. 0:00:26.840 --> 0:00:29.600 Front Exchange Market is the litmus paper. The system has 0:00:29.600 --> 0:00:33.159 been very important. We saw the whiplash yesterday. We had 0:00:33.159 --> 0:00:35.960 a great story out in the Bloomberg. Thank you Ted Man, 0:00:36.360 --> 0:00:39.840 Liz Kepa McCormick and Esha Day for a really sharp 0:00:40.000 --> 0:00:43.360 article about the roller coaster they call it that we 0:00:43.400 --> 0:00:46.960 saw in Dollar Dynamics yesterday. Right now, we recalibate with 0:00:47.040 --> 0:00:52.320 Barkley's and their Skyler Montgomery counning their FX strategists out 0:00:52.320 --> 0:00:56.840 of the United Kingdom. Skyler, good morning. Can Barkley's bet 0:00:57.000 --> 0:01:01.000 resilient and strong dollar or do you a just on 0:01:01.040 --> 0:01:01.800 this Tuesday. 0:01:03.400 --> 0:01:05.440 I don't think we've heard anything in the last couple 0:01:05.480 --> 0:01:08.640 of days to really adjust our view. I think broadly 0:01:08.680 --> 0:01:11.800 it's accepted that the current environment is dollar positive. We've 0:01:11.840 --> 0:01:14.520 had such a large move that the question we're consistently 0:01:14.520 --> 0:01:17.920 getting from clients is how far can this strength instead? 0:01:18.040 --> 0:01:20.200 And for US, we wouldn't fade the dollar strength and 0:01:20.240 --> 0:01:23.440 particularly the reference to euro dollar. The move we've seen, 0:01:23.480 --> 0:01:26.640 it's not been exclusively driven by terriffs, right, It's also 0:01:26.680 --> 0:01:30.160 been by growth and rate differentials. US growth continues to 0:01:30.200 --> 0:01:33.680 be stronger than it's DXY counterparts, and that's meant higher 0:01:33.720 --> 0:01:35.720 yields in the US than elsewhere, and that's also played 0:01:35.760 --> 0:01:38.160 a role here. So it's not just teriff threats alone 0:01:38.319 --> 0:01:40.280 that point to more dollar upside. 0:01:40.520 --> 0:01:40.920 Skyler. 0:01:41.000 --> 0:01:43.479 I mean, I'm looking at the Bloomberg Dollar Index up 0:01:43.560 --> 0:01:47.039 over seven percent just since late September. Call it is 0:01:47.080 --> 0:01:49.600 there a bear case for the US dollar. 0:01:51.320 --> 0:01:52.960 So we get asked this quite a lot as well, 0:01:53.080 --> 0:01:55.960 kind of what are the reasons or catalysts that you 0:01:55.960 --> 0:01:59.200 could see for dollar downside? And certainly there are options, right, 0:01:59.280 --> 0:02:04.080 you know, there's not a complete regardless of that in 0:02:04.160 --> 0:02:06.560 terms of you could see more fiscal cohesion and you're up. 0:02:06.560 --> 0:02:08.160 That would be more positive. If you could get more 0:02:08.200 --> 0:02:11.440 super sized stimulus out of China, that would also be 0:02:11.480 --> 0:02:14.880 more positive. If you just had less hawkishness on trade again, 0:02:14.960 --> 0:02:18.440 that would be more positive for those DXY counterparts. I 0:02:18.440 --> 0:02:20.280 think the issue is just one of those baselines are 0:02:20.280 --> 0:02:22.880 coming through, and they're certainly not our baseline. 0:02:23.600 --> 0:02:26.280 How about in Asia here, what is the Bank of 0:02:26.360 --> 0:02:28.440 Japan doing? What do they need to do? How do 0:02:28.480 --> 0:02:30.720 you guys think about the yen here? 0:02:31.840 --> 0:02:32.040 Yeah? 0:02:32.040 --> 0:02:35.040 Absolutely so for the end it's near turn. Upside seems 0:02:35.080 --> 0:02:39.440 more limited, especially versus the dollar. The January Banka Japan meeting, 0:02:39.480 --> 0:02:42.079 it's pretty much completely priced in for a twenty five 0:02:42.080 --> 0:02:44.960 basis point hike. I think top side and dollars yen 0:02:45.040 --> 0:02:47.200 at seven point you get some kind of cap because 0:02:47.200 --> 0:02:51.880 of Japanese authority's reaction function to FX weakness, but given 0:02:51.919 --> 0:02:54.520 we've had this spate of yen strength recently, we're not 0:02:54.600 --> 0:02:57.359 quite at levels where that comes into the picture. More 0:02:57.400 --> 0:03:00.240 medium term, though, we do like buying yen on the crosses. 