Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: I'm Mike Reagan, a senior editor at Bloomberg and this
Speaker 1: week on the show. For several years, cryptocurrencies were considered
Speaker 1: fringe investments on Wall Street, but this week a massive
Speaker 1: intro day plunge in bitcoin had some serious ripple effects
Speaker 1: on the stock market. Is this type of contagion the
Speaker 1: new abnormal for markets? We'll get into it with a
Speaker 1: veteran market strategists, and we'll also get his take on
Speaker 1: what type of stocks look attractive these days in this
Speaker 1: strange new world of risk taking that we're in. But first,
Speaker 1: Charlie Pellett tell us who this week's mystery co host is.
Speaker 1: This week's mystery co host is Vill Donna Hi Rich.
Speaker 1: Vill Donna is a cross asset reporter for Bloomberg in
Speaker 1: New York, and she owns a rescue from Kuwait. Her
Speaker 1: hobbies include running marathons, watching videos about grammar on, looking
Speaker 1: for typos, hint stories that Mike Reagan has already edited.
Speaker 1: That's all true, Vildna, correct. You know to me? My
Speaker 1: favorite fun Vildona fact is the cat from Kuwait. I
Speaker 1: need to hear that story. How did you rescue a
Speaker 1: cat from Kuwait. Oh, it's a state secret. I can't
Speaker 1: tell you. She is a rescue from Kuwait. We actually
Speaker 1: worked with small organization and there's a woman who works
Speaker 1: for one of the bigger airlines and she does a
Speaker 1: lot of US to Mid East trips and she puts
Speaker 1: them on the plane basically and and brings them in.
Speaker 1: And that's how my sister got her cat. That's how
Speaker 1: I got my cat. So that's pretty good. Katie Greifeld
Speaker 1: had a cat delivered the plane in some mysterious circumstances. Cat.
Speaker 1: You cut. People are weird. I don't know. That's not
Speaker 1: how we get dogs. No one would. No one would
Speaker 1: allow my dog on a plane. I guess is part
Speaker 1: of the thing. But we love them so much, I guess, so,
Speaker 1: I guess. So that's it. But the Donna. I'm very
Speaker 1: excited for this week's guest. Um. As you know, I've
Speaker 1: been doing this job a few years. Our guest has
Speaker 1: been doing it for his job for a few years,
Speaker 1: and we've never actually met. So I thank you for
Speaker 1: putting us all together this week. I will warn you, though,
Speaker 1: the Donna, our guest is from Boston, and there's He's
Speaker 1: got a great reputation as a nice guy. But there's
Speaker 1: always a risk with people from Boston at this time
Speaker 1: of year, and that's all they really want to talk
Speaker 1: about is the Red Sox. So I think we'll allow that.
Speaker 1: I don't know if some of our New York based
Speaker 1: listeners will will care for that, but I'll allow a
Speaker 1: little Red Sox talk. I'm from Philly. I it doesn't
Speaker 1: bother me that much. But I need you if he
Speaker 1: starts talking about the Celtics, I need you to cut
Speaker 1: him off, no problem, alright, if you hear the names
Speaker 1: Kemba Walker or Jayson Tatum, just hit that mute button
Speaker 1: on him instantly, right, I'll let him talk about talk
Speaker 1: O Fall. I like that guy. That's my favorite. That's
Speaker 1: my favorite Celtic Taco. Fall is the only person I've
Speaker 1: ever seen dunk cat basketball without leaving his feet. So
Speaker 1: that's made him one of my favorite players of all time. Well,
Speaker 1: let's bring him into the show here. He is the
Speaker 1: chief market strategist at National Securities. His name is Art Hogan. Art.
Speaker 1: Welcome to the show. Thanks so much for having me.
Speaker 1: It's a really a pleasure, Art, And you know what
Speaker 1: I do want to get into that idea of the
Speaker 1: cryptocurrency contagion. But I was reading near bio Vildnosan over
Speaker 1: your bio, and one thing jumped out at me that
Speaker 1: I find really interesting, and that's you started off your
Speaker 1: career on the floor of the Boston Stock Market, um,
Speaker 1: Boston Stock Exchange rather. And I find that interesting because
Speaker 1: when I started up Bloomberg UM just years ago. Uh,
Speaker 1: it was right when the computerization of markets was was
Speaker 1: in full swing and all these regional exchanges were kind
Speaker 1: of getting swallowed up by by the bigger players. I
Speaker 1: think it was Nastac that that bought Boston. But I
Speaker 1: has been curious. I never quite wrapped my head around
Speaker 1: sort of what the distinction was between these regional exchanges.
