WEBVTT - Surveillance: Debt Limit with Crebo-Rediker 0:00:05.080 --> 0:00:08.280 This is the Bloomberg Surveillance Podcast. I'm Lisa A. 0:00:08.320 --> 0:00:11.640 Bramwods along with Tom Keen and Jonathan Ferrell join us 0:00:11.680 --> 0:00:15.280 each day for insight from the best in economics, geopolitics, 0:00:15.320 --> 0:00:16.440 finance and investment. 0:00:16.760 --> 0:00:18.760 Subscribe to Bloomberg Surveillance. 0:00:18.360 --> 0:00:21.840 On demand on Apple, Spotify and anywhere you get your podcasts, 0:00:22.160 --> 0:00:25.160 and always on Bloomberg dot Com, the Bloomberg Terminal, and 0:00:25.200 --> 0:00:26.400 the Bloomberg Business App. 0:00:26.560 --> 0:00:30.159 Joining us is Heidi Kreeve Iredica, senior fellow at the 0:00:30.240 --> 0:00:33.320 Council and Form Relations. Heidi, is there some secret little 0:00:33.320 --> 0:00:35.120 plan and do you have it with us this morning? 0:00:36.159 --> 0:00:37.960 Yeah? I come bearing the secret plan. 0:00:38.920 --> 0:00:42.400 No, I think I think you're consistent with with what 0:00:42.560 --> 0:00:46.240 many of your speakers have been have been talking about. 0:00:46.880 --> 0:00:49.519 This meeting today is really, you know, the best the 0:00:49.520 --> 0:00:52.800 best outcome is that they continue to talk and negotiate 0:00:52.840 --> 0:00:55.920 and open some you know a little bit of daylight, 0:00:56.600 --> 0:01:00.480 uh in the the ability to you know, to carry 0:01:00.520 --> 0:01:05.319 on where this goes. There is no secret plan, and 0:01:05.360 --> 0:01:07.800 I think the most important thing that markets need to 0:01:07.880 --> 0:01:11.560 understand is that this is that we're in We're in 0:01:11.680 --> 0:01:14.920 unchartered territory right now because we you know, when we've 0:01:14.959 --> 0:01:19.520 had these these standoffs in the past, we haven't had 0:01:19.720 --> 0:01:24.800 such a polarized Congress and polarized politics. We haven't had 0:01:25.319 --> 0:01:28.800 such a narrow, narrow majority in the House, and we 0:01:28.840 --> 0:01:31.480 haven't had a speaker who's made it a deal that 0:01:31.520 --> 0:01:35.520 we don't We don't really know, you know, how much negotiating. 0:01:34.959 --> 0:01:35.680 Power he has. 0:01:35.720 --> 0:01:38.440 But he did just pass He did just pass a 0:01:39.959 --> 0:01:44.000 you know, a bill, and it gives him leverage. So 0:01:44.480 --> 0:01:48.600 there is no secret plan. I expect after this meeting today, 0:01:49.200 --> 0:01:52.400 everyone's going to take to the to to raw politics, 0:01:52.520 --> 0:01:56.960 going out to constituencies, whether it's business constituencies, whether it 0:01:57.160 --> 0:02:03.560 is going after brad you know, fragile red states where 0:02:03.720 --> 0:02:09.320 you have veterans, fentanyl, social security checks. 0:02:09.960 --> 0:02:12.320 You're going to have a full blast. 0:02:12.080 --> 0:02:17.320 On media about what's at risk here. And I don't 0:02:17.360 --> 0:02:20.720 think that the Republicans are necessarily going to budge. I 0:02:20.760 --> 0:02:22.560 don't think McCarthy has a lot of room to budge. 0:02:22.560 --> 0:02:23.680 So there is no secret plan. 0:02:24.360 --> 0:02:27.280 So when you said markets need to understand there is 0:02:27.320 --> 0:02:30.359 a question about whether markets are being held hostage by 0:02:30.360 --> 0:02:33.960 this negotiation, that basically, as we heard from dalliep saying yesterday, 0:02:34.000 --> 0:02:37.320 if Peacham fixed income. Essentially, politicians are waiting for markets 0:02:37.320 --> 0:02:39.080 to freak out, for the S and P to tank 0:02:39.280 --> 0:02:41.519 before they go to their constituents and say we had 0:02:41.560 --> 0:02:44.720 no choice. Is that really what's going to basically have 0:02:44.800 --> 0:02:46.120 to happen before there's a deal. 0:02:47.160 --> 0:02:49.799 So I think I would agree with Deleepe that there 0:02:50.040 --> 0:02:51.480 there needs to be market pressure. 