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Speaker 2: This is really good. We got some precious timingre with
Speaker 2: Sophia Drosi's working for point seventy two in New York.
Speaker 2: But you know, we've we've got to do this. I mean,
Speaker 2: it's one of the most fractious marriages out there, Steve Cohen.
Speaker 2: Of course a point seven to two has a modest
Speaker 2: New York Mets too. You have a Red Sox Mets marriage.
Speaker 3: Is that true?
Speaker 4: Yes, it's a mixed marriage LEAs.
Speaker 2: Yes.
Speaker 4: However, I did adopt the Patriots as my football team
Speaker 4: because that was also, you know, the Michigan connection. So
Speaker 4: for me, when my husband said I'm a Patriots fan,
Speaker 4: that's a deal breaker for me. I was like Tom Brady,
Speaker 4: I knew since he was number ten.
Speaker 2: How's your husband doing? I Soto in a Mets uniform
Speaker 2: is un American? Is he holding up? I mean the meds?
Speaker 4: You know, you know, the Mets nation is very welcoming.
Speaker 4: So when we do go to Cityfield, my husband will
Speaker 4: wear his red Sox hat. The Mets nation super welcoming.
Speaker 2: Very a good update there, and of course we are
Speaker 2: ready for the baseball season. We're also ready Sophia drosis
Speaker 2: for an economy and your research note says it all.
Speaker 2: I think you use the word uncertainty forty seven times.
Speaker 2: What is the character of our economic and market uncertainty?
Speaker 4: Yes, well, uncertainty is something that we haven't had to
Speaker 4: deal with until more recently on the policy front, So
Speaker 4: last year was a year where there was fiscal spending,
Speaker 4: there was a preemptive FED easing, It was very positive
Speaker 4: tailwinds for the market, and we came into this year
Speaker 4: with the markets I think for the first time in
Speaker 4: a long time, investors were looking at the glasses half
Speaker 4: full and taking kind of the upside on economic growth.
Speaker 4: And the policy uncertainty I think has permeated that a bit.
Speaker 4: So we came into the year with a lot of
Speaker 4: expectations for deregulation and animal spirits, and the sequencing has
Speaker 4: brought perhaps the more onerous parts of policy up first,
Speaker 4: with the uncertainty over trade how it will end up
Speaker 4: how will it affect the economy? And you know, we're
Speaker 4: still looking at that April to deadline and not quite
Speaker 4: sure exactly how things are going to pan out or
Speaker 4: if that will be a clearing event.
Speaker 5: So one of the issues coming into this year for
Speaker 5: the markets was the Fed's probably not going.
Speaker 6: To do a whole lot to help these markets. It's
Speaker 6: going to be earnings driven.
Speaker 5: So therefore I need my economy to be shroun How
Speaker 5: do you think about the economic outlook and how that
Speaker 5: might be it challenge potentially for the earning story.
Speaker 4: Yes, well, on the on the earnings front, we are
Speaker 4: coming off a period of time where corporate margins have
Speaker 4: been at record highs and earnings have been quite strong.
Speaker 4: And if we're coming into a period where economic growth
Speaker 4: is expected to moderate and there is a lot of
Speaker 4: uncertainty facing corporations with regard to tariffs, their input costs,
Speaker 4: and the outlook for the US consumer, it seems more
Speaker 4: likely that we're going to see a moderation in corporate profits.
Speaker 4: And I think that this first batch of earnings reports
Speaker 4: at the end of April will be very key for
Speaker 4: the market. Directionally, I look.
Speaker 2: At what you just said, clearing events folks, this is
Speaker 2: a Midwest agreed right here. Michigan and Anna Arbor was
Speaker 2: basically East Chicago. It comes back to ninety and uncertainty
Speaker 2: and the you know, it almost folds into what Friedrich
Speaker 2: Kayak would say, which is, you've got these clearing events
Speaker 2: where things clean out. So on April third, you suggest
Speaker 2: we may have enough clarity to go along.
Speaker 4: Unfortunately, I don't think we'll have the clarity on April third.
Speaker 4: So the issue has been on April second, we are
Speaker 4: anticipating to get a sense of the blueprint on the
Speaker 4: reciprocal tariffs, but the commentary from the White House has
Speaker 4: been that there's likely to be ongoing tariff threats in
Speaker 4: terms of specific industries and products. So April on April
Speaker 4: two will know a bit about this reciprocity that will
Speaker 4: be going on, but we won't know enough about what's
Speaker 4: going to happen with specific sectors.
Speaker 2: Yeah, I'm not without giving away the point seven to
Speaker 2: two cards. But the basic idea here is with this
Speaker 2: colossal uncertainty is and then this is a bit off
Speaker 2: your remit, but I'm going to ask anyways and be rude.
Speaker 2: Is cash a preferred asset right now?
Speaker 4: Well? I've been looking at things like gold and cash.
Speaker 4: Gold has been performing incredibly well, and so in an
Speaker 4: environment where investors might see some risks, ask Thatt. Allocation
Speaker 4: theory would suggest trying to increase some of your safer holdings.
Speaker 4: And there are different views on treasuries and the fiscal trajectory.
Speaker 4: So investors, I think have increasingly been looking at things
Speaker 4: like cash and gold.
Speaker 2: Oh, I mean, I mean talk about gold. Crazy Wan
Speaker 2: Sodo seventy five million dollars signing bonus for him seven
Speaker 2: hundred and sixty five thousand guarantee. Excuse me, not off
Speaker 2: seven hundred and sixty five million guaranteed and he's underpaid
Speaker 2: fifty one million a year. Sure, he's got a base
Speaker 2: of forty six.
Speaker 6: Large I can hit.
Speaker 2: I mean, Oh, it's correct. It's like there's a second
Speaker 2: coming of way backs over a little more in Power City.
Speaker 6: Feel no questions, great, Sophia, what'll be different if.
Speaker 2: We talk enough about the Mets, can we get back?
Speaker 6: We'll get six seats?
Speaker 2: Well, one more question, get it in there quick?