Speaker 1: I mean, obviously different type of clam chowder served in
Speaker 1: Boston then uh New York Exchange. But I'm curious, like,
Speaker 1: what was the scene like at the Boston Stock Exchange
Speaker 1: on picturing Maybe is it the type of thing where
Speaker 1: New England companies would would perhaps have a little bit
Speaker 1: more liquidity on an exchange like that? What was what
Speaker 1: was the purpose of of these regional exchanges like Boston
Speaker 1: and kind of what was it like working there. Yeah,
Speaker 1: that's such a great question, and you're your concept of
Speaker 1: hto regional exchanges is a very popular misconception, right. So
Speaker 1: the regional exchanges were trading just about everything that was
Speaker 1: traded on the New York Stocker Change and at the
Speaker 1: time the American Stock Exchange, and what they really were
Speaker 1: was a national market system. So there was seven regional
Speaker 1: exchanges too on the West coast, one in Los Angeles,
Speaker 1: one in San Francisco, There's one in Chicago, the Midwest
Speaker 1: Stock Exchange, which was the largest, Philadelphia had its own exchange,
Speaker 1: and Boston had one of exchanges. So they were well
Speaker 1: over a hundred years old by the time I got there,
Speaker 1: and they were really competition for the New York Stock Exchange.
Speaker 1: So think about it like this, The New York Stock
Speaker 1: Exchange would do about eighty percent of the listed volume
Speaker 1: and the regionals would do That's interesting, And would it
Speaker 1: be the type of thing where you know, say a
Speaker 1: firm like Fidelity would would do more trading on Boston
Speaker 1: than would New York, you know, a Boston area firm.
Speaker 1: That was certainly the case, at least for me. I
Speaker 1: worked for Fidelity, so I was actually a Fidelity employee
Speaker 1: and a floor broker on the exchange. And just to
Speaker 1: give you a sense of the time that I was there,
Speaker 1: I was there for the October crash seven, where the
Speaker 1: market went down twenty two point six percent in a day.
Speaker 1: To put some context around that, that would be about
Speaker 1: seventy points for the DAW to go down on a
Speaker 1: given day like today. So it was a you know,
Speaker 1: so pretty crazy times, and electronic trading really was at
Speaker 1: its infancy, so we were actually writing tickets and ripping
Speaker 1: things up and then there was a mess on the
Speaker 1: floor and that October uh Monday of seven, we were
Speaker 1: up to our knees in paper because it was just
Speaker 1: the craziest day anybody had ever seen. Or let's let's
Speaker 1: get into that idea of crypto speaking of crazy things. Um,
Speaker 1: you know, first of all, my nuts to think that
Speaker 1: that plunging bitcoin did have some contagion in the stock market.
Speaker 1: I'm and I'm talking beyond sort of the the names
Speaker 1: that are exposed to to crypto, like Tesla and UH
Speaker 1: micro Strategy and those type of stocks. It felt to
Speaker 1: me like it dragged the whole market down. Is is
Speaker 1: that your sense to well, it's interesting that's there's a
Speaker 1: lot of people that are really coming across that concept
Speaker 1: and saying, hey, you know, we've we're seeing cryptocurrencies down
Speaker 1: some thirty in a single day in the markets down
Speaker 1: to there must be some correlation. So the obvious correlations
Speaker 1: are the things you just mentioned that things that are
Speaker 1: directly tied and correlated to cryptocurrencies. But I think in
Speaker 1: a real sense, I step back and say what's happened
Speaker 1: in the second quarter, and I would say that we've
Speaker 1: removed a lot of speculative excesses in different esset classes.
Speaker 1: So for example, spacts, which were all the rage in
Speaker 1: the first quarter, have really fallen upon hard times in
Speaker 1: the second quarter. Right, we had a record number of
Speaker 1: SPACs last year, and in the first quarter we beat
Speaker 1: that record, and all of a sudden, supply had really
Speaker 1: swamped demand. So a lot of those spacts that came
Speaker 1: out and came public have pulled back significantly. We saw
Speaker 1: the same thing in electronic vehicle related stocks. We've certainly
Speaker 1: seen that over the last three days in crypto So
Speaker 1: I think it's much more they risk off and remove
Speaker 1: some speculative excesses and less of a correlation where people
Speaker 1: are looking at this and saying if people are selling bitcoin,
Speaker 1: they must be selling the SMP five funder. Well, Art,
Speaker 1: can I actually ask you to sort of help define
Speaker 1: what is going on with with markets right now? Because
Speaker 1: when we think back to last year, it was really
Speaker 1: easy to see who was leading markets. It was tech
Speaker 1: up until November right when you had some of the
Speaker 1: vaccine announcements, and then even after that you sort of
Speaker 1: had some clear and delineated market leadership. And I feel
Speaker 1: like over the last couple of weeks the narrative has
Speaker 1: been really difficult to define, to say the least, besides
Speaker 1: everything else that's sort of going on on a day
Speaker 1: to day basis. But so, can you help us make
Speaker 1: sense of of how we even describe what is going
Speaker 1: on with markets? I think if we back that lends
Speaker 1: up a little bit and say what happened in that's
Speaker 1: not happening in twenty one is a pretty good way
Speaker 1: to give a snapshot of what we've seen this year
Speaker 1: so far. So was all about what it was that
Speaker 1: was helping us get through a pandemic, everything that helped
Speaker 1: us work from home, like the Zoom app that we're
Speaker 1: on right now, like the all the the information technology
Speaker 1: that made our lives easier and possible. The work from
Speaker 1: home crowd that that the pandemic darlings were the rage,
Speaker 1: and they were until about Labor Day, and around Labor
Speaker 1: Day and and and things really getting stretched. The relative
Speaker 1: strength index for the maastic and positive nastic one had
Speaker 1: gotten to significantly overbought, and we saw a significant rotation.