0:03:00.400 --> 0:03:02.720 I think the direction of policy is clear. Obviously we're 0:03:02.760 --> 0:03:05.239 expecting a hike this week, but we also expect a 0:03:05.280 --> 0:03:07.880 hike later in this year that gets due to a 0:03:07.919 --> 0:03:10.320 policy rate at zero point five percent or sorry, zero 0:03:10.400 --> 0:03:13.920 point seven to five percent, and certainly neutral expectations for 0:03:14.040 --> 0:03:16.560 Japan are kind of drifting more towards the one percent 0:03:16.639 --> 0:03:19.240 level in markets, and then they're also less vulnerable to 0:03:19.320 --> 0:03:22.160 teriff risks and the volatility of a trade work could 0:03:22.200 --> 0:03:23.680 be more positive for safe have instatu. 0:03:24.040 --> 0:03:26.120 Is there a big figure trade out there? I mean, 0:03:26.160 --> 0:03:30.200 forget about all the sixty thousand feet stuff, Tyler. I 0:03:30.280 --> 0:03:33.440 lost money on the Detroit Lions. I know it means 0:03:33.760 --> 0:03:36.680 it's like losing money on Manu. No, it's actually it's not. 0:03:36.720 --> 0:03:39.560 It's like losing money on somebody good. But the answer 0:03:39.680 --> 0:03:41.640 is I got to make it back in the next 0:03:41.680 --> 0:03:45.160 six months, Skyler. Where's the big figure bet for Barclays? 0:03:46.760 --> 0:03:48.200 I mean, in terms of places that you'll get the 0:03:48.280 --> 0:03:50.760 largest move, I think CNY is where you should be looking, 0:03:50.840 --> 0:03:54.040 especially versus the dollar. There's been a mispricing in terms 0:03:54.040 --> 0:03:56.720 of where tariff risk is really showing up. It's showing 0:03:56.800 --> 0:03:59.200 up in Europe so far, but not so much in China. 0:03:59.560 --> 0:04:01.920 And the growth backdrop as well as just fundamentally the 0:04:01.920 --> 0:04:03.600 backdrop or c and Y is for a week or 0:04:03.640 --> 0:04:06.240 CNY even if you don't account for tariff threats, and 0:04:06.320 --> 0:04:08.880 so that tariff threat should be more reflected in that cross. 0:04:08.880 --> 0:04:10.880 And for us, we're looking at seven to fifty originally 0:04:10.880 --> 0:04:11.720 ONND dollars CNY. 0:04:11.720 --> 0:04:13.120 Wow, how about that? 0:04:13.480 --> 0:04:16.480 We've had just the last twenty four hour Skyler, uh 0:04:17.279 --> 0:04:20.680 Padre a pretty clear commentary out of the new administration 0:04:20.760 --> 0:04:25.919 about tariffs on Mexico and Canada. How do you play 0:04:25.920 --> 0:04:28.680 that in the currency markets? Do you in fact trade that? 0:04:28.839 --> 0:04:30.280 You try to set it aside? How do you think 0:04:30.320 --> 0:04:30.720 about that? 0:04:32.160 --> 0:04:33.479 I mean, I think you have to trade it. You 0:04:33.520 --> 0:04:36.839 have to seriously take these threats. Unto consideration, Canada and 0:04:36.920 --> 0:04:39.839 Mexico are very exposed to the US in a relative way. 0:04:39.920 --> 0:04:42.599 So seventy five percent of Canadian exports go to the US. 0:04:42.640 --> 0:04:46.279 It's not recipiable by any means, and most of Canadian 0:04:46.360 --> 0:04:48.520 GDP are a significant portion of it at least is 0:04:48.560 --> 0:04:51.560 generated by those exports. And so it's much more worrying 0:04:51.600 --> 0:04:53.800 for those economies that you have the threat of tariffs 0:04:53.800 --> 0:04:56.920 and that supersedes anything else that you have domestically. But domestically, 0:04:56.960 --> 0:04:59.839 particularly in Canada, the backdrops not great easier. You're gonna 0:04:59.839 --> 0:05:03.240 p period where parliament's burrowed. There's not a lot of 0:05:03.240 --> 0:05:06.560 political legitimacy behind the current government, and that is an 0:05:06.600 --> 0:05:08.720 opportunity for Trump, I think. 