0:02:51.520 --> 0:02:54.160 There needs to be something, and we already have. 0:02:54.320 --> 0:02:57.679 I mean, it's unfortunate that that's what we're looking to 0:02:58.200 --> 0:03:04.960 pressure Paula Tians. But without that market, that market signal, 0:03:05.520 --> 0:03:10.279 it makes it hard for McCarthy to go to the 0:03:10.320 --> 0:03:14.720 holdouts who are holding him hostage and say it is 0:03:14.840 --> 0:03:18.800 time to do a temporary left of the of the 0:03:18.840 --> 0:03:21.600 debt ceiling to get us through and get us a 0:03:21.639 --> 0:03:24.959 little bit of space to negotiate between so that nobody 0:03:25.000 --> 0:03:26.600 loses space at the end of this. 0:03:26.600 --> 0:03:30.160 This is incredibly difficult because if the politicians are waiting 0:03:30.400 --> 0:03:33.800 for markets to respond, markets are thinking we've been through 0:03:33.800 --> 0:03:35.880 this before and we're just going to lose our shirts. 0:03:35.920 --> 0:03:37.480 We're going to lose money and be on the wrong 0:03:37.560 --> 0:03:40.080 end of this if we play into this game of chicken. 0:03:40.120 --> 0:03:43.360 As John put it earlier, that Washington is playing with markets, 0:03:43.400 --> 0:03:46.880 So at what point is it's just becoming circular before 0:03:46.920 --> 0:03:49.000 markets don't respond and then there is no deal. It 0:03:49.040 --> 0:03:51.320 actually makes it more likely that we get some sort 0:03:51.320 --> 0:03:54.080 of default. So the. 0:03:55.880 --> 0:03:59.480 Fact that we're talking in Washington about needing markets and 0:03:59.560 --> 0:04:04.360 markets art and wall streets looking at Washington saying you 0:04:04.400 --> 0:04:08.440 guys got to do your job, it just it shows 0:04:08.480 --> 0:04:12.360 you what a gap there is between between between DC 0:04:12.480 --> 0:04:15.840 and New York and it's it means that we have, 0:04:17.000 --> 0:04:19.400 you know, it means that the system is obviously broken. 0:04:19.560 --> 0:04:23.240 It also means that we're putting out this picture on 0:04:23.279 --> 0:04:26.159 the world stage of the United States as as being 0:04:26.320 --> 0:04:31.440 hugely dysfunctional and not not a leader and steward of 0:04:31.480 --> 0:04:37.880 global markets and and the global economy. The the the 0:04:37.880 --> 0:04:41.960 pressure needs to come, and whether it comes from outreach 0:04:42.040 --> 0:04:47.320 to constituents and particularly in fragile states, or from or 0:04:47.360 --> 0:04:50.520 from markets, there needs to have We need to have 0:04:50.520 --> 0:04:54.520 the pressure that gets us to a relief period so 0:04:54.560 --> 0:04:58.720 you can align budget negotiations and debt ceiling negotiations so 0:04:58.720 --> 0:05:01.359 that everyone can walk away with some face saving at 0:05:01.400 --> 0:05:04.640 the end of this. And we hope we get there. 0:05:04.880 --> 0:05:07.400 It's more likely to be in the fall than than 0:05:07.480 --> 0:05:09.600 over the summer. But in the meantime you're going to 0:05:09.680 --> 0:05:11.920 have a lot of a lot of politics playing out, 0:05:12.000 --> 0:05:16.240 and that is that is bad for well, it will 0:05:16.279 --> 0:05:21.600 give you a lot to talk about, which this story 0:05:21.680 --> 0:05:24.239 is not going to end just you know today after 0:05:24.279 --> 0:05:25.120 this meeting, Hi. 0:05:25.120 --> 0:05:28.320 Do you alluded to something really important, Whether this compromise 0:05:28.400 --> 0:05:30.680 is the United States on the international stage going into 0:05:30.680 --> 0:05:32.320 the G seven Do you thymna's the case? 0:05:33.279 --> 0:05:36.360 I think it. I think we have we lose credibility. 