Speaker 6: Fixed income? Do I take credit risk or not? Here?
Speaker 6: Do you think?
Speaker 4: So it's an environment where I think we've started to
Speaker 4: see a little bit of a pickup, I think in
Speaker 4: the delinquencies and the like, but the types of credits
Speaker 4: that are in public markets are typically relatively strong. I
Speaker 4: think the bigger question is what's going to happen with
Speaker 4: the outlook for the economy and what does that mean
Speaker 4: for all us based risk assets.
Speaker 2: We go to Fenway just gaze out at the Ted
Speaker 2: Williams reds yea Sophia drosis. Thank you so much, A
Speaker 2: point as seven to just fabulous over the years with
Speaker 2: the wonderful synthesis of economics and the impact on our investment.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: Us right now, you folks. It's like I'm a Choppoliver.
Speaker 2: I mean, I mean, it's other is to it? Sweete
Speaker 2: and Tom Keane and we are after her conversation with
Speaker 2: the legend Kenny pulcarry over at the New York Stock Exchange.
Speaker 2: That's trader talk. That was yesterday Kay, what do you
Speaker 2: say to Ken Paul Caerry that you don't say to me.
Speaker 2: I mean that's like like in and out of the market, right, Yeah.
Speaker 7: Look, it is a good reminder that there's all these
Speaker 7: short term movements in markets that are driving the volatility
Speaker 7: that we're experiencing. But you have to keep the long
Speaker 7: term in mind, which is why we've been continuously saying
Speaker 7: to clients it's not where the S and P five
Speaker 7: hundred ends at the end of this year, it's what
Speaker 7: you do with the volatility along the way.
Speaker 2: We traders getting slammed as a general statement, I mean
Speaker 2: trying to gain this market right now, is anybody making money?
Speaker 7: Well, we've certainly seen traders move from being max long
Speaker 7: equities at the beginning of this year ninety eighth percentile
Speaker 7: kind of positioning to that's now fall into the twenty
Speaker 7: six percentile, So there's probably been some pain along the way.
Speaker 2: Paul Cary looks like out of Central Casting, Game of
Speaker 2: Thrones or Outlander or one of those things. I mean,
Speaker 2: this is he retired.
Speaker 3: No, he's trucking, he's trunckling.
Speaker 2: Good morning to Ken punk Car and everybody down with
Speaker 2: the New.
Speaker 5: York Salma bum this guy back in the day. Your
Speaker 5: note is the end of US exceptionalism? Is it the
Speaker 5: end of US exceptionalism? Or do we still have room
Speaker 5: to grow?
Speaker 6: What do you think?
Speaker 7: So what we what we wrote about is this idea
Speaker 7: is that it's very easy to ascribe a narrative to
Speaker 7: price action. Everybody looks at the weakness in the US
Speaker 7: dollar year to date, they look at the outperformance of
Speaker 7: Europe versus the rest of the of the US, and
Speaker 7: they say it must be the end of US exceptionalism.
Speaker 7: But if you look it really is a function of
Speaker 7: the fact that we started the year with a massive,
Speaker 7: very very crowded dollar long position that has since been unwound.
Speaker 7: Traders are now slightly short the dollar, and we actually
Speaker 7: think that you could see some dollars stability here now
Speaker 7: that you've burned off all of that crowded positioning.
Speaker 5: Interesting, So what do I mean when you talk to
Speaker 5: your clients here again, we had that peaked to trough
Speaker 5: draw down in the S and P five hundred of
Speaker 5: about ten percent. Did they view that as a healthy
Speaker 5: pullback in an otherwise positive market or is.
Speaker 6: It something else?
Speaker 7: We'd hope that we've talked to clients enough and set
Speaker 7: up the potential for volatility that there is a degree
Speaker 7: of calm when we see it. We often talk that
Speaker 7: volatility is a feature of being an equity investor and
Speaker 7: that we should see it as opportunity. Now we think
Speaker 7: the other reason why there's been this calm is that
Speaker 7: if you look at a seventy thirty portfolio for AQUI,
Speaker 7: so that's an international balance portfolio including the US and
Speaker 7: the AGG you're still.
Speaker 3: Up on the year.
Speaker 7: So, yes, we've seen the US stock market pull in,
Speaker 7: but the end of the day, it's not been cataclysmic.
Speaker 2: Are we getting used asked Michael dart I alluded to
Speaker 2: this with Michael Data more directly with Cam Dawson. Are
Speaker 2: we needing to slot in the understanding that equities are
Speaker 2: a single digit return in our double digit return addiction?
Speaker 7: Yeah, I think that that's very very likely. Is that
Speaker 7: we've been in this world a very strong double digit
Speaker 7: returns the last two years. Investors got conditioned to expecting that,
Speaker 7: which is why you saw these estimates for seven thousand
Speaker 7: plus in the S and P. Five hundred. That's very
Speaker 7: hard to do when you start the year at twenty
Speaker 7: two point six times forward earnings you start the year
Speaker 7: at the ninetieth percent tile of positioning.
Speaker 3: So our best case.
Speaker 7: Scenario for twenty twenty five is that you get growth
Speaker 7: upside that's equivalent to earnings growth. But that assumes that
Speaker 7: multiple stay constant, and we're not sure if you get
Speaker 7: multiple stay in constant in a world where you're cutting
Speaker 7: earning sestaments and there's some risk off flavor.
Speaker 5: How about Europe's had a heck of a start to
Speaker 5: the year here and that story we had heard kind
Speaker 5: of last year where European and international money coming into
Speaker 5: the US market had a little bit of a reversal
Speaker 5: of that. How do you think about the performance of
Speaker 5: European equities?
Speaker 7: We do think that the easy part is over for
Speaker 7: European equities. You started at thirteen and a half times forward,
Speaker 7: now you're training at fifteen times. Fifteen times doesn't seem
Speaker 7: like a lot when you compare it to the twenty
Speaker 7: times in the US, but it is the high of
Speaker 7: the valuation range and the pre pandemic range for Europe.