0:05:08.720 --> 0:05:14.120 Skyler, what's the shadow out there for Dollar's certitude? Unfortunately, 0:05:14.240 --> 0:05:17.440 Paul was away on a sabbatical and I was inflicted 0:05:17.520 --> 0:05:21.080 Damien Sassaur upon me Skyler, and of course he's em 0:05:21.160 --> 0:05:25.880 em em ei eio. What's the shadow out there in 0:05:26.000 --> 0:05:28.040 em Barclays is worried about. 0:05:29.680 --> 0:05:32.440 I think really the threat of hikes returning to the table. 0:05:32.560 --> 0:05:35.159 It's something that we definitely need to consider in twenty 0:05:35.240 --> 0:05:38.159 twenty five. If you look at the extory experience, there's 0:05:38.160 --> 0:05:40.880 this natural tendency for the market to look for hikes 0:05:40.920 --> 0:05:43.400 ahead of the end of the cutting cycle. And typically 0:05:43.480 --> 0:05:45.760 in soft landings, the cutting cycle and the pause that 0:05:45.839 --> 0:05:49.440 follows it's much shorter than in recessionary periods. So that 0:05:49.480 --> 0:05:51.359 implies that in twenty twenty five we need to be 0:05:51.360 --> 0:05:53.200 thinking about this. And if you look back at the 0:05:53.200 --> 0:05:56.520 soft landings of ninety eight and ninety five, there was 0:05:56.560 --> 0:06:00.000 some concern over energy inflation, but core inflation actually declined 0:06:00.120 --> 0:06:02.800 in between the last cut and the next hike of 0:06:02.839 --> 0:06:06.200 the next cycle. And so while the Fed's mandate is 0:06:06.200 --> 0:06:08.960 more semetrical now there's more relative weight put on unemployment. 0:06:09.000 --> 0:06:10.880 I think if you had that comeback to the fore 0:06:10.960 --> 0:06:13.360 and certainly it's something markets are thinking about, that would 0:06:13.360 --> 0:06:14.080 be very negative. 0:06:14.080 --> 0:06:16.240 Free Scott I got a run on breaking news this 0:06:16.279 --> 0:06:18.880 has been great. Don't be a stranger, Skyler. If you're 0:06:19.040 --> 0:06:23.320 in New York, we have to do an extended Skyler 0:06:23.440 --> 0:06:28.480 Montgomery coning interview FX strategist with Berkley. Thank you so much, Skyler. 0:06:34.400 --> 0:06:38.120 You're listening to the Bloomberg Surveillance podcast. Catch US Live 0:06:38.200 --> 0:06:41.520 weekday afternoons from seven to ten am Eastern Listen on 0:06:41.600 --> 0:06:44.920 Apple CarPlay and Android Auto with the Bloomberg Business app, 0:06:45.160 --> 0:06:47.080 or watch US Live on YouTube. 0:06:47.200 --> 0:06:50.680 She was outstanding the last time she was on. She 0:06:50.720 --> 0:06:53.279 has to put up with Brian Belski on a daily basis. 0:06:53.279 --> 0:06:58.400 With Demo Capital Markets, their senior economist, Jennifer Lee joins us. Jennifer, 0:06:58.560 --> 0:07:02.080 just open question. After the pageantry of the last three 0:07:02.240 --> 0:07:05.800 four days, what are you writing about this morning? What 0:07:05.839 --> 0:07:09.960 does a Jennifer Lee focus on a post inaugural Tuesday. 0:07:11.080 --> 0:07:12.920 Well, good morning, and thank you very much for having 0:07:12.960 --> 0:07:16.480 me on. And I still love mister Belski. This morning 0:07:16.600 --> 0:07:18.600 was the focus. All the focus was on, of course, 0:07:18.640 --> 0:07:22.680 the US dollar index and the volatility in the currency market, 0:07:23.480 --> 0:07:25.920 and that was in sharp display. You know, of course 0:07:25.960 --> 0:07:30.840 after the shotgun comments that he was made almost off handish, 0:07:30.880 --> 0:07:32.840 you know, I was sort of wondering last night, you know, 0:07:33.000 --> 0:07:35.559 would he had brought up tariffs if he wasn't asked, 0:07:35.600 --> 0:07:39.160 you know, legitimate question obviously, So you know, and I 0:07:39.240 --> 0:07:41.080 was talking to myself and I was thinking, why was 0:07:41.080 --> 0:07:44.200 I surprised? You know, you know, he said he's doing 0:07:44.200 --> 0:07:46.400 everything that he said he was going to do during 0:07:46.400 --> 0:07:49.040 the campaign. So you know, this shouldn't come as a shot. 0:07:49.080 --> 0:07:50.360 You know, it's just whether or not it's going to 0:07:50.400 --> 0:07:53.240 come to fruition. And that's anyone's guess at this point. 