0:05:37.120 --> 0:05:37.560 We go in. 0:05:37.720 --> 0:05:41.960 We go in with with a desire to project power, 0:05:43.040 --> 0:05:46.360 to project the strength of the dollar as the as 0:05:46.400 --> 0:05:49.120 the central reserve currency of the world that we use 0:05:49.320 --> 0:05:54.839 underpins our sanctions, our economics, state craft. We have the deepest, 0:05:54.880 --> 0:05:56.960 most liquid capital markets in the world. 0:05:57.279 --> 0:05:59.000 We have you know, I don't think we. 0:05:58.960 --> 0:06:01.320 Actually even have a threat to the dollar that is 0:06:01.360 --> 0:06:05.200 out there right now except from our own doing our 0:06:05.320 --> 0:06:07.720 our own you know, it's an own goal from from 0:06:07.960 --> 0:06:11.320 from you know, from from all from every way you 0:06:11.360 --> 0:06:11.920 look at it. 0:06:12.040 --> 0:06:14.160 So Janet Yellen is coming, uh? 0:06:14.760 --> 0:06:15.120 Is uh? 0:06:15.440 --> 0:06:19.640 Your her G seven meeting? Is? 0:06:19.839 --> 0:06:19.960 Uh? 0:06:20.560 --> 0:06:21.320 Is cut short? 0:06:21.480 --> 0:06:23.440 We have Biden heading out to a G seven and 0:06:23.520 --> 0:06:26.880 quad meeting at the leader's level later this month. This 0:06:26.920 --> 0:06:30.160 will this will all be background music to a president 0:06:30.200 --> 0:06:34.760 that wants to go out and talk about leadership, stewardship, responsibility, 0:06:35.360 --> 0:06:38.960 and at home, we're going to have this political morass 0:06:39.200 --> 0:06:40.960 of debt ceiling negotiations. 0:06:41.040 --> 0:06:43.000 For a long, long time, the US had the luxury 0:06:43.640 --> 0:06:46.960 of doing questionable things. How do you think that luxury 0:06:47.200 --> 0:06:48.000 is no longer there? 0:06:49.600 --> 0:06:52.360 So I think that this. You know, our friends are 0:06:52.360 --> 0:06:55.200 watching us very closely. We're heading into a polliction of 0:06:56.120 --> 0:06:59.640 a presidential election cycle, so we're you know, our friends 0:06:59.680 --> 0:07:03.159 are wanted watching us closely, but we're literally playing into 0:07:03.400 --> 0:07:07.760 the hands of our foes, those who would be we're 0:07:07.800 --> 0:07:12.120 you know, we're handing the talking points to two adversaries 0:07:12.200 --> 0:07:16.480 right now about the US is losing its ability to 0:07:16.600 --> 0:07:20.200 lead the global global economy, you know, to lead the 0:07:20.240 --> 0:07:24.880 global global alliances. And it's just the timing is very bad. 0:07:25.720 --> 0:07:27.560 It's at a time when we are really trying to 0:07:27.560 --> 0:07:30.520 reassert that leadership and we're not showing it at home. 0:07:30.760 --> 0:07:33.720 Hidi, appreciate your time. Let's catch up soon. Wonderful input 0:07:33.760 --> 0:07:36.960 and insight as always from Heidi Kreboretica of the Council 0:07:37.200 --> 0:07:43.520 on Foreign Relations please to side that joining us NAS. 0:07:43.600 --> 0:07:46.680 Robert Tip, chief investment strategist, had a global bonds at 0:07:46.720 --> 0:07:50.000 PGIM Fixed Income. Robert, we talked about the eleventh hour. 0:07:50.360 --> 0:07:52.360 Someone corrected us very quickly and said, it won't be 0:07:52.360 --> 0:07:54.560 the eleventh hour. It will be the eleventh hour, the 0:07:54.600 --> 0:07:57.840 fifty ninth minute, and the fifty ninth second, And Robert Tip, 0:07:57.880 --> 0:08:00.000 maybe that's the case when we get to the eleventh 0:08:00.640 --> 0:08:03.640 the fifty ninth minute, and the fifty ninth second, if 0:08:03.640 --> 0:08:06.880 it gets messy, Robert, are we buying go selling treasuries. 0:08:07.960 --> 0:08:08.080 Right? 