Speaker 7: So it really comes down to earnings delivering. Quite interestingly,
Speaker 7: earnings for Europe have continuously been getting cut even as
Speaker 7: we've been seeing this rally so interesting.
Speaker 3: It's a show me story right now.
Speaker 2: The show me story is Cameron Dawson with us this
Speaker 2: morning with New Edge Wealthy. Welcome all of you in
Speaker 2: your commute across the nation. Good morning, ninety two nine
Speaker 2: FM in Boston, ninety nine one FM and Washington. Bloomberg
Speaker 2: eleven three to zero in New York. An ample conversation
Speaker 2: with Cam Dawson on YouTube. Subscribe to Bloomberg Podcast. Even
Speaker 2: Cam Dawson subscribed.
Speaker 5: It's just like savvy put us up to forty two
Speaker 5: is amazing exactly. You know, I'm looking at the relative
Speaker 5: strength index, the RSI on the Bloomberg Criminal for the
Speaker 5: S and P five hundred. Man, we kind of bottomed
Speaker 5: back just like ten days ago, but now we're moving
Speaker 5: higher here.
Speaker 6: I mean, how did these technicals feel? It feels like
Speaker 6: is the sell off? Are we done with this cell
Speaker 6: off here? Or how's that? How do you think about it?
Speaker 7: So we certainly got over sold enough to bounce, which
Speaker 7: is why we think we're bouncing today and yesterday.
Speaker 3: What the question is what happens.
Speaker 7: When you hit resistance and are you having enough momentum
Speaker 7: to break through that wall of resistance which we think
Speaker 7: is around the fifty nine hundred and six thousand level
Speaker 7: that you're downward sloping fifty day moving average. You have
Speaker 7: been losing momentum in this market really for the last
Speaker 7: nine months. If you look at things like a weekly MACD.
Speaker 7: So we do think that this is an environment that
Speaker 7: you could roll at resistance, you're going to.
Speaker 2: Go right there because I hate it. I hate I'm
Speaker 2: not a MACD fan. Folks who won't go into the
Speaker 2: nuances of it. Sixteen hundred Pennsylvania is not looking at
Speaker 2: the weekly mac D. I mean they're not. The bottom
Speaker 2: line is we can't lift until we get political clarity
Speaker 2: right exactly.
Speaker 7: Why would we trade back up to all time highs
Speaker 7: when we've cut earnings estimates since and we have valuations
Speaker 7: that would have to go to new highs to get there,
Speaker 7: Which is why we think this year at best is
Speaker 7: that wide choppy rain. Because of the degree of uncertainty
Speaker 7: and because of the potential downsides to growth, it's depressing.
Speaker 2: MAG seven. Are they still the MAG seven? Even ex Tesla.
Speaker 7: We've been raising the question if they're more like the
Speaker 7: LAG seven we talked I think last week.
Speaker 2: Do you see a lessening of their cash flow free
Speaker 2: cash flow.
Speaker 7: It is happening because of the big uptick within capex.
Speaker 7: You are seeing free cash flow margins come in. Now,
Speaker 7: these free cash flow margins are still so much better
Speaker 7: than you can get in the rest of the market exactly.
Speaker 7: So do they become a safe haven when people have
Speaker 7: questions about growth o their places? Very possibly. The valuations
Speaker 7: aren't in stretches. They are, but the market cares about
Speaker 7: second derivatives. The market cares about the slow down in
Speaker 7: earnings growth, which is inevitable when they had such massive
Speaker 7: earnings growth over the past two years.
Speaker 2: But you said the free cash flow will sustain even
Speaker 2: if earnings come down, But it is. I mean, Zuckerberg
Speaker 2: is going to manage the P and L statement right.
Speaker 7: And they're sitting on massive, huge cash balances as well
Speaker 7: that they could deploy to repurchase shares.
Speaker 2: So sore they the new Deminian Electric? You're too young
Speaker 2: to know that? Would you get me someone in here
Speaker 2: older that actually knows what D is? Are they the
Speaker 2: new utility?
Speaker 3: That is an interesting question.
Speaker 7: If they become such monopolized businesses that they are effective utilities,
Speaker 7: then it raises the question of do they get regulated
Speaker 7: like utilities do, and do we see those free cashlow
Speaker 7: margins compress over time because of the fact that they
Speaker 7: act like utilities.
Speaker 2: I mean, Paul, you're the only one to extend in
Speaker 2: this building that knows what Florida Power and Light is.
Speaker 5: Dominion Energy based in Richmond, Virginia.
Speaker 6: Home dividend grow exactly.
Speaker 5: Earnings are important for this market because I'm not sure
Speaker 5: the FED is going to give us a whole lot
Speaker 5: this year, maybe one, maybe two rate cuts, so that
Speaker 5: puts more even more pressure on earning story. And you
Speaker 5: mentioned that earnings estimates are coming down. How risk are
Speaker 5: the numbers that are out there?
Speaker 6: Do you think so?
Speaker 7: We think the biggest risk is possibly within financials. You've
Speaker 7: been seeing every sector get cut. Financials have seen less,
Speaker 7: earnings revisions lower. But think about the setup for financials
Speaker 7: coming out of the LI people said a steeper yield curve.
Speaker 7: We're getting M and A, we're getting IPOs, we're getting deregulation.
Speaker 3: We've gotten none of that.
Speaker 7: So we do wonder if that's an area of risk
Speaker 7: going into first quarter earning.
Speaker 2: Okay, Shanghai, good morning, good evening, I should say Shanghai,
Speaker 2: China this morning listening in is China the opportunity, Sophia
Speaker 2: Ross and Mike Darter, we're talking.
Speaker 7: About, well, China certainly has that valuation opportunity where it
Speaker 7: still trades such a huge discount to the US.
Speaker 3: It's underloved, it's been called on you're going back.
Speaker 2: To a textbook eight nine, twelve ten percent allocation to international.
Speaker 7: So we are neutral international. We've said, you just can't
Speaker 7: ignore the degree of outperformance in the US underperformance and international,
Speaker 7: but we don't see signs yet that justifies going to
Speaker 7: an overweight position.