0:07:53.320 --> 0:07:56.720 What will Canada, dude is, does the Bank of Montreal 0:07:57.440 --> 0:07:59.400 have Well, first of all, does the Bank of Montreal 0:07:59.400 --> 0:08:03.080 have any side whether the Canadians can outlast the Bruins. 0:08:03.120 --> 0:08:04.680 I mean we'll have to say I haven't said that 0:08:04.720 --> 0:08:08.239 in like eight years. But Jennifer Lee, how will Canada 0:08:08.440 --> 0:08:13.120 respond to tariffs from America? Do you have any perspective 0:08:13.160 --> 0:08:15.000 there from the Bank of Montreal Hall. 0:08:16.160 --> 0:08:18.440 So, you know, there's it's this is more you're coming 0:08:18.480 --> 0:08:21.480 from the political side. You know, all the provinces have 0:08:21.760 --> 0:08:24.560 gotten together and all but one has you know, there 0:08:24.600 --> 0:08:29.280 everyone's talking about retaliation and and having also targeted TIFFs 0:08:29.280 --> 0:08:33.040 as well on us on US products. You know, again, 0:08:33.120 --> 0:08:34.720 it's you know, we're gonna have to see how this 0:08:34.800 --> 0:08:38.400 plays out. It's all about the art of negotiation, you know, 0:08:38.440 --> 0:08:42.240 as President Trump is always talking about again, I don't know, 0:08:42.320 --> 0:08:44.320 I'm not sure why whether or not we're going to 0:08:44.320 --> 0:08:47.520 see from the US side of things, twenty five percent 0:08:47.559 --> 0:08:51.880 tariffs on all you are, all Canadian products? You know, 0:08:51.880 --> 0:08:54.000 I call it like the W five W five right, 0:08:54.080 --> 0:08:55.960 like the who? You know we're talking right now about 0:08:56.000 --> 0:08:59.040 Canada and Mexico. When when will this happen you know 0:08:59.280 --> 0:09:03.480 first a hard date or are we just going to 0:09:03.480 --> 0:09:05.679 talk about it first? Is just throwing it out there 0:09:05.720 --> 0:09:08.160 as a possibility, you know, the ware of this. 0:09:08.080 --> 0:09:08.720 Like the who? 0:09:09.960 --> 0:09:13.160 And how is this going to play out? Especially again, 0:09:13.480 --> 0:09:16.760 will there be a lengthy period of negotiations? And are 0:09:16.760 --> 0:09:19.040 we targeting every single thing? Are we only looking at 0:09:20.320 --> 0:09:22.800 or sorry, are we looking at all Canadian products? Or 0:09:22.840 --> 0:09:25.520 are we targeting certain ones only? And these are all 0:09:25.600 --> 0:09:27.800 questions that you need to be answered before we can 0:09:27.800 --> 0:09:29.120 figure out what we are going to do. 0:09:29.320 --> 0:09:33.760 Good Morning out on YouTube from London, Ontarios, which is 0:09:33.800 --> 0:09:38.880 the absolute speaking as an ugly American is the absolute 0:09:39.160 --> 0:09:43.320 epicenter of good ice hockey and also exports to the 0:09:43.440 --> 0:09:44.920 United States exports. 0:09:45.320 --> 0:09:48.720 So, Jennifer, you're based in Toronto there, what's the feeling 0:09:49.280 --> 0:09:53.480 in Canada in Toronto about maybe some of what you 0:09:53.520 --> 0:09:55.400 guys can do, what Canadians can do in terms of 0:09:55.880 --> 0:09:58.559 on tariffs on your side. 0:09:58.880 --> 0:10:02.319 So it's overall, you know, obviously it's a feeling of unease. 0:10:03.000 --> 0:10:06.600 You know, this is something that you know, nobody wants obviously. Uh, 0:10:06.679 --> 0:10:09.360 the US is the destination of seventy five percent of 0:10:09.400 --> 0:10:13.240 our exports, and we import most of our imports, you know, 0:10:13.400 --> 0:10:16.480 come from the US as well, and from the US. 0:10:16.520 --> 0:10:19.120 I mean that most of the US exports head to 0:10:19.240 --> 0:10:22.120 both Mexico and Canada. So this is like something that 0:10:22.160 --> 0:10:24.640 you know that is not something that we would relish. 