0:08:08.120 --> 0:08:09.080 Well, in the short term, I. 0:08:09.080 --> 0:08:12.200 Think you're buying treasuries right. It'd be a risk off event, 0:08:13.160 --> 0:08:16.880 and there may be variations in how the curve deals 0:08:16.920 --> 0:08:19.360 with it. It could be bad for the back end 0:08:19.360 --> 0:08:22.400 of the curve, the long end could underperform. But in 0:08:22.440 --> 0:08:25.760 a flight to quality, treasuries usually do well. We saw 0:08:25.800 --> 0:08:28.080 that in the SVB crisis, and we've seen it in 0:08:28.200 --> 0:08:32.480 past debt crises in the US before, and I think 0:08:32.480 --> 0:08:34.720 that would be the case this time as well. I 0:08:34.720 --> 0:08:37.000 think it's worth keeping in mind of that twelve to 0:08:37.080 --> 0:08:40.040 twenty four months down the road, unless we happen to 0:08:40.040 --> 0:08:42.880 be right out another debt ceiling debate. You know, I 0:08:42.880 --> 0:08:45.320 don't think this is going to matter. I think it 0:08:45.400 --> 0:08:48.880 is extremely important in the short term how it gets resolved, 0:08:48.880 --> 0:08:52.439 and it may be of epic proportions if you've got 0:08:52.480 --> 0:08:58.720 certain kinds of outcomes, some that are are widely envisioned 0:08:58.760 --> 0:09:01.600 and some may be less. But twelve to twenty four 0:09:01.600 --> 0:09:04.320 months from now, I think the basics the risk here, 0:09:05.000 --> 0:09:08.640 alluding to your curve, which is expecting rate cuts, is 0:09:08.640 --> 0:09:10.880 that we may have evolved into a different kind of 0:09:10.960 --> 0:09:14.680 secular environment where the growth is not so much so 0:09:14.960 --> 0:09:19.839 debt driven, and that as a result, growth continues here 0:09:20.880 --> 0:09:23.360 and we end up seeing the FED holding or doing 0:09:23.440 --> 0:09:27.440 war hikes and getting some upward adjustment in the belly 0:09:27.440 --> 0:09:28.160 of the yield curve. 0:09:28.640 --> 0:09:31.520 Interesting. So, Robert, two time horizons there and two things 0:09:31.559 --> 0:09:34.080 to unpack. Let's deal with them separately. Let's deal with 0:09:34.080 --> 0:09:36.880 the first one the short term. Do you and the 0:09:36.960 --> 0:09:40.439 team think this gets solved anytime soon the debt ceiling 0:09:40.520 --> 0:09:43.800 gets addressed, and what informs that view? What do you 0:09:43.840 --> 0:09:46.040 look to, Robert to get that idea? 0:09:47.320 --> 0:09:47.760 Sure? 0:09:47.960 --> 0:09:51.280 Well, I think the easy part is that nobody it's 0:09:51.679 --> 0:09:54.840 nobody's interest to cave early. Everybody wants to show that 0:09:54.880 --> 0:09:58.880 they negotiated up until very last minute, and the system, 0:09:58.920 --> 0:10:02.680 in a way is in place. You know, the United States, 0:10:02.520 --> 0:10:05.480 this freak of nature, with this messy system that's been 0:10:05.600 --> 0:10:09.040 you know, ultimately very successful, is designed to prevent any 0:10:09.040 --> 0:10:12.800 one idea, any one party, any one group from getting 0:10:12.800 --> 0:10:17.840 too much power. So it's very hard to move anything 0:10:17.880 --> 0:10:20.520 forward or stop anything. This is going to go right 0:10:20.520 --> 0:10:23.199 down to the last minute. I think what'll be interesting 0:10:23.440 --> 0:10:28.640 in a way though, is if Joe Biden goes for 0:10:29.040 --> 0:10:31.400 a power play of sorts, since it being kind of 0:10:31.920 --> 0:10:36.520 a sleeper in the sense of continues to say, you know, 0:10:36.600 --> 0:10:40.679 this is the best budget that you could pass, and 0:10:40.800 --> 0:10:42.840 all of the spending, all the taxes, these are the 0:10:42.840 --> 0:10:45.760 best policies that you could come up with. You need 0:10:45.800 --> 0:10:49.040 to have the borrowing capacity. And if they do not 0:10:49.320 --> 0:10:52.480 give him a clean increase in the net ceiling, that 0:10:52.559 --> 0:10:55.840 he invokes the fourteenth Amendment, goes ahead and makes the payment, 0:10:56.520 --> 0:10:59.840 and the worst case scenario would be that then you know, 0:10:59.880 --> 0:11:04.360 the government is sued effectively. I'm not a legal expert, 0:11:04.960 --> 0:11:08.319 and either it's upheld or it's shot down. If it's 0:11:08.320 --> 0:11:10.800 shot down, well then every time you come up against 0:11:10.800 --> 0:11:13.520 the debt ceiling. You have to get it