Speaker 6: What are we doing in fixed income? Here?
Speaker 5: At my two year treasuries now back above four percent?
Speaker 6: Do I stay there? Do I take some credit risk?
Speaker 6: Where do I go?
Speaker 7: So we don't think again that you're getting compensated for
Speaker 7: mostly high yo credit risks. So we move to reduce
Speaker 7: some positioning within high yield just to say, you know,
Speaker 7: let's write out some of the equity volatility. But we
Speaker 7: want to be able to take some risk out of
Speaker 7: portfolios in the event that these growth fears do come
Speaker 7: to pass.
Speaker 5: So in the equity space, what screens well for you
Speaker 5: guys these days?
Speaker 7: So we are finding lots of opportunities within international markets,
Speaker 7: but very selectively in that big, beautiful quality world. We're
Speaker 7: finding opportunities within mid caps as well, and then value
Speaker 7: lots of opportunities where you still see areas of the
Speaker 7: market that create it, discounts that have good free cash flows,
Speaker 7: have good balance sheets, and it's just maintaining that valuation discipline.
Speaker 3: Which we think is absolutely critical. At one point.
Speaker 2: What's the key attribute of those opportunities.
Speaker 7: The key attribute is that they are not trading at
Speaker 7: stretch valuations, and they have stable learnings through cycles, and
Speaker 7: they have good free cash flow that is potentially seeing
Speaker 7: better free cash flow margins.
Speaker 3: So it's about being very picky.
Speaker 7: We think that there's a big divert between the winners
Speaker 7: and the losers in this kind of environment.
Speaker 2: This guy in Shanghai, it's child abuse. He's got his
Speaker 2: four year olds watching it. Look at that in Shanghai.
Speaker 2: Can you see it, folks, that's cruel and unusual.
Speaker 5: Crash man blocking shalans in the morning.
Speaker 2: Full disclosure, folks, it's my grandchildren. We send good morning
Speaker 2: to the rugrats in Shanghai this morning. But you know,
Speaker 2: agatting back to the international and Pacific rim, I got
Speaker 2: too much gloom out there. I got guest after guests
Speaker 2: read me the uncertainty act. It clears at some point.
Speaker 2: How do you prepare for the moment where the uncertainty
Speaker 2: drifts away?
Speaker 7: Well, I don't think that you can wait for necessarily
Speaker 7: confirmation from the data. The important things is that price
Speaker 7: will lead the data, and so as we're starting to
Speaker 7: see some of these turns and trends, we have to
Speaker 7: be there, which is why we move to a neutral
Speaker 7: position within international about a year ago, saying it's going.
Speaker 3: To happen, you know maybe this time.
Speaker 5: So is our federal reserve to help us this year?
Speaker 5: Are you still kind of that's a question.
Speaker 6: A couple of cuts.
Speaker 2: All this talk, folks, Sweeny, just to ask the money.
Speaker 7: Question, we're not counting on the Fed for anything. We
Speaker 7: don't think that the labor market is going to be
Speaker 7: weak enough to justify them them cutting. We don't think
Speaker 7: that inflation is going to move down fast enough to
Speaker 7: give them the degrees of freedom to cut, which means
Speaker 7: that you get used to these higher for longer rates.
Speaker 7: And that's why we think that you have this continuous
Speaker 7: pressure on weak balance sheet companies that you should fade
Speaker 7: any strength.
Speaker 2: So what's your money unemployment rate?
Speaker 7: So we don't think that the FED will cut unless
Speaker 7: we see mid fours on the unemployment rate four point four,
Speaker 7: four four five.
Speaker 2: It's not that far away.
Speaker 3: It's not that far away.
Speaker 7: But we don't see this sharp deterioration in the labor
Speaker 7: market happening at this point. Yes, we see the sentiment
Speaker 7: around labor deteriorating, but we've not seen companies move to
Speaker 7: full out, full force layoffs that you just to just
Speaker 7: that there still is that underlying stability for now.
Speaker 6: Yeah, So, I mean it's interesting.
Speaker 5: I mean one of the questions is I think for
Speaker 5: a lot of people is do I take this pullback
Speaker 5: to buy stocks here or do I just more uncertainty
Speaker 5: out there, because it's just one tweet away from another
Speaker 5: pullback in the market.
Speaker 7: If you're buying stocks because you think it's going to
Speaker 7: be a v shape recovery and is up into the
Speaker 7: right with the volatility, it's the wrong move. But if
Speaker 7: you're buying stocks to say I'm going to own this
Speaker 7: for a long time, a step into volatility, we think
Speaker 7: you can still buy weakness.
Speaker 2: All of China's listening this morning to Cam Dawson. The
Speaker 2: entire nation just went to cash. Cam Dawson. Thank you
Speaker 2: so much, New Edge Wealth.
Speaker 1: This morning, you're listening to the Bloomberg Surveillance Podcast. Catch
Speaker 1: us live weekday afternoons from seven to ten am Eastern
Speaker 1: Listen on Applecarplay and Android Otto with the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 2: Michael Darta is with Roth Capital and years ago he
Speaker 2: came out of the Wisconsin combine and got a job
Speaker 2: with one of the rock stars of linking markets into economics,
Speaker 2: Jude Waninski. And Darta just penetrated right through with brilliant
Speaker 2: research notes melding investment into economics. Michael Darta, wonderful to
Speaker 2: have you on the show today. I'm looking at Atlanta GDP.
Speaker 2: Now I've got a real GDP estimate negative. Maybe it's
Speaker 2: a little positive. I got PCE coming in with some
Speaker 2: kind of disinflation. Are we in the middle of a
Speaker 2: nominal GDP collapse?
