WEBVTT - Surveillance: Stock Picking with Emanuel 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:29.760 and of course on the Bloomberg terminal. He was so 0:00:29.840 --> 0:00:32.320 good a number of days ago we hauled Julian Emmanuel 0:00:32.360 --> 0:00:34.440 back here because we didn't understand the word he said, 0:00:34.760 --> 0:00:38.680 Equity and Quantitative Strategist ever Core. I s I, I 0:00:38.760 --> 0:00:40.760 want to go to the fact folks, and we protect 0:00:40.760 --> 0:00:44.920 the copyright. I'm not gonna send you out earnings Edge. 0:00:45.000 --> 0:00:47.240 This is what Emmanuel has brought to ever Cores. I 0:00:47.479 --> 0:00:51.480 s I. Every day, the granular nature of where we are, 0:00:51.640 --> 0:00:54.160 and I want to know what disinflation is doing to 0:00:54.240 --> 0:00:57.840 your granular research. Note here early in earning season, Well, 0:00:58.160 --> 0:01:02.040 it's the revenue line is coming in and that that's 0:01:02.120 --> 0:01:05.400 really the story. And then the question is who are 0:01:05.440 --> 0:01:09.440 the companies, where are the pockets within sectors that can 0:01:09.560 --> 0:01:13.720 actually hold the bottom line given the fact that the 0:01:13.720 --> 0:01:17.759 top line is decelerating because inflation is coming in zero 0:01:17.800 --> 0:01:21.039 hig every Afternoon does a brilliant job with Bloomberg charts here, 0:01:21.040 --> 0:01:23.680 and one of them is a short squeeze chart. The 0:01:23.760 --> 0:01:27.400 last two days big up equity market. We've had massive 0:01:27.440 --> 0:01:31.000 short squeeze. Then what how do we get to the 0:01:31.000 --> 0:01:34.080 Then what after we take out all the negative bets 0:01:34.160 --> 0:01:36.280 on the market. So if you think about it, the 0:01:36.400 --> 0:01:38.800 last two months, we are within this range in the 0:01:38.959 --> 0:01:42.840 SMP thirty eight hundred, the low, forty one, the high. 0:01:42.880 --> 0:01:45.640 And what it is is this tug of war between 0:01:45.680 --> 0:01:50.360 the view and rightly so that inflation decelerating more rapidly 0:01:50.400 --> 0:01:53.520 than people expected. You know, ed him is looking for 0:01:53.560 --> 0:01:57.840 two and a half percent inflation in three, which is 0:01:58.160 --> 0:02:01.720 very very bullish on balance, except for the fact that 0:02:01.840 --> 0:02:04.160 part of the way that you get there is a recession. 0:02:04.240 --> 0:02:05.960 And when you think about the I, s M S, 0:02:06.200 --> 0:02:09.320 you think about leading economic indicators, you think about the 0:02:09.320 --> 0:02:12.640 money supply contracting, they're all telling you that that recession 0:02:12.840 --> 0:02:15.799 is going to happen, but to the point of possibly 0:02:16.040 --> 0:02:18.880 seeing lower earnings and yet upgrading the forecast for the 0:02:18.880 --> 0:02:21.720 earnings target. As Tom was just talking about, how much 0:02:21.840 --> 0:02:24.600 is that a gloom already priced in a recession, a 0:02:24.680 --> 0:02:28.079 downturn and earnings, the forecasts that are coming in. So 0:02:28.120 --> 0:02