raised. But 0:11:13.640 --> 0:11:16.760 on the other hand, if it's upheld and prioritization of 0:11:16.840 --> 0:11:20.920 principle and interest payments is allowed, then this thing has 0:11:20.960 --> 0:11:24.400 gone forever. In a way, that's a loss in that 0:11:24.880 --> 0:11:30.000 it allows profligate increases in det GDP to continue ad nauseum, 0:11:30.720 --> 0:11:33.599 But in terms of traders and anxiety, it would be 0:11:33.640 --> 0:11:34.079 a big win. 0:11:34.480 --> 0:11:36.160 Well, this is something that Jenny Allen is called the 0:11:36.200 --> 0:11:39.360 constitutional crisis should it be invokes, So it's not necessarily 0:11:39.400 --> 0:11:43.040 what they want to have happen at a time when 0:11:43.200 --> 0:11:45.280 they do not want the legal challenges and they want 0:11:45.320 --> 0:11:48.920 some sort of consensus. Let's put that aside for one minute, Robert, 0:11:48.960 --> 0:11:51.760 and get your sense of how this is going to work. 0:11:51.920 --> 0:11:54.040 If the market just sits on its hands, are you 0:11:54.160 --> 0:11:56.599 concerned that a lack of reaction as everyone waits for 0:11:56.640 --> 0:11:59.000 the eleventh hour, fifty ninth minute and fifty nine second 0:11:59.320 --> 0:12:01.360 to make any kind of moves will mean that this 0:12:01.440 --> 0:12:03.199 actually will not get done in time. 0:12:06.679 --> 0:12:09.640 I think that you are going to see an increase 0:12:09.679 --> 0:12:14.760 in anxiety as the balances run low, and you know, 0:12:15.040 --> 0:12:18.600 if there's an accidental default, you will see a dropping 0:12:18.640 --> 0:12:21.640 stock prices, a dropping yields into widening your credit spreads. 0:12:23.040 --> 0:12:27.000 But I think that the economy is pretty resilient to 0:12:27.040 --> 0:12:29.720 those kinds of shocks. I mean, whether you're looking at 0:12:29.760 --> 0:12:32.720 October nineteen eighty seven and the stock market decline them, 0:12:33.520 --> 0:12:36.280 whether you're looking at the volatility surge in twenty eighteen, 0:12:37.240 --> 0:12:40.920 the economy is not derailed by those incidents of volatility. 0:12:41.360 --> 0:12:44.560 And most like the current cycles, the increase in interest rates, 0:12:44.559 --> 0:12:47.240 saying in nineteen ninety four quick fed rate hike cycle, 0:12:47.520 --> 0:12:51.520 a lot of volatility in the markets. Economy powers through that. 0:12:51.840 --> 0:12:55.000 So again I think twelve to twenty four months from now, 0:12:55.040 --> 0:12:57.160 there is not going to be a major economic event. 0:12:57.559 --> 0:12:59.839 It could, though in the short term, be very drawing 0:12:59.840 --> 0:13:00.640 for the markets. 0:13:00.960 --> 0:13:02.400 Well how do you play that? I mean, is it 0:13:02.440 --> 0:13:04.280 frustrating for you? Do you feel like you're being used 0:13:04.280 --> 0:13:07.200 as a pawn as a market participant in Washington's games? 0:13:07.280 --> 0:13:09.520 Or is this a good trading opportunity or perhaps you 0:13:09.559 --> 0:13:11.080 can get ahead and have an edge. 0:13:12.240 --> 0:13:14.000 Yeah, I think there's a little bit of each. I 0:13:14.040 --> 0:13:19.640 think that in the CBS markets, you know, the in 0:13:19.760 --> 0:13:22.360 terms of the term structure there, I mean, people are 0:13:22.400 --> 0:13:24.960 paying real money to protect against the default in the 0:13:25.000 --> 0:13:28.920 short term, and you know, there could be a trade 0:13:28.960 --> 0:13:33.760 to do there. But I think as an investor, everybody 0:13:33.840 --> 0:13:36.480 has their edge, and I would think, you know, for 0:13:36.600 --> 0:13:40.680 some for investors, their edge may be in as fascinating. 