Speaker 8: Thanks for having me on, Tom. I don't think nominal
Speaker 8: GDP is collapsing. I think what we're facing here is
Speaker 8: a series of adverse supply side shocks that will slow
Speaker 8: real growth and temporarily raise inflation. And you know that
Speaker 8: is unfavorable because for any nominal growth rate. You want
Speaker 8: most of it to be real, not inflation. And you
Speaker 8: can see that embedded in the Fed's forecasts with the
Speaker 8: SEP last week, where they reduced their expectation for real
Speaker 8: GDP for the year, but they increased their expectation for inflation.
Speaker 2: Yeah, saw that, and they reduced the.
Speaker 8: Real growth expectation about twice as much as they increased
Speaker 8: the inflation expectation for the year. So nominal growth expectations
Speaker 8: didn't collapse, but they have eased implicitly. That's looking for
Speaker 8: about four point four percent nominal growth. That's certainly below
Speaker 8: the five percent rates that we've been seeing recently, consistent
Speaker 8: with the soft landing, and less of it's going to
Speaker 8: be read so it's a bit of its bag inflationary
Speaker 8: flavor there time.
Speaker 2: So Michael, bring it right over to the investment world.
Speaker 2: Does that re mean reduced revenues where I've got operating
Speaker 2: margins coming in and all of a sudden, Sweeney's getting
Speaker 2: gray hair because earnings are coming in.
Speaker 9: Yeah, that's exactly what it means.
Speaker 8: So slower top line growth and higher costs, and you
Speaker 8: know that is a risk to these very elevated expectations
Speaker 8: for S and P five hundred earnings this year. At
Speaker 8: the start of the year, analysts we're expecting more than
Speaker 8: fourteen percent earnings growth. Our model that uses high yield
Speaker 8: debt spreads in the new orders index from the ISM
Speaker 8: data suggests that, you know, low single digits is more likely.
Speaker 8: And you know, unfortunately, you have pretty high evaluation still
Speaker 8: on those lofty expectations. So you know, we'll see if
Speaker 8: markets can continue to look through this uncertainty. We've rallied
Speaker 8: over the last few sessions, but you know, I think
Speaker 8: we still might have some volatility ahead.
Speaker 5: So it seems like one of the key dates coming
Speaker 5: up here, Michael, is April second, when we get I guess.
Speaker 6: A clear picture of some of these tariffs here.
Speaker 5: Just stepping back and thinking about tariffs, is it a
Speaker 5: good thing to bring more manufacturing back to the US.
Speaker 5: Is that a realistic and a meaningful goal of tariffs?
Speaker 6: Do you think?
Speaker 2: Well?
Speaker 8: The administration certainly thinks it, seems to think so. They
Speaker 8: want to do it for so called critical industry of
Speaker 8: the US as an emergency or goes to war. You know,
Speaker 8: they want those critical industries here and able to fire
Speaker 8: up at a moment's notice. But in economics, everything comes
Speaker 8: with a trade off, and so if we're deploying capital
Speaker 8: and labor into industries that were less efficient at than
Speaker 8: they would be in other places, then those same resources
Speaker 8: can't go into making other export goods. So there is
Speaker 8: a second and third order drag on efficiency productivity. So
Speaker 8: the question is, you know, is it worth it to
Speaker 8: give that up? And that's what markets are grappling with now.
Speaker 5: One of the I guess the concerns here, I guess
Speaker 5: the media concerns Michael, this marketplace is the thoughts of
Speaker 5: stagflation where the growth is kind of slowing, inflation's kind
Speaker 5: of creeping back up, maybe due to some.
Speaker 6: Of these tariffs. Who knows.
Speaker 5: Is stagflation something we should be worried about?
Speaker 8: Yeah, it certainly has that flavor because I think after
Speaker 8: the election there was a lot of optimism that whatever
Speaker 8: happened on trade would be offset by fiscal policy and deregulation,
Speaker 8: and so far we don't really know. You know, the
Speaker 8: deregulation piece is kind of a question mark. You know,
Speaker 8: the administration's going very hard and fast with the tariffs,
Speaker 8: a bit of an on again, off again, on again approach,
Speaker 8: But I think that really challenges some of the assumptions
Speaker 8: coming into the year, which were that the tears were
Speaker 8: simply a bluff or that would be offset by deregulation
Speaker 8: and potential tax reform. Very difficult to see any kind
Speaker 8: of a big eating a physical policy considering the constraints
Speaker 8: and deregulating crypto, I think is highly unlikely to offset
Speaker 8: Moot Hawley two point zero.
Speaker 2: Torsten Slack apologlobal management channeling Paul Sweeney, I say puts
Speaker 2: out a note moments ago stagflation risk rising. Michael Dharta
Speaker 2: giving us some good knowledge and good morning. An extended
Speaker 2: discussion with Michael Darda Jim Bianco coming up in at
Speaker 2: nine o'clock. Our mister Darty, are on the markets, linking
Speaker 2: in to our economy. And now, folks, the Darta rabbit
Speaker 2: hole does M one M two m O money supply
Speaker 2: monetorism Michael Darta doesn't matter anymore.
Speaker 8: Oh, I love that question, Tom. You know, I'm one
Speaker 8: of the few that still watches those indicators, right, and
Speaker 8: so we had a huge explosion in the monetary aggregates
Speaker 8: going into the high inflation period in twenty twenty one.
Speaker 2: Twenty stimulus come on, we still you.
Speaker 9: Know, yeah, we did massive you.
Speaker 8: Know, stimula was plural, Okay, Yeah, So they were good
Speaker 8: proxies for massive stimulus and a huge ramp and nominal
Speaker 8: relative to the productive capacity of the economy, which was
Speaker 8: constrained during the pandemic. Right, Productivity basically was frozen for
Speaker 8: two years, and we had double digit increases in nominal
Speaker 8: demand on the back of all that stimulus. So that's
Speaker 8: your inflation story. And in the wake of the FED
Speaker 8: tightening five hundred and thirty plus basis points, those aggregates
Speaker 8: slowed very sharply. It turns out, you know, the FED
Speaker 8: was able to preside over this once in a lifetime
Speaker 8: soft landing. So nominal slowed, but it didn't crash. This
Speaker 8: bly side of the economy picked up after twenty twenty two.