Speaker 1: We saw a pretty good draw down in the nastac
Speaker 1: the better part of nine after Labor Day, and a
Speaker 1: rotation into aconomically sensitive cycnicals which had largely been ignored.
Speaker 1: And that was really the beginning of that reopening trade.
Speaker 1: So people decided that we need to start selling those
Speaker 1: things that have been working and got into you know,
Speaker 1: excessive valuations towards the end of the year, and and
Speaker 1: that proceeded to continue that rotation all the way into
Speaker 1: the first quarter of this year. So we came into
Speaker 1: the first quarter of this year and that rotation was
Speaker 1: pretty strong. You saw pretty good ramp up and economically
Speaker 1: sensitive cycnicals, everything from industrials to financials and energy, which
Speaker 1: is the best performing sector in the SP five hundred
Speaker 1: right now. And and the money was coming from the
Speaker 1: selling of technology, for example, but a lot of the
Speaker 1: other pandemic darlings. So I think that that sort of
Speaker 1: set the table for both of those trades to get
Speaker 1: stretched in the first quarter. And what we've seen since
Speaker 1: the second quarter began is that back and forth rotation
Speaker 1: based on how far we oversold technology and how far
Speaker 1: we've over bought some of the cyclicals. I think the
Speaker 1: the the pandemic darlings got oversold and I think that
Speaker 1: some of the cycnicles have been over bought. So we
Speaker 1: keep going back and forth on a week by week
Speaker 1: basis where that rotation reverses itself, and I think that's
Speaker 1: where we're going to be for most of the summer,
Speaker 1: you know, just to get back a little bit to
Speaker 1: that relationship between crypto and the equity markets. To me,
Speaker 1: I've always thought of it as crypto as kind of
Speaker 1: um almost like a safety valve for this sort of
Speaker 1: over excessive risk taking and sort of exuberant sentiment out there,
Speaker 1: especially with all the liquidity we have UH in the
Speaker 1: markets right now, and and how that you know, it's
Speaker 1: a nice little safety valve for for the stock market.
Speaker 1: You know it perhaps you know, can can siphon off
Speaker 1: some of that froth that otherwise would have you know,
Speaker 1: been pumped directly into the stock market, you know, as
Speaker 1: the case was perhaps in the dot com era, where
Speaker 1: all the all the speculation, uh, and all that euphoria
Speaker 1: was focused you right on on the equities and and
Speaker 1: all the I p O s coming out. But I
Speaker 1: do wonder, you know, when we look at and not
Speaker 1: just bitcoin. I mean, obviously ethereum is is the hot
Speaker 1: topic these days. Uh, and bitcoin and ethereum also being
Speaker 1: you know, sort of the blue chips of the crypto
Speaker 1: world right now. But when you go get further down
Speaker 1: the ladder to say doge coin or or some of
Speaker 1: these ridiculous meme coins the names of which I can't
Speaker 1: even say on a on a family podcast like this,
Speaker 1: and you watch this this paper wealth be vaporized. Uh,
Speaker 1: it's the tune of hundreds of billions of dollars in
Speaker 1: a matter of hours. Ultimately, I I find that to
Speaker 1: be a risky, dangerous thing. But I'm curious how you
Speaker 1: sort of think of that interplay between you know, the
Speaker 1: animal spirits uh and the euphoria chasing to get rich
Speaker 1: quick type of trades and crypto. Um, it's not ultimately
Speaker 1: a healthy thing for the stock market. Or put that
Speaker 1: sort of ricocheted back and and and be a bad thing. Well,
Speaker 1: I think that's an interesting way to set that up, Mike,
Speaker 1: and I think that when you sort of harken back
Speaker 1: to we had hundreds of companies that put dot com
Speaker 1: at the end of their title went public, and you know,
Speaker 1: often times we're up a hundred percent on the first
Speaker 1: day of trading and low and beholds. As two thousand
Speaker 1: turned to two thousand and one, a lot of those
Speaker 1: companies disappeared. Now we have hundreds of cryptocurrencies that have
Speaker 1: exploded in value, And to your point, is that a
Speaker 1: safety valve of of speculative money finding a place other
Speaker 1: than the stock market? For sure? I think that's that's
Speaker 1: certainly the case. I think the way to think about
Speaker 1: crypto in general is the backbone of crypto obviously is blockchain,
Speaker 1: and blockchain is likely to be a more important um
Speaker 1: paradigm for us in the future, very much like the
Speaker 1: Internet is much more important to us than it was
Speaker 1: in We just don't know who the winners and losers
Speaker 1: are going to be, and I think it's going to
Speaker 1: play out in a similar fashion. So we're not gonna
Speaker 1: have hundreds of cryptocurrencies will likely have some winners. I
Speaker 1: think the basic foundation to that is the technology behind
Speaker 1: it that will help us transact business in a more
Speaker 1: efficient and a more efficient way. But in terms of investors,
Speaker 1: that just your garden variety investor. You have to know
Speaker 1: this is speculus, and I think that the volatility is
Speaker 1: a feature. It's not it's it's not a bug, it's
Speaker 1: a feature. And we've seen since they started Bitcoin it's
Speaker 1: had at least half a dozen draw downs um and