0:13:40.720 --> 0:13:43.439 What's the twelfth to twenty four month environment. How are 0:13:43.480 --> 0:13:48.480 fundamentals dramatically differently priced from where they should be? And 0:13:48.520 --> 0:13:51.000 I think right now is one of those environments where 0:13:52.000 --> 0:13:55.120 the market is heavily biased towards pricing and a recession 0:13:56.320 --> 0:14:00.480 and having a more optimistic view is going to be 0:14:00.800 --> 0:14:04.640 the best approach. Tactical trades on the debt ceiling. I 0:14:04.640 --> 0:14:06.320 think you can do on the margin, but should not 0:14:06.360 --> 0:14:07.360 be a major aspect. 0:14:07.559 --> 0:14:11.960 Did you buy some Apple debt yesterday, Robert, Yeah, I'm. 0:14:11.800 --> 0:14:15.360 Not going to comment on the trades. 0:14:15.480 --> 0:14:18.600 Yeah, but you can build a little bit, Robert, if 0:14:18.600 --> 0:14:20.000 you can, I think, yeah. 0:14:20.000 --> 0:14:25.280 I think the market here, you know, is supportive. Here 0:14:25.560 --> 0:14:28.800 sees yields as having traversed the range of the last 0:14:28.840 --> 0:14:32.000 ten twenty years, and yields are attractive. And I think 0:14:32.040 --> 0:14:34.240 some of the inversion of the curve, the demand for 0:14:34.320 --> 0:14:37.640 corporate bonds, the fact that spreads are supported in the 0:14:37.640 --> 0:14:39.160 face of what people think is going to be a 0:14:39.160 --> 0:14:43.520 recession is indicative of the fact that people need yield 0:14:44.440 --> 0:14:48.360 and if the market is well supported and that you're 0:14:48.480 --> 0:14:50.840 likely to see spreads. The range that we've seen over 0:14:50.840 --> 0:14:52.880 the last year is going to hold. 0:14:53.240 --> 0:14:55.440 Robert Tip the page and diplomatic at the end there. 0:14:55.480 --> 0:14:58.600 Thank you, sir, Robert Tip on a credit market constructive. 0:15:08.840 --> 0:15:11.600 Lisa Chalett joins US now chief investment officer at Margan 0:15:11.640 --> 0:15:14.800 Stanley Worth Management. Lisa, thanks for ving with us. I 0:15:14.840 --> 0:15:17.560 won't ask you to translate, Lisa, We'll ask you this though, 0:15:18.000 --> 0:15:20.000 just how frustrating is this market, Lisa, when you look 0:15:20.000 --> 0:15:22.520 at things like all the right cuts that are being priced, 0:15:23.000 --> 0:15:24.960 yet at the same time there is this feeling that 0:15:25.000 --> 0:15:27.680 we will continue to live with durable growth. 0:15:29.200 --> 0:15:29.560 Yeah. 0:15:29.600 --> 0:15:32.720 So, look, I think there are a lot of conundrums 0:15:32.720 --> 0:15:36.040 in this current market, and I think that probably the 0:15:36.160 --> 0:15:39.960 single most frustrating thing is the benchmark. 0:15:40.000 --> 0:15:40.640 At this point. 0:15:40.720 --> 0:15:46.680 You know, most institutional investors, most retail investors define the 0:15:46.840 --> 0:15:51.080 market as the S and P five hundred index. That index, 0:15:51.240 --> 0:15:54.600 as we know, is up almost eight percent a year 0:15:54.640 --> 0:16:00.440 to date, up seventeen percent from last October's low, but 0:16:00.520 --> 0:16:03.320 certainly for the last you know, four or five months. 0:16:03.360 --> 0:16:06.560 A huge portion of that move, at least, you know, 0:16:06.600 --> 0:16:11.240 since January thirty first, has essentially come from seven stocks, 0:16:11.280 --> 0:16:16.800 the megacap tech stocks who led for most of the 0:16:17.160 --> 0:16:20.600 prior thirteen years, the you know what we you know, 0:16:21.200 --> 0:16:26.200 I think affectionately nicknamed the fangs or fangs M plus whatever. 0:16:27.880 --> 0:16:32.080 And I think what has been frustrating is that underneath 0:16:32.120 --> 0:16:36.400 the surface, a lot of the indicators that are flashing 0:16:36.480 --> 0:16:42.400 recession have crushed the cyclicals. We've seen the devastation of 0:16:42.760 --> 0:16:46.440 the regional banking system as the FED has raised rates 0:16:46.480 --> 0:16:49.640 and as the implications of tightening have. 0:16:49.720 --> 0:16:51.080 Begun to show. 0:16:51.120 --> 0:16:55.520 And yet there's that benchmark, you know, supported by that 0:16:55.720 --> 0:16:59.760 heavy concentration at the top, you know, chugging along. When 0:17:00.040 --> 0:17:03.200 low the surface there seems to be you know, some 0:17:03.280 --> 0:17:04.840 pain and suffering and damage. 