Speaker 8: That's a critical piece of the soft landing and why
Speaker 8: the slowdown in those aggregates I think did not foreshadow
Speaker 8: or recession this time. And now we're putting that at
Speaker 8: risk with apply side disturbances, which are frankly series of
Speaker 8: self inflicted blows.
Speaker 5: Michael, you know we're going to get you miss sentiment data.
Speaker 5: This fraudiya.
Speaker 6: A couple of weeks ago, the.
Speaker 5: University of Michigan data really suggested that people are concerned.
Speaker 5: The current sentiments are really took a hit here. Inflation
Speaker 5: expectations moved decidedly higher. When you see soft data like that,
Speaker 5: does that get your attention?
Speaker 8: Yeah, it's you know, the survey data is really a
Speaker 8: set of inauspicious recent outcomes, with confidence pulling back and
Speaker 8: inflation expectations shooting up. So that's not really what you
Speaker 8: want to see. Obviously, we're going to get some Conference
Speaker 8: Board data today for March, and that data has also
Speaker 8: been soft, not quite as you know weak as the
Speaker 8: you mish data. But the key question is is this
Speaker 8: soft data a harbinger of much weaker hard data coming
Speaker 8: down the pike. And we just don't have the answer
Speaker 8: to that yet, and we won't even this week. We've
Speaker 8: got some February data coming up on Friday on personal
Speaker 8: income and consumption and the deflators. The FED watch is
Speaker 8: but still a little bit stable on some of this
Speaker 8: hard data, and that's really the risk that markets face.
Speaker 8: We know the soft data doesn't always translate one for
Speaker 8: one into hard data, but obviously the risks of the
Speaker 8: hard data rolling over with this hit to confidence that increased.
Speaker 2: I mean Michael. Right now we've cratered on the standard
Speaker 2: and pours five hundred. I think're down seven percent or
Speaker 2: some silly number like that. David Constant and the crew
Speaker 2: at Gold and Sacks might just splash with some fancy
Speaker 2: mathematics to put the regression trend of earnings down to
Speaker 2: be polite low single digit. Do you have an almost
Speaker 2: a data assumption of a single digit stock market forward
Speaker 2: or do you maintain double digit growth with operating leverage?
Speaker 8: I think it's going to be really hard to maintain
Speaker 8: that double digit growth. I mean, if you just do
Speaker 8: a super basic Tom Keen scatterplot regression on forward pes
Speaker 8: in ten year future returns, you know, coming into the
Speaker 8: year with the forward pe twenty two x, you know,
Speaker 8: typically that's a level where you see very weak, potentially
Speaker 8: even negative ten year forward returns. So the higher the valuations,
Speaker 8: the lower the longer term forward returns are. And you know,
Speaker 8: that's a little bit of a different game than the
Speaker 8: you know, than the chase that's been on with momentum.
Speaker 8: And then more broadly, I do think that these disruptions
Speaker 8: to the supply side eat away at the earnings expectations,
Speaker 8: and so the high valuations are pricing in good you know,
Speaker 8: good times continuing, and now we're starting to question that,
Speaker 8: which is, you know, why we've seen more volatility in
Speaker 8: this pullback, which frankly has been pretty minimal so far
Speaker 8: in the s and P five hundred, Even at the
Speaker 8: lows on the thirteen, the march was still above a
Speaker 8: twenty forward multiple, and you know that's that's still ten
Speaker 8: twelve percent above the ten year moving average, which you know,
Speaker 8: I think is very generous because the tenure moving average
Speaker 8: is well above longer term historical averages. So these this
Speaker 8: is a high valuation market still, and I think investors
Speaker 8: that are going to just jump right back in and
Speaker 8: chase what was working for most of the last two
Speaker 8: years could be a bit disappointed.
Speaker 5: We're hearing more and more potentially a better recession. Michael,
Speaker 5: Is that kind of in your six and twelve month
Speaker 5: forecast at all?
Speaker 8: Well, I mean, obviously, Paul, I think that the risks
Speaker 8: have gone up, you know, relating to the soft data
Speaker 8: really weakening. If that was not underway, then obviously the
Speaker 8: risks would be lower. It's sort of a shame because
Speaker 8: you know, the FED has been able to preside over
Speaker 8: this immaculate disinflation and soft landing that's been underway for
Speaker 8: you know, the greater part of nearly two years now,
Speaker 8: and that is a very rare historical event against all odds.
Speaker 8: And we've had, you know, we've had a lot of
Speaker 8: excitement about the AI story. Productivity has been picking up
Speaker 8: over the last two years. I don't think that's really AI,
Speaker 8: but you know, the reversal of pandemic oriented diortions, all
Speaker 8: of that could be put at risk now.
Speaker 2: So yeah, one final question, Michael, we're out of time.
Speaker 2: Critical is Nantucket and Martha's Vineyard real estate gonna crack?
Speaker 8: It's softening. You know, a lot of these super hot
Speaker 8: markets are softening. But the gains that were seen from
Speaker 8: twenty twenty through twenty twenty two into twenty three we're historic.
Speaker 8: So we do have an affordability problem, and not just
Speaker 8: in those super hot markets.
Speaker 2: May or Man's not fall into the Atlantic Michael Darta,
Speaker 2: thank you so much. With Roth greatly appreciate it. This
Speaker 2: warning a terrific brief there.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven Eastern on Applecarplay and Android Auto with
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Speaker 1: play Bloomberg eleven thirty.
Speaker 2: Today we celebrate Phil Tazuou come in here and we
Speaker 2: would talk to him about the market, and he would
Speaker 2: mention the word uncertainty fourteen times Tay's Asset Management. Today
Speaker 2: we celebrate a really challenging book, and it's a particularly
Speaker 2: important book if you're missing the retirement Ballet, The Behavioral Portfolio,
Speaker 2: Managing portfolios and investor behavior given a complex economy. Congratulations
Speaker 2: on well timing here to have the amount of uncertainty
Speaker 2: we have. On the release of the Behavioral Portfolio, You've
Speaker 2: got a whole section on the great dilemma of a
Speaker 2: retirement undershoot. Are we investing too cautiously because we're scared stiff? Yeah?