0:10:25.400 --> 0:10:28.240 But uh, in terms of preparation, I don't know if 0:10:28.240 --> 0:10:30.760 there is a set plan right now, but you know, 0:10:30.920 --> 0:10:34.000 almost you know, just being prepared for much slower growth 0:10:34.000 --> 0:10:35.959 than what we have pencils in right now. We've got 0:10:36.080 --> 0:10:38.800 just under two percent pencils in for twenty twenty five 0:10:38.880 --> 0:10:42.319 GDP growth for Canada this year, and of course that 0:10:42.360 --> 0:10:47.400 could be potentially erased if we launch into a protracted 0:10:47.440 --> 0:10:49.520 trade war with the US. And again it will depend 0:10:49.559 --> 0:10:52.200 on what products are targeted at? What you know, is 0:10:52.240 --> 0:10:53.960 it going to be twenty five percent for a long 0:10:54.000 --> 0:10:56.480 long time. You know, there are a lot of uncoan 0:10:56.520 --> 0:10:58.280 answered questions, so we don't know how this is going 0:10:58.280 --> 0:11:00.440 to play. Oh, there's so much uncertainty. And this is 0:11:00.440 --> 0:11:02.480 what also makes by the way, if I just segue, 0:11:03.000 --> 0:11:04.679 this also makes you know, the jobs for not only 0:11:04.720 --> 0:11:07.680 economists very difficult, but it makes jobs for central makers 0:11:07.720 --> 0:11:09.720 extremely difficult as well. You know, whether or not they're 0:11:09.720 --> 0:11:11.400 going to tighten or they're going to hold and they're 0:11:11.400 --> 0:11:13.560 going to cut. You know, all things are on the 0:11:13.559 --> 0:11:14.400 table right now. 0:11:15.080 --> 0:11:17.160 So I guess the two of the themes coming out 0:11:17.160 --> 0:11:21.400 of President Trump yesterday were migration policy. Immigration policy and 0:11:21.440 --> 0:11:25.920 the tariffs, both some economists say could be quite inflationary. 0:11:26.200 --> 0:11:28.200 How do you did you hear anything yesterday that maybe 0:11:28.280 --> 0:11:30.800 change your thoughts of US inflation outlook? 0:11:32.080 --> 0:11:34.880 No, just again, there is some relief, you know, obviously 0:11:35.440 --> 0:11:38.000 during his noginal speech when he did not mention teriffs 0:11:38.080 --> 0:11:40.400 and so, but at the same time, you know, we 0:11:40.760 --> 0:11:44.079 do know that terriffs are inflationary. It's going to be 0:11:44.080 --> 0:11:45.960 the US importers that are going to be bearing the 0:11:46.000 --> 0:11:49.200 costs initially, and then they're going to probably pass it 0:11:49.240 --> 0:11:53.040 on to the consumers. In terms of the immigration and 0:11:53.240 --> 0:11:55.480 the migration, you know, first, I mean obviously it's going 0:11:55.520 --> 0:11:58.079 to be targeting a legal you know, the illegal migrants, 0:11:58.240 --> 0:12:01.800 the criminals, you know, but in terms of broader how 0:12:01.880 --> 0:12:03.520 much further he's going to go. You know, it's going 0:12:03.559 --> 0:12:06.200 to have inflationary impact on the because of the labor market, 0:12:06.559 --> 0:12:11.440 and we know how dependent US agricultural sector is on 0:12:11.559 --> 0:12:17.959 illegal citizens and construction as well. So we see those people, 0:12:17.960 --> 0:12:21.000 those workers unable to work or not able to work. 0:12:21.520 --> 0:12:23.280 You know, that could put a lot more tightness on 0:12:23.320 --> 0:12:26.560 the labor market. Means higher wages, it means higher inflation. 0:12:26.840 --> 0:12:29.079 Jennifer, thank you so much. Jennifer Lee with a brief 0:12:29.080 --> 0:12:32.680 there on terraff So with unique perspective on Canada from 0:12:32.679 --> 0:12:34.560 Beama Capital Marcus. 