0:17:05.160 --> 0:17:08.000 Small caps in particular have been crushed. 0:17:08.280 --> 0:17:10.520 So, Lisa, the question we've got to ask then is 0:17:10.560 --> 0:17:13.360 can this persist? And if it come, what would bring 0:17:13.400 --> 0:17:14.919 down some of the big tech heavy weights that have 0:17:14.920 --> 0:17:15.919 supported this market. 0:17:17.080 --> 0:17:19.560 Yes, I think the reality is that in the short 0:17:19.640 --> 0:17:23.920 term it can persist, you know, certainly as long as 0:17:24.080 --> 0:17:27.480 we're you know, kind of in this stalemate, I think 0:17:27.520 --> 0:17:31.440 to your point between you know, some labor market resilience, 0:17:31.600 --> 0:17:34.680 the power of pricing power, and some of the nominal 0:17:34.720 --> 0:17:38.560 growth drivers that can support some of those names. 0:17:38.920 --> 0:17:40.720 Now, ultimately, you know, our. 0:17:40.640 --> 0:17:45.320 Thesis has been that, you know, there are no companies 0:17:45.359 --> 0:17:52.480 that ultimately are immune from recession or significant economic slowing, 0:17:52.520 --> 0:17:57.120 and we don't think that this time ultimately will be different, 0:17:58.080 --> 0:18:01.760 even though it has felt that way at moments. So 0:18:01.880 --> 0:18:05.479 our best gas continues to be that there are some 0:18:05.560 --> 0:18:08.680 earnings disappointments out there. I mean, one of the things 0:18:08.720 --> 0:18:13.400 that folks have to digest is that the way earnings 0:18:13.440 --> 0:18:17.760 are modeled, it looks like we're on a hockey stick 0:18:17.920 --> 0:18:22.320 towards recovery over the next couple of quarters, with you know, 0:18:22.520 --> 0:18:26.919 this first quarter that's being completed representing a trough in 0:18:26.960 --> 0:18:31.520 earnings growth, and then we kind of, you know, kind 0:18:31.520 --> 0:18:34.159 of get year over year earnings that are better and 0:18:34.200 --> 0:18:37.040 better every quarter until we get to twenty twenty four, 0:18:37.200 --> 0:18:40.639 where the market's looking for up thirteen percent earnings. 0:18:40.680 --> 0:18:44.119 Now, you know, we're still very close to. 0:18:44.560 --> 0:18:48.760 Peak economic growth and peak corporate profit margins. So that's 0:18:48.760 --> 0:18:52.160 going to be a feat to achieve those expectations. 0:18:52.400 --> 0:18:53.800 Lisa, what would it take for you to throw in 0:18:53.840 --> 0:18:56.199 the towel and basically just say this time is different. 0:18:57.119 --> 0:19:00.040 I think the fundamental issue for us is if we 0:19:00.080 --> 0:19:03.919 see a reacceleration in economic growth, if the consumer really 0:19:03.960 --> 0:19:10.120 does prove to be resilient, if the slowing that we 0:19:10.200 --> 0:19:15.720 expect to emanate really from the credit crunch does not materialize, 0:19:15.760 --> 0:19:18.560 if there's enough savings cushion, and we. 0:19:18.480 --> 0:19:20.560 Would probably see that in the next. 0:19:20.320 --> 0:19:24.959 Two quarters where these earnings that look like a hockey 0:19:24.960 --> 0:19:29.040 stick recovery are achieved. If those earnings are achieved, then 0:19:29.480 --> 0:19:32.000 quite frankly, our thesis is wrong. 0:19:32.720 --> 0:19:35.600 There's another aspect to this that some people keep bringing up, 0:19:35.640 --> 0:19:39.359 which is perhaps the largest companies are consolidating market share 0:19:39.400 --> 0:19:42.160 to such a degree and taking it away from smaller companies. 0:19:42.400 --> 0:19:46.000 So you could see small cabs basically blown up, absolutely 0:19:47.160 --> 0:19:50.159 decline dramatically, which is something that we have seen in 0:19:50.200 --> 0:19:53.360 certain pockets, even as the large cabs continue to chug 0:19:53.359 --> 0:19:56.719 along and chart really impressive growth. Do you expect that 0:19:56.800 --> 0:19:58.600 kind of environment, that that's going to be the new 0:19:58.640 --> 0:19:59.760 reality for a while. 0:20:02.040 --> 0:20:04.080 Look, I think it is possible. 0:20:04.240 --> 0:20:07.800 Anything is possible, and certainly there are a host of 0:20:07.840 --> 0:20:12.320 these companies that have very, very dominant positions. But I 0:20:12.359 --> 0:20:16.120 do think that we're at a political point of a 0:20:16.160 --> 0:20:21.800 political moment where, you know, the tolerance for you know, further, 0:20:22.400 --> 0:20:27.960 big company consolidation does start to be debated as an 0:20:27.960 --> 0:20:31.360 antitrust issue in a way that perhaps it hasn't been 0:20:32.400 --> 0:20:36.280 quite frankly for over forty years since since the Reagan administration. 0:20:36.480 --> 0:20:40.080 And look, some of you know, government in action is 0:20:40.119 --> 0:20:43.640 what's gotten us here, and so you know what may 0:20:43.920 --> 0:20:49.600 break the log jam? Maybe you know some attempts at reregulation. 0:20:50.000 --> 0:20:51.200 Have we done the debt saving yet? 0:20:51.200 --> 0:20:52.679 Bromo nod to do that? 0:20:52.720 --> 0:20:55.600 Now go for it, Lisa, stick around place, just for 0:20:55.880 --> 0:20:59.640 sixty seconds, least of the dead sailing. When clients ask 0:20:59.760 --> 0:21:02.480 you about this, what are even the team telling them 0:21:02.920 --> 0:21:03.520 at the moment. 0:21:05.160 --> 0:21:08.040 The fundamental thing that we're telling them is, Look, it's 0:21:08.119 --> 0:21:11.800 not a question of if, it's a question of when 0:21:12.119 --> 0:21:17.320 and how. The question of when. What's critically important from 0:21:17.359 --> 0:21:21.800 where we sit is what will Janet Yellen do after 0:21:22.440 --> 0:21:24.119 she gets approval. 0:21:25.119 --> 0:21:27.320 To extend borrowing? 0:21:27.760 --> 0:21:30.240 And what we mean by that is at what pace 0:21:30.440 --> 0:21:34.400 and what duration is she going to issue? Because if 0:21:34.440 --> 0:21:38.080 you're down to kind of a zero in the Treasury 0:21:38.119 --> 0:21:41.600 General Account. It is very possible that in the you know, 0:21:41.800 --> 0:21:45.480 last four months of the year, you know, she's going 0:21:45.560 --> 0:21:48.000 to be issuing to the tune of you know, six 0:21:48.160 --> 0:21:50.959 hundred and fifty to seven hundred and fifty billion dollars, 0:21:51.000 --> 0:21:54.879 which is a drain of liquidity at the same time 0:21:54.920 --> 0:21:57.920 that we may have some of these credit fronch issues 0:21:58.160 --> 0:22:02.840 where we're continuing to pursue quantitative tightening. So the first 0:22:02.880 --> 0:22:08.880 thing that we're telling clients is beware of the liquidity implications. 0:22:08.880 --> 0:22:12.920 On the other side, the second thing that we're talking 0:22:12.920 --> 0:22:17.440 about is the how it matters, uh, you know, to 0:22:17.760 --> 0:22:23.480 forward looking expectations of growth in terms of what is 0:22:23.600 --> 0:22:26.399 cut if if that's what it takes to get a 0:22:26.440 --> 0:22:29.680 deal done, commitments to cut fiscal spending. 0:22:30.080 --> 0:22:30.880 What's cut? 0:22:31.160 --> 0:22:35.080 Are there rollbacks of some of the Inflation Reduction Act 0:22:35.440 --> 0:22:42.199 Act spending related opportunities, some of the infrastructure spending that 0:22:42.359 --> 0:22:45.480 is kind of in motion, and those things have been 0:22:45.520 --> 0:22:48.400 a support to growth, uh, And if we need to, 0:22:48.480 --> 0:22:51.600 you know, take that out of the forward forecasts, that 0:22:51.800 --> 0:22:54.439 is going to dampen economic growth. 0:22:54.560 --> 0:22:59.000 Lisa, wonderful response. Thank you, Lisa, Shannader moment Stanley Wealth Management. 0:22:59.040 --> 0:23:00.000