Speaker 10: So what we're doing is we're ignoring a significant chunk
Speaker 10: of history, Tom. I mean the two episodes I point out,
Speaker 10: number one, the thirty six year bond bear market that
Speaker 10: happened between forty five and eighty one. It's completely not
Speaker 10: excluded from people's planning when they're planning for portfolios. But
Speaker 10: obviously the big one is the Great Depression. And what
Speaker 10: I do in the book is I do a visual
Speaker 10: is what I call it visualization of what a balanced
Speaker 10: portfolio would look like during the Great Depression. In the
Speaker 10: first three years, it's down seventy two percent. If you're
Speaker 10: taking distributions, then we have a five year bowl market,
Speaker 10: but then another five year bear market.
Speaker 9: It's unnavigable.
Speaker 10: So what the entire investment community is doing, as brilliant
Speaker 10: as it is, and it is brilliant, is deciding we're
Speaker 10: going to look back fifty years and we're going to
Speaker 10: base all of our planning based on that, and we're
Speaker 10: going to exclude anything before that that looks like it
Speaker 10: might be a nuclear.
Speaker 2: My mother and my father classic depression babies kept waiting
Speaker 2: every five years for the next depression. That's, as a
Speaker 2: general sense, say it didn't come because of credit expansion,
Speaker 2: whatever the reason. Maybe World War two. Who knows? Are
Speaker 2: you predicting a nineteen thirties We're not predicting it.
Speaker 10: But the one thing I'll say is that if you
Speaker 10: look at certain elements, so for example, when's the last
Speaker 10: time we had one hundred percent death of the GDP
Speaker 10: and every developed nation in the world. Essentially, when's the
Speaker 10: last time we had a declining demographic population in every
Speaker 10: developed country in the world. And also, you know when
Speaker 10: we've been at sort of record price to book like
Speaker 10: we were in the Internet bubble burst. So I think
Speaker 10: what you need to do is like say, look, we're
Speaker 10: going to go ahead and include this history, and instead
Speaker 10: of making a prediction for down markets, we're going to
Speaker 10: say this could happen again. And by the way, based
Speaker 10: on where all the data is right now, it might
Speaker 10: actually be more probable than not.
Speaker 5: Talk to us about the sixty forty portfolio.
Speaker 6: I'm teeing up here, bro.
Speaker 10: Well, so you know the sixty forty portfolio is in
Speaker 10: historical accident. Bonds were created to fund governments and later
Speaker 10: fund companies. Stocks were created to share ownership. At some
Speaker 10: point someone came along and said, let's put these two
Speaker 10: things together. And sometimes it's an effective diversifier. Sometimes it's not.
Speaker 10: But I think what's interesting is that, you know, Warren
Speaker 10: Buffett said derivatives were a weapon of mass financial destruction.
Speaker 10: Actually you can use derivatives, option contracts and things like
Speaker 10: that to create real negative diversification. So our strategy is
Speaker 10: what we call a behavioral portfolio. It's what I lay
Speaker 10: out in the book. And what it does is it says,
Speaker 10: take half of your equities and put it into hedge
Speaker 10: equity strategies so that it can uncorrelate from negative economic
Speaker 10: activity like the Great Depression. Yeah, and for the fixed
Speaker 10: income side, be adaptive.
Speaker 2: Everyone listening worldwide is saying, okay, So this is the
Speaker 2: fill T's gold exercise where I got right now a
Speaker 2: linear extrapolation and gold, which is eighty ish nineteen eighty ish,
Speaker 2: is gold part of the behavioral portfolio. It's not.
Speaker 9: You know, gold can be a great diverse fire.
Speaker 10: The problem is over the very long term it just
Speaker 10: produces uh, you know CPI right, So you can have
Speaker 10: moments in time when you get some appreciation, but if
Speaker 10: what you need to have are instruments in the portfolio
Speaker 10: that can produce verifiable, reliable, long term above inflation.
Speaker 2: Is that Apple? Is that Apple? I mean I got
Speaker 2: a use of cash and free cash flow with Apple
Speaker 2: that at least x X depression. I mean, Paul, if
Speaker 2: we have a depression, we're still buying six toys a year.
Speaker 2: But our big free cash flow quality stocks appropriate and
Speaker 2: in a portfolio of gloom yeah.
Speaker 9: Absolutely, so I by the way, I'm not a doom
Speaker 9: in gloomer.
Speaker 10: I'm a boom boom kaboomer. So you got to embrace
Speaker 10: the boom A boom boom kaboomer. You embrace the boom,
Speaker 10: you acknowledge the possibility of the kaboom.
Speaker 9: I want to create a kaboomometer boometer.
Speaker 10: But look, half of the equity's portfolio needs to be
Speaker 10: in conventional stuff, and so the things that have done
Speaker 10: so well, if you're positioned in that, plus your position
Speaker 10: in it hedges on the other side too, you've still
Speaker 10: got your sixty percent equity allocation just half of its
Speaker 10: hedge in case.
Speaker 9: Things move down. But absolutely you need companies like Apple.
Speaker 6: How about alternatives?
Speaker 5: Where does where do alternatives fit into an investor's SPORTFOLI
Speaker 5: is so one.
Speaker 10: Of the criteria in the book that I lay out
Speaker 10: is what I said before. It needs to be a
Speaker 10: reliable provider of growth or inflation. So think about one alternative,
Speaker 10: which is managed futures. Managed futures is essentially just a
Speaker 10: zero less than zero sum game with a group potentially
Speaker 10: really good manager. So I would say that would not qualify.
Speaker 10: So if you look under the hood and see what's
Speaker 10: the engine of growth. If it could be something like
Speaker 10: stocks or some other source of reliable growth, then you
Speaker 10: go there, Phil.