Speaker 1: we just went through another one. So to to think
Speaker 1: about this as a stabile asset classes is the wrong
Speaker 1: way to think about it. And if you're going to
Speaker 1: invest in this, you want to think about something small
Speaker 1: and money that you would only put in a specultive bucket,
Speaker 1: something like a zero to five. And so a lot
Speaker 1: of times when people are talking about cryptocurrencies and and
Speaker 1: some of the volatility that we see there, they'll tie
Speaker 1: it back to retail investors either rushing in or getting burned,
Speaker 1: depending on what's going on. But so, how would you
Speaker 1: how are you and your team thinking about the involvement
Speaker 1: of the retail investor. Obviously it's been a really big
Speaker 1: topic for the path year, but then you sort of
Speaker 1: see conflicting data points where you might see inflows, for instance,
Speaker 1: into some retail favorite e t f s, but at
Speaker 1: the same time you're seeing waning call option volumes. So
Speaker 1: how are you guys thinking about the involvement of the
Speaker 1: retail investor. Yeah, so the involvement of retail investor in
Speaker 1: crypto is something we sort of have to keep it
Speaker 1: at arm's length. We will partner with somebody that runs
Speaker 1: a fund, but then that fund is going to charge fees,
Speaker 1: so it's probably not the most efficient way to do this,
Speaker 1: you know, in terms of overall advice, we know, make
Speaker 1: sure people know that it's not for the faint of
Speaker 1: heart or what is an orphans and it should be
Speaker 1: treated as a speculative asset class. So I think in
Speaker 1: the future, you know, when an e t F is approved,
Speaker 1: there'll probably be a lot more retail involvement, but again
Speaker 1: it should be sized to what you would size any
Speaker 1: speculative investment towards. And I think that when we think
Speaker 1: about that, we get questions about it all the time,
Speaker 1: But I think that what is healthy into Mike's point
Speaker 1: is the kind of volatility that we've seen this week
Speaker 1: is a reminder to everybody that it's not gonna always
Speaker 1: just go up, and nothing's guaranteed here, and it's likely
Speaker 1: something you want to be pretty conscious about as you
Speaker 1: tiptoe into it as an investment. I tend to think
Speaker 1: of it as a lottery ticket money, you know, stuff,
Speaker 1: You're an amount You're not, uh gonna feel a lot
Speaker 1: of pain if if, if you lose on some some
Speaker 1: losing tickets. But I wanted to talk a little bit
Speaker 1: about this perennial debate between growth and value, UH and
Speaker 1: in this case the real cyclical parts of the market
Speaker 1: as the reopening of the economies gets stronger and stronger.
Speaker 1: I think you've got a pretty interesting approach. You're almost
Speaker 1: sort of, you know, the neutral Switzerland in this debate, UH,
Speaker 1: recommending a kind of a barbell approached where you have
Speaker 1: growth on one side of the barbell and more cyclical
Speaker 1: stock exposure on on the other side. Unpack that for
Speaker 1: us a little bit. Uh So, what kind of sectors,
Speaker 1: what kind of names are you looking at on both
Speaker 1: ends of that barbell. Yeah, so our approach really is
Speaker 1: barbell approach that has growth on one side and cyclicality
Speaker 1: on the other, and we want you to have that
Speaker 1: approach because we don't think it's going to be a
Speaker 1: binary investment climate ever, right, So we don't think it's
Speaker 1: only going to be growth and not value and and
Speaker 1: and when we think about value, we think about cyclicality,
Speaker 1: especially in a reopening economy. So if you have balance
Speaker 1: where you say, okay, what are the three themes I
Speaker 1: can really get my head wrapped around in growth and
Speaker 1: then we've thrown out cloud computing, cloud security, and five
Speaker 1: G is thematics that we like and and and express
Speaker 1: those opinions UM that manifest exposure to those themes. And
Speaker 1: then on the other side of that, look at what's
Speaker 1: gonna work in cyclicality. So we've we've selected materials, industrials
Speaker 1: and financials. A lot of our investors have swapped out
Speaker 1: materials for energy and and happily UM. But what you
Speaker 1: have to do, though, is really important, is every two
Speaker 1: months to keep that barbell balanced, you have to sell
Speaker 1: the winners and buy some of your losers. So in
Speaker 1: February was one of the first times in three rotations
Speaker 1: where we actually had to sell some over cyclicality and
Speaker 1: put more money into the growth and and and that
Speaker 1: level the bar backout so you have equal exposure of exposure.
Speaker 1: And if you had done that for all of you
Speaker 1: would have outperformed the SP five foundered by almost five
Speaker 1: funder basis points, but four three basis points. And we
Speaker 1: think the same thing is gonna be true this year.
Speaker 1: And I think that helps you navigate these rotational markets
Speaker 1: where we have where growth is back, people are buying
Speaker 1: the growth names again, or wait a minute, they're back
Speaker 1: to cyclicality where you know, jumping into the financials. The
Speaker 1: industrials are doing great, and that gives you some balance.
Speaker 1: And if you set that timer so you know that
Speaker 1: you have to rebalance on a two month basis, you
Speaker 1: don't have to make that emotional decision to say I
Speaker 1: really don't want to sell my winners and buy some
Speaker 1: of my losers, and forces your hand and keeps you
Speaker 1: in a diversified portfolio. And of course, the other perennial,
Speaker 1: the new perennial debate is inflation, of course, and I
Speaker 1: know in your recent notes you've written about some of
Speaker 1: your thoughts they're saying inflationary pressures will be more temporary.
Speaker 1: So I'm hoping you can sort of bring that into
Speaker 1: a conversation and how you're you're thinking about inflationary pressures
Speaker 1: and is it your view that even if we do
Speaker 1: see some inflation, stocks can still continue to do well.
Speaker 1: So one of the concerns that you have is is
Speaker 1: is about inflation? Is margin pressure? Right? Do you get
Speaker 1: margin pressure if your input costs start rising but you're
Speaker 1: not able to pass that increased costs of of good
Speaker 1: sold onto the consumer. And through the first quarter earning season,
Speaker 1: we've already heard from some of those companies that have
Speaker 1: said clearly stated we need to raise prices. Some of
Speaker 1: the inflationary pressures we think are going to be temporary,
Speaker 1: because there's an old saying that nothing fixes high prices
Speaker 1: like high prices and you get a supply response. So
Speaker 1: we're starting to see that a bit as capacity utilization
Speaker 1: has gone up and sawmills, so number prices have come
Speaker 1: down about over the course of a week. I think
Speaker 1: that's healthy. I think the same thing will be true
Speaker 1: and energy prices as more production comes online, whether that
Speaker 1: comes from Iran sanctions coming off or OPEC plus increasing
Speaker 1: output quotas, which they're doing in North America going from
Speaker 1: eleven million barrels a day to thirteen million barrels a day.
Speaker 1: I think that'll that supply response helps push down on
Speaker 1: some of those inflationary pressures. So that's why we think
Speaker 1: that some of it's going to be temporary. I think
Speaker 1: the FED feels that way as well, and they're willing
Speaker 1: to be asymmetric on their inflation target. Their target has
Speaker 1: been that their target of two pc hasn't been met
Speaker 1: in ten years. They're willing to let inflation run a
Speaker 1: bit hotter unless an until we get to substantial economic
Speaker 1: progress towards full employment. So I think that a combination
Speaker 1: of a FED that's going to be patient with a
Speaker 1: little hotter inflation, which we've seen some reports of, and
Speaker 1: just the economics of supply and demand seeing a supply
Speaker 1: response come back into the marketplace. So right now we're
Speaker 1: in a world where aggregate demand is outstripping aggregate supply.
Speaker 1: I think the supply response gets us to a place
Speaker 1: where a lot of that gets neutralized. And it's not
Speaker 1: gonna happen right away. We'll probably have inflation running hot
Speaker 1: throughout the balance of this year, but I don't think
Speaker 1: it gets hot or I think at plateaus, and I
Speaker 1: think as we entered the first quarter next year, prices
Speaker 1: started to come in, you know, or I know you
Speaker 1: have a year end target for the SMP of about
Speaker 1: if I'm not mistaken, Um, that's not too far from
Speaker 1: where we are now. You know, I'm looking at my screen.
Speaker 1: It's probably about three and change away. UM, So I'm
Speaker 1: curious how you're thinking about that. You know, is that
Speaker 1: the potential that that maybe you'll even raise that or
Speaker 1: is it a matter of you know a lot of
Speaker 1: people are sort of racing for the FED too, starts
Speaker 1: thinking about talking about talking about thinking about maybe even
Speaker 1: whispering and rumors about that dirty word tapering, and a
Speaker 1: lot of people looking at even possibly as early as
Speaker 1: the Jackson Hole meeting in August. Is that kind of
Speaker 1: embedded in that forecast a little bit of uh, you know,
Speaker 1: a hint that the punch bowl will be drained next year?
Speaker 1: Uh in that forecast? Or or how are you viewing
Speaker 1: that at this point? We put the target out at
Speaker 1: the beginning of the year. It's about a fifteen percent
Speaker 1: upside from that point in time. So to your point,
Speaker 1: we've already captured about ten or eleven percent of that. UM.
Speaker 1: It's predicated on a multiple, uh, the current multiple for
Speaker 1: the SP five hundred, but based on a hundred and
Speaker 1: eighties six dollar earnings estimate for the SP five hunded, well,
Speaker 1: that number has gone up already, right, So the one
Speaker 1: that we're factoring that against worked its way higher after
Speaker 1: the first quarter earnings reporting season, so we'd have to
Speaker 1: make an adjustment on that. On a standstille basis, the
Speaker 1: estimates for the second quarter in the second half are
Speaker 1: now higher than than they were when we started this.
Speaker 1: So I think that when you think about what happens
Speaker 1: when the FEDS starts inching towards tapering and getting that
Speaker 1: message out there, I think they're going to be deliberately
Speaker 1: cautious about bleeding it into the marketplace, so we don't
Speaker 1: have that surprise taper that we had in two dozen
Speaker 1: and thirteen that caused a much more abrupt sell off.
Speaker 1: But it's certainly gonna slow things down, and I certainly
Speaker 1: think that as they start talking about it, more and
Speaker 1: more people will describe a lower multiple to the earnings
Speaker 1: power of of equities and that will likely temper some
Speaker 1: of the upside. And I think your timing is probably right.
Speaker 1: If you start thinking about Jackson Hole being at the
Speaker 1: end of the summer, and that's been a time frame
Speaker 1: when central bankers have have signaled changes in policy and
Speaker 1: policy paradigms. That's when quantitative easing was first introduced. So
Speaker 1: this maybe the time that they start talking about talking
Speaker 1: about tapering and and likely don't take action on it
Speaker 1: until the fourth quarter of this year. I think that's
Speaker 1: going to give the market plenty of notice. And at
Speaker 1: the very same time, I think second quarter earnings are
Speaker 1: still conservative and second half earnings they're still conservative because
Speaker 1: I just don't think we've come close to realizing the
Speaker 1: explosion of economic activity we're going to see as people
Speaker 1: get back to their normal lives. So with the FED,
Speaker 1: with the FED minutes coming out this week, and the
Speaker 1: FED hinting at the T word talk king about thinking
Speaker 1: about talking about tapering, if somebody were to ask you
Speaker 1: about this, how would you recommend investors actually start to
Speaker 1: prepare for that or position for that. Yeah, that's such
Speaker 1: a great question. So some of the things we think
Speaker 1: about in terms of investing to to hedge against inflation
Speaker 1: have a lot to do with what our Barbell approach
Speaker 1: looks like. So the Fed's going to be tapering because
Speaker 1: the economy is recovering, so all of the economically sensitive
Speaker 1: cyclic ales that we look at will do better, right,
Speaker 1: and a and a improving economy that is forcing the
Speaker 1: FED to start reducing their monthly purchases of fixed income assets,
Speaker 1: so that side of the barbell actually will outperform likely
Speaker 1: things like industrial materials, um, financials, energy, and that will
Speaker 1: likely heads you a bit. But at the very same time,
Speaker 1: if you if you, if you were all in on
Speaker 1: just cyclicality, you're gonna miss what it's going to be
Speaker 1: in a pretty explosive growth in things like five G
Speaker 1: and cloud computing, cloud security, and the themes that will
Speaker 1: continue to be evergreen in terms of technology revenue and
Speaker 1: earnings growth. Art We're gonna get to the craziest thing soon,
Speaker 1: and I have high hopes for vill Donni here. She
Speaker 1: is actually uh what I call our chief Crazy Things correspondent. Um,
Speaker 1: so no pressure of Bill Donna, but the hopes are
Speaker 1: high for for your crazy thing. Um what are Before
Speaker 1: we get to that, A lot of the guests we
Speaker 1: have on our very macro focused and and very hesitant
Speaker 1: to drop the names of some stocks they like, I've
Speaker 1: got to feel and you'll be able to hit us
Speaker 1: with a few names on either side of that barbell
Speaker 1: that are looking attractive to right now. Are there any
Speaker 1: stocks that, uh, you can kind of talk about as
Speaker 1: as good byes in your mind right now? Yeah, a
Speaker 1: couple of the names that we think about on the
Speaker 1: on the growth side and how do you express an
Speaker 1: opinion and things like five G or cloud security. We've
Speaker 1: got Palo Altode Networks on our on our focus list,
Speaker 1: We've got Apple Computer on our focused list once a
Speaker 1: Cloud Security ones clearly a five G play. On our
Speaker 1: National Dividend list, we have Verizon, which is clearly a
Speaker 1: five G beneficiary. So those are some of the cyclical names.
Speaker 1: We have Lamb Research also on that list. So I
Speaker 1: think those are some of the names that when you
Speaker 1: think about the growth side, that actually have earnings. And
Speaker 1: that's the difference about playing some of these themes because
Speaker 1: as interest rates start to go up, that long duration
Speaker 1: technology play that really rapid revenue growth, but earnings that
Speaker 1: are far out in the future are going to be
Speaker 1: discounted back at a much higher multiple, right, So you're
Speaker 1: gonna instead of being willing to pay thirty times for
Speaker 1: that kind of revenue growth, You're you're likely going to
Speaker 1: pay fifteen or twenty times. So we like those companies
Speaker 1: that are measured with a price to earnings ratio, and
Speaker 1: we certainly like, you know, the thematics that were locked
Speaker 1: into those some of the concepts around that. Over on
Speaker 1: the on the UH, the side that we we sort
Speaker 1: of consider the economically sensitive cyclical side. JP Morgan is
Speaker 1: one of the names that certainly feels like as a
Speaker 1: as a financial is going to do very well. I
Speaker 1: think that we think that Visa falls into that category
Speaker 1: as well in terms of financials. And then when we
Speaker 1: think about some of the industrial when we when we
Speaker 1: look at um industrials and materials, we certainly think that
Speaker 1: Caterpillar is a great way to think about that, and
Speaker 1: and UH and and and sort of play that. Now,
Speaker 1: those are individual names. A lot of our folks that
Speaker 1: are using the Barbell approach, we'll just use the e
Speaker 1: t F. They'll use the cloud Security et F and
Speaker 1: pick their favorite one. They use the five G t
Speaker 1: F and and that's another way to approach it. So
Speaker 1: it's it's it doesn't have to be picking single stocks
Speaker 1: as long as you're expressing the opinion that it's giving
Speaker 1: you exposure to the right themes and growth and at
Speaker 1: the same time the right themes that you want to
Speaker 1: be expressing opinions. And on the on the cyclical side,
Speaker 1: you know, five G to me, seems like an area
Speaker 1: that's got a kind of a long runway for say
Speaker 1: a buying whole type of investor um as opposed on
Speaker 1: the other side of the barbel some of these cyclicals,
Speaker 1: I feel like there's an expiration date on their outperformance.
Speaker 1: Is that is that tribe with what you're thinking, Yeah,
Speaker 1: that's probably true, right, So when you think about real
Speaker 1: long duration and thematics five she certainly plays into that.
Speaker 1: We're just scratching the surface of what that's gonna look like.
Speaker 1: So it's you know, it's probably out in front of
Speaker 1: us for years, as is cloud security. I mean, we
Speaker 1: just had another cyber attack and it's the second major
Speaker 1: one that we've had this year. So cloud security is
Speaker 1: always going to continue to be you know, important to us.
Speaker 1: But we don't know how high interest rates goes. So
Speaker 1: the financials likely you know, in an approving economy, both
Speaker 1: have more demand for the goods and services, but likely
Speaker 1: we'll have a lot more natatures margin. So I think
Speaker 1: that you know, just rising industrates help the financials just
Speaker 1: by turning the lights on. So I think there's a
Speaker 1: there's there's there's some runway on both sides of that.
Speaker 1: But that's very true. But I haven't forbid if we
Speaker 1: were able to get an infrastructure bill passed, some of
Speaker 1: the other industrial materials you know clearly are going to
Speaker 1: be beneficiaries of that. And again that's a six year plan, right,
Speaker 1: So to me, I think, you know, there's longevity and
Speaker 1: a lot of this, but you know it's it's I
Speaker 1: think one of the ways to protect yourself from any
Speaker 1: of these things getting too frothy is is is just
Speaker 1: that every two months you have to recalibrate that and
Speaker 1: if any of this has gotten ahead of itself, you're
Speaker 1: rebouncing into what hasn't been working. That's a great point
Speaker 1: about the infrastructure plan that that would provide a much
Speaker 1: longer runway for those names. Great stuff art um. Let
Speaker 1: us now go till Bildonna's favorite segment, The Craziest Things
Speaker 1: We Saw in Markets this Week stand clearer of the
Speaker 1: craziest things we saw in markets this week. I'm gonna
Speaker 1: save yours for last, Phildanna, because I have a feeling
Speaker 1: you're you're bringing us something good. And also this way,
Speaker 1: if we both had the same one, then mine will
Speaker 1: be first and I win. So so I'm actually hoping
Speaker 1: to throw you for a loop here. I picked something
Speaker 1: that I think is very unexpected and it is not
Speaker 1: crypto related. Oh oh boy, Okay, a little teaser there.
Speaker 1: I'm I'm excited. All right, let's start with you. I
Speaker 1: know there's a lot of crazy things in the world
Speaker 1: these days, but what is the craziest thing you saw
Speaker 1: in markets this week? Unfortunately, mine is crypto related. Ethan
Speaker 1: on furniture et h is. This symbol exploded and was
Speaker 1: up some fifty over the course of two days because
Speaker 1: it's symbol looks like it might have banned ethereum and
Speaker 1: it's not ethan. Allen Furniture makes furniture that kind of
Speaker 1: a it's a good, good business with a rising housing market,
Speaker 1: but it's certainly not as good as the market described
Speaker 1: it to credit for this week. And I thought that
Speaker 1: was one of the craziest things I've seen. I love it.
Speaker 1: I love a good mistake and ticker. Uh. Anytime Hewlett
Speaker 1: Packard reports, I check on the price of American pain.
Speaker 1: The oil fields company with the ticker HP. I love that.
Speaker 1: It's amazing people just in such a hurry. I guess
Speaker 1: they hit hit those symbols and and don't even think
Speaker 1: about it. That's a good one. Art vill Dona Arts
Speaker 1: said a high bar with that one. I like that
Speaker 1: one a lot um. I think he beats me. We'll
Speaker 1: see if he beats you, But as of now, I'm
Speaker 1: gonna just concede that he's in the lead. But mine's
Speaker 1: pretty good. I'm curious what you think about it. Art.
Speaker 1: It's this story we had out from Bloomberg by Crystal
Speaker 1: Kim and Tom Conciliano, and it's about us back that
Speaker 1: is being formed to raise money so basically buy another spack. Uh.
Speaker 1: This is a drug maker called roy Vent Sciences. And
Speaker 1: forgive me if I'm mispronounced that. Uh, they want to
Speaker 1: go public with a spack toub merge with another spack
Speaker 1: and then take over the spack acquired by Immu no Vent,
Speaker 1: another drug maker that I'm probably mispronouncing. But the point
Speaker 1: being a spack being formed to basically buy the assets
Speaker 1: of another spack at a huge premium. All right, this
Speaker 1: kind of makes my head spin and and it goes
Speaker 1: to your point about how hot, those spacks square for
Speaker 1: a hot minute there, and then the world came crashing
Speaker 1: down on him. But how are you looking at the
Speaker 1: whole spack space and what do you think about a
Speaker 1: spack being formed to buy another SPAC. Kind of reminds
Speaker 1: me of the line that they're on double secret probation
Speaker 1: from Animal House, right. So it feels as though the
Speaker 1: reasons SPACs started to become so popular last year and
Speaker 1: there was a record number of them, they came out
Speaker 1: because there's so many private companies that were staying private
Speaker 1: for so long because venture capital money was so cheap.
Speaker 1: So we had two SPACs that came out in public
Speaker 1: last year versus sixty the year before, and then we
Speaker 1: had three in the first quarter of this year. So
Speaker 1: clearly there's not five great ideas for these guys to
Speaker 1: go by, and I think that that supply just swamped
Speaker 1: the demand for the investors. And it doesn't take much
Speaker 1: of a hint that these things, some of these things
Speaker 1: aren't gonna work to sort of change the entire attitude
Speaker 1: towards the group. So again, that was just one of
Speaker 1: the sectors that lost some of its excess speculative froth
Speaker 1: in the in the month of May, and it's probably
Speaker 1: a healthy thing for all of us. I think that
Speaker 1: that issue of supply of shares in the market is
Speaker 1: so important. You know, this reminded me almost sort of
Speaker 1: the dot com I p O Mania on fast forward.
Speaker 1: You know, just overload the market with with I p
Speaker 1: o s and new share supply and and it's just
Speaker 1: you know, it's the market just chokes on it eventually, right,
Speaker 1: absolutely correct. And then if you went back and looked
Speaker 1: at the numbers, though, even with the numbers that we
Speaker 1: saw both in the first quarter of this year and
Speaker 1: all of last year and SPACs, it doesn't even hold
Speaker 1: a candle to the number of companies who were coming public.
Speaker 1: I bet um, all right, Phil Donna, if I could
Speaker 1: do a drum roll, I would, But but hit us
Speaker 1: with your craziest thing. Well, we've covered crypto so extensively
Speaker 1: this week, and obviously so much was happening. I just
Speaker 1: felt like I needed to take a break from it.
Speaker 1: But one headline that caught my attention, Uh, it's it's
Speaker 1: a Bloomberg headline. It says the hottest property on the
Speaker 1: market comes with an active volcano. So I'm talking about
Speaker 1: the real estate market here. Uh, and it's an Icelandic family.
Speaker 1: They own land where a volcano has emerged. Over the
Speaker 1: last couple of months, they're getting tons of offers from
Speaker 1: interested buyers. The Bloomberg story actually has this sentence in
Speaker 1: it says thousands have flocked to see the eruption. Some
Speaker 1: have evened fate and barbecued hot dogs on the lava.
Speaker 1: And there's a picture of somebody barbecuing a hot dog
Speaker 1: on top of this volcano. That is fantastic. That is
Speaker 1: you did you brought your a game? I I love it. Also,
Speaker 1: I've I've read that Iceland is a big hot spot
Speaker 1: no pun, intended for crypto mining because of all that
Speaker 1: geo thermal thermal energy. So, uh, my guess is that
Speaker 1: someone's going to buy that property and put a big
Speaker 1: bitcoin mining brig on top of it. That's that's just
Speaker 1: my guess. That's a pretty good guess. Who knows, Maybe
Speaker 1: they'll open a hot dog stand with with freshly grilled
Speaker 1: volcano hot dogs. But really good contributions from both you.
Speaker 1: I'm gonna word a two place tie for first place.
Speaker 1: Uh in the Craziest Things Are Yours was great? L
Speaker 1: Donna's Yours Yours was good. I clearly need to up
Speaker 1: my game when I'm around you too. One thing I
Speaker 1: do want to say is I've been very remiss about
Speaker 1: giving out the Bloomberg Podcast hotline. So if you have
Speaker 1: a crazy thing you want to share with us, give
Speaker 1: us a call, leave us a voicemail, and maybe we'll
Speaker 1: play it on the show. That number is six four
Speaker 1: six three to four three four nine. Oh, and that
Speaker 1: should do it for this week. Bildna hi Art Hogan
Speaker 1: so happy to have both you on the show. Really
Speaker 1: enjoyed it and hopefully we can do it again someday.
Speaker 1: Thank you so much. It's been fun. What goes up.
Speaker 1: We'll be back next week. Until then, you can find
Speaker 1: us on the Bloomberg Terminal, website and apt where wherever
Speaker 1: you get your podcasts. We'd love it if you took
Speaker 1: the time to rate and review the show on Apple
Speaker 1: Podcasts so more listeners can find us. And you can
Speaker 1: find us on Twitter. Follow me at reag Anonymous. Bildonna
Speaker 1: Hirich is at Bildonna hi Rich. You can also follow
Speaker 1: Bloomberg Podcasts at podcasts and thank you to Charlie Pellett
Speaker 1: of Bloomberg Radio and the voice of the New York
Speaker 1: City subway system. What Goes Up is produced by TO
Speaker 1: for Foreheads ahead of Bloomberg Podcasts is Francesco Levie. Thanks
Speaker 1: for listening, See you next time.