0:12:34.720 --> 0:12:38.560 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:12:38.640 --> 0:12:41.440 starting at seven am Eastern on Apple car Play and 0:12:41.480 --> 0:12:44.120 the Android Auto with the Bloomberg Business app. You can 0:12:44.160 --> 0:12:47.360 also listen live on Amazon Alexa from our flagship New 0:12:47.440 --> 0:12:51.400 York station, Just Say Alexa played Bloomberg eleven thirty. 0:12:51.320 --> 0:12:54.439 Our ecumenical tradition is to get as long a conversation 0:12:54.480 --> 0:12:58.160 as we can with Laurie Kelvissina. She read Graham, Dot 0:12:58.160 --> 0:13:01.160 and Coddle on the law of the University of Virginia 0:13:01.640 --> 0:13:06.960 ages ago. Is security analysis dead? Is everybody turned into 0:13:07.000 --> 0:13:07.880 a strategist? 0:13:08.920 --> 0:13:10.200 Well, I think there are a lot of people who 0:13:10.280 --> 0:13:12.360 try to do my job for me, and so so, 0:13:12.840 --> 0:13:15.080 you know, maybe to some extent, but look, I think 0:13:15.080 --> 0:13:17.360 we are in sort of a more macro driven world 0:13:17.960 --> 0:13:19.400 at this point in time, and I think this is 0:13:19.480 --> 0:13:21.400 going to be very much a year where the top 0:13:21.440 --> 0:13:24.239 dawn tailwinds are informing a lot of decisions. 0:13:24.679 --> 0:13:28.960 From where you are. Is it an active management stock 0:13:29.040 --> 0:13:32.520 selection year, particularly in your expertise of mid cap or 0:13:32.559 --> 0:13:34.920 small cap or is it an index year? 0:13:35.040 --> 0:13:37.880 Well, I'll tell you what's fascinating Tom. And we often 0:13:37.920 --> 0:13:41.000 you will see funds flows turn in January, but we 0:13:41.080 --> 0:13:43.880 actually saw back in December we started to see some 0:13:44.000 --> 0:13:46.840 inflows to actively managed funds in both small cap and 0:13:46.920 --> 0:13:50.240 large cap US equity funds emerged. Now that has occurred 0:13:50.280 --> 0:13:55.040 alongside passive outflows, so that hasn't sort of taken you 0:13:55.080 --> 0:13:57.840 into negative territory. And large cap you have seen overall 0:13:57.880 --> 0:14:00.720 negative flows in small cap but it's really really interesting 0:14:00.760 --> 0:14:03.280 to see that divergence so far. The people who buy 0:14:03.320 --> 0:14:05.560 funds seem to be betting more on the stock pickers 0:14:05.640 --> 0:14:06.000 right now. 0:14:06.960 --> 0:14:09.520 We had it the inauguration yesterday. 0:14:09.960 --> 0:14:11.280 Did you guys change. 0:14:10.960 --> 0:14:14.840 Your outlook for risk assets for stocks based upon this 0:14:14.920 --> 0:14:18.840 new administration, a new Congress being seated. A lot of 0:14:19.080 --> 0:14:22.080 people feel like animal spirits on the economic front. 0:14:22.200 --> 0:14:23.440 Maybe you're being loosened a little bit. 0:14:23.800 --> 0:14:25.640 Yeah, you know, I think what we did when we 0:14:25.640 --> 0:14:28.080 put our year ahead outlook together, and we did this 0:14:28.120 --> 0:14:31.160 around Thanksgiving, so we already knew the outcome, and we 0:14:31.200 --> 0:14:33.760 had been sort of updating our models heading into that 0:14:33.880 --> 0:14:36.360 well ahead of the November election. But what we did 0:14:36.400 --> 0:14:38.200 do with one of our sort of five sets of 0:14:38.240 --> 0:14:41.080 back tests, we were able to more discreetly model in 0:14:41.120 --> 0:14:44.400 the political environment. So our political back test, actually I 0:14:44.400 --> 0:14:46.800 think it's like around an eleven to twelve percent type 0:14:46.800 --> 0:14:49.760 annual return we added into to the targeting mix, but 0:14:49.760 --> 0:14:53.160 that's the return you typically see when Republicans run the 0:14:53.160 --> 0:14:56.160 White House, the Senate, and the House, and so we 0:14:56.240 --> 0:14:58.360 thought that sort of did a good job of capturing 0:14:58.360 --> 0:15:02.160 the idea of a better animal spirit, environment, better vibes, 0:15:02.200 --> 0:15:03.840 and a more kind of business friendly climate. 0:15:04.440 --> 0:15:07.280 So how do we think about it for twenty twenty five. 0:15:07.400 --> 0:15:09.320 One of the areas that I feel like there might 0:15:09.360 --> 0:15:11.960 be a risk to the market is maybe even more 0:15:12.000 --> 0:15:13.880 dependent than usual earnings. 0:15:13.920 --> 0:15:14.680 Earnings really need to. 0:15:14.680 --> 0:15:16.080 Come through because I don't think the Fed's going to 0:15:16.120 --> 0:15:17.880 do a whole lot for us in twenty twenty five. 0:15:18.040 --> 0:15:20.480 What's your concern or confidence in the earnings out look? 0:15:20.600 --> 0:15:21.880 Well, so, look, I've been lucky. 0:15:21.880 --> 0:15:24.360 The rate strategist that I work with has been calling 0:15:24.400 --> 0:15:26.520 for an early end to the cutting cycle for about 0:15:26.560 --> 0:15:28.800 six months now, and so he did finally just pull 0:15:28.840 --> 0:15:30.840 out the January cut. But the January cut was the 0:15:30.880 --> 0:15:32.960 only one he had in this year for quite some time. 0:15:33.480 --> 0:15:35.840 So what that translated to for us is in our 0:15:35.920 --> 0:15:38.080 valuation model. So this is another one of the five 0:15:38.120 --> 0:15:40.040 things that goes into our target mix as we come 0:15:40.120 --> 0:15:42.400 up with a target pe and look at that in 0:15:42.440 --> 0:15:44.840 the context of our earnings forecast and then get a 0:15:44.840 --> 0:15:47.160 fair value for the S and p SO bottom line. 0:15:47.160 --> 0:15:50.040 Because of his FED view, he also was pretty aggressive on. 0:15:50.040 --> 0:15:50.920 The ten year yield. 0:15:51.560 --> 0:15:54.320 We haven't really had any multiple expansion baked into our outlook, 0:15:54.360 --> 0:15:55.600 and I think that's the right answer. 0:15:55.800 --> 0:16:01.040 Barn kelviseinor with this folks with RBC thrilled. She's here today, conversation. 0:16:01.520 --> 0:16:04.720 Is a MidCap still a MidCap? Lori Kelvicina, I got 0:16:04.720 --> 0:16:10.360 off the Vanguard platform, Pallunteer, Amphanol, Well Towered, Motorola, Constellation. 0:16:10.920 --> 0:16:13.920 In a bull market, if those market caps go up, 0:16:14.280 --> 0:16:17.040 do the mid capies become more large capies? 0:16:17.400 --> 0:16:17.800 I think so? 0:16:17.960 --> 0:16:20.760 And you look, I've covered small and mccap stocks for 0:16:20.800 --> 0:16:24.880 a long time. What's always been apparent to me is 0:16:24.920 --> 0:16:28.080 that mid cap managers don't really live and die by 0:16:28.080 --> 0:16:30.400 their benchmarks the way that say small cap managers do 0:16:30.520 --> 0:16:32.760 or large cap managers do. They tend to be sort 0:16:32.800 --> 0:16:35.600 of benchmark aware, but don't really get caught up in 0:16:35.640 --> 0:16:36.880 these same market cap bands. 0:16:37.080 --> 0:16:39.800 So how do you buy midcaps? I mean, you're a strategist. 0:16:39.840 --> 0:16:42.120 I get that. I don't want to ask you individual stocks. 0:16:42.480 --> 0:16:44.840 But then are you looking at free cash flow? Is 0:16:44.880 --> 0:16:47.360 the is it revenue growth? What's the game for you? 0:16:47.680 --> 0:16:49.400 I tend to not look at free cash flow just 0:16:49.400 --> 0:16:51.600 because I find databases don't do a good job of 0:16:51.640 --> 0:16:54.479 allowing me to model. It's very lumpy data. The forecasts 0:16:54.480 --> 0:16:56.880 are very you know, kind of messy. Pms love to 0:16:56.920 --> 0:16:58.760 look at it, right, It's something they live and die by, 0:16:58.800 --> 0:17:00.640 but as a macro person, it does don't really work. 0:17:01.040 --> 0:17:02.680 I think we tend to define it in terms of 0:17:02.760 --> 0:17:04.359 market cap. I think if you want to go from 0:17:04.359 --> 0:17:06.639 like maybe ten up to fifty, that's a pretty safe, 0:17:06.760 --> 0:17:08.600 you know, kind of range that I think most people 0:17:08.640 --> 0:17:11.119 can live in. But some people will tell you it 0:17:11.160 --> 0:17:13.080 starts a little lower, and a lot of people will 0:17:13.160 --> 0:17:15.879 let those names ride ride and take them a bit higher. 0:17:16.640 --> 0:17:19.679 Leadership in a market, Lorie, it just seems like, as 0:17:19.720 --> 0:17:22.920 long as we can remember, it's been technology, technology, technology 0:17:23.000 --> 0:17:27.359 driving these markets higher. A do you believe in market 0:17:27.400 --> 0:17:30.280 leadership and if so, do we have tex still as 0:17:30.280 --> 0:17:31.119 a leader in this market? 0:17:31.240 --> 0:17:33.760 Well, look, I'll tell you, Paul, I've been in the 0:17:33.760 --> 0:17:36.280 broadening camp, but I would say, you know ya. 0:17:36.400 --> 0:17:38.439 A centimeter, not by a mile. 0:17:39.160 --> 0:17:41.240 I do think this broadening thesis has become one of 0:17:41.280 --> 0:17:44.720 the most consensus things strategists have talked about coming into 0:17:44.720 --> 0:17:45.040 the show. 0:17:45.080 --> 0:17:45.919 Are you're observing it? 0:17:47.200 --> 0:17:49.280 I mean you can see it to some extent, right, 0:17:49.320 --> 0:17:51.120 But every time I have a weekly and every time 0:17:51.160 --> 0:17:53.480 I update my charts right like one week I'm saying 0:17:53.480 --> 0:17:55.760 growth is fighting back, and then another week I'm saying 0:17:55.800 --> 0:17:58.479 the value finally looks like it's trying to assert itself. 0:17:58.480 --> 0:18:02.000 So it's been very, very and I think there are 0:18:02.040 --> 0:18:05.320 good reasons to rotate. I think you've got valuation problems 0:18:05.359 --> 0:18:07.919 in the megacap growth names. I think you've got crowding problems, 0:18:07.920 --> 0:18:09.840 and I think you give out decelerating earnings growth. And 0:18:09.880 --> 0:18:11.600 I think there is an itch in this market among 0:18:11.680 --> 0:18:16.160 pms to rotate. But relative pees of MAG seven versus 0:18:16.280 --> 0:18:19.480 rest of market is a function. It's really tracking very 0:18:19.480 --> 0:18:23.480 closely relative long term earnings growth dynamics, and MAG seven 0:18:23.520 --> 0:18:26.440 earnings growth keeps surprising to the upside. So I keep 0:18:26.440 --> 0:18:28.760 telling people, you know that the case for the rotation 0:18:29.480 --> 0:18:31.800 it's there, But it feels like the rest of the 0:18:31.840 --> 0:18:34.200 market is just whipping on its opportunity and just can't 0:18:34.200 --> 0:18:35.680 reclaim that earnings leadership. 0:18:36.359 --> 0:18:38.800 What are some of the sectors that screen well for 0:18:38.880 --> 0:18:40.679 you guys these days going to I think. 0:18:40.560 --> 0:18:42.000 Financial still has some room. 0:18:42.160 --> 0:18:44.120 I don't think it has as much room as it did. 0:18:44.160 --> 0:18:46.520 I think the capital markets names are getting expensive, but 0:18:46.560 --> 0:18:49.560 the bank's insurance companies still look pretty good on valuation, 0:18:49.720 --> 0:18:53.720 have good earnings revision trends, and I think financials in general, 0:18:53.800 --> 0:18:55.760 you've got a lot of policy tailwinds. 0:18:55.840 --> 0:18:57.200 You don't really have any headwinds. 0:18:57.920 --> 0:19:00.159 COMM services looks really good, so you got a lot 0:19:00.200 --> 0:19:01.320 of big tech type. 0:19:01.200 --> 0:19:01.880 Names in there. 0:19:01.920 --> 0:19:06.720 They're more consumer oriented. Again, I think more policy tailwinds 0:19:06.760 --> 0:19:10.200 than headwinds. Good valuations, good revisions. We upgraded that one 0:19:10.240 --> 0:19:12.000 back in December and got a lot of good feedback 0:19:12.400 --> 0:19:13.200 from investors. 0:19:13.400 --> 0:19:16.560 So this is great with Lori Calvalcino, folks, because she's 0:19:16.600 --> 0:19:20.080