Speaker 2: Thank you so much. Congratulations Phil, Tas there a lot
Speaker 2: of work Tas asset management, the behavioral portfolio. I'll put
Speaker 2: it out on Twitter and LinkedIn a very nice concise
Speaker 2: read on something that I've talked about enough, which is
Speaker 2: what if.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple, Cocklay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also watch
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Speaker 1: Bloomberg terminal.
Speaker 2: The newspapers this morning just too much. What can we
Speaker 2: say here? It goes on and on. What's going to
Speaker 2: be a twenty five minute block, but we'll do it
Speaker 2: right now, too quick. Lisa Manteo, what do you have?
Speaker 11: We have the condensed version for you. Okay, We've been
Speaker 11: talking about retailers right bulking up their inventory so to
Speaker 11: get ahead of President Trump's tariffs. So imagine companies like
Speaker 11: Mike Beloved, Costco, Yes, Williams Sonoma. They are stockpiling goods.
Speaker 11: But here's the difference to Wall Street Journal talk to
Speaker 11: a couple experts, and they're saying, you know what, this
Speaker 11: is risky because consumer spending has slowed, and now your
Speaker 11: risk getting stuck with a ton of goods that are
Speaker 11: just stocking up in an inventory. The ports in Los Angeles,
Speaker 11: Long Beach, California. They're starting to see the influx already
Speaker 11: from this. But the thing is, it's not just the tariffs.
Speaker 11: They were all ready stocking up on the merchandise because
Speaker 11: you had them, you know, worrying about the strike at
Speaker 11: the at the port. Yes, and they were also worried about,
Speaker 11: you know, trying to get ahead of the lunar New
Speaker 11: Year before the factories closed across aged for like two weeks.
Speaker 11: So it's this continuing like stockpile of things.
Speaker 2: See uncertainty to April second. I mean that's all those
Speaker 2: Curt correct Sophie, who was stuck.
Speaker 6: So that inventory risk.
Speaker 11: Okay, So they're saying, you know what, it's not the
Speaker 11: best idea. You know, they're taking a risk when they're
Speaker 11: doing this, But I couldn't imagine stockpiling Costco goods. That's
Speaker 11: a lot of stockpile.
Speaker 2: The eggs. Is the egg thing solved?
Speaker 11: Yeah, the prices are starting to go down, so that
Speaker 11: is the good news.
Speaker 2: So, yeah, I paid twelve dollars. Everything was gone, Yeah,
Speaker 2: sold except for the twelve dollar eggs.
Speaker 11: I'll give you the update. I'm heading to Costco.
Speaker 5: In the US D a large eggs prices paid to
Speaker 5: producers Midwest. So we've had a big, big pullback.
Speaker 2: Here do you do this at home?
Speaker 6: I've got it here.
Speaker 2: You look the.
Speaker 5: It's down fifty five percent, just in like in the
Speaker 5: last month.
Speaker 6: So we're down.
Speaker 2: You have a can of Budweiser in your head and
Speaker 2: you're on the deck watching the tournamental on the deck.
Speaker 2: It's waterproof.
Speaker 1: Next.
Speaker 11: Okay, I'm not sure what everyone at home with their
Speaker 11: high schoolers are doing for spring break. My daughter is
Speaker 11: playing softball. That's got she's spending her spring break. But
Speaker 11: last week, hundreds of wealthy New York City high schoolers,
Speaker 11: a dozen private elite schools, they had their annual retreat.
Speaker 11: And their annual retreat is Paradise Island in the Bahamas. Yes,
Speaker 11: you know, the luxury Atlantis resort. Yes, I've been there once.
Speaker 4: It's amazing.
Speaker 11: Gambling drinking age is eighteen also good. But they dined
Speaker 11: it like they have no Boo restaurant, thirty four dollars,
Speaker 11: shashimi sixty five dollars lobster salad. They get these networking
Speaker 11: opportunities right, and the parents are dishing out nearly three
Speaker 11: thousand dollars for five days networking opportunity. Because of the
Speaker 11: alumni who went to the school, they get to intermingle
Speaker 11: with them.
Speaker 2: This came up at the dining room tables.
Speaker 11: I did not know this existed because.
Speaker 2: We're not doing this. We had to get our hair rainbow.
Speaker 2: You don't get your hair diet anymore. You get it
Speaker 2: rainbow rainbow.
Speaker 11: Do you do the nose ring too?
Speaker 2: I wasn't allowed to see what it costs next. It's
Speaker 2: a lot.
Speaker 11: It's a lot. Yeah, so okay, so we'll stick with luxury.
Speaker 11: Here we go to more airlines. We talked about Air
Speaker 11: France last week, like beefing up their new first class
Speaker 11: we let premiere. So now we have British airlines joining
Speaker 11: in the financial time say they're trying to regain like
Speaker 11: the status, so they want to put in more than
Speaker 11: seven billion dollars they're investing in this program. So they
Speaker 11: have this commitment to luxury. Now first class passengers, they
Speaker 11: have this suite that they can go to more than
Speaker 11: six foot long bed. They enjoying the six foot long bed.
Speaker 11: You can certainly fit in that stretch out. Enjoy the
Speaker 11: trip from New York to London.
Speaker 5: How does that sound?
Speaker 2: It's a short trip though.
Speaker 7: The thing they don't.
Speaker 6: Get you get the way behind you.
Speaker 2: I can get, you know, your roll in the Singapore
Speaker 2: or whatever. It's like five hours if the winds right,
Speaker 2: It's like yeah, it's like it feels like, I mean,
Speaker 2: do you want to spend that kind of money? I
Speaker 2: read the premiere to Paris. I'm sorry, it's ten eleven
Speaker 2: twelve grand round trip. That's a lot of that. You
Speaker 2: get a next hour to Paris.
Speaker 6: Okay, it's not like going.
Speaker 2: You know, it's not like going to New York to
Speaker 2: you knows.
Speaker 5: I can get the doubling faster exactly.
Speaker 2: Like your lingus is like you and over there, you're there.
Speaker 6: You love me?
Speaker 2: Okay, Lisa Mateo, thank you so much on the newspapers.
Speaker 2: We'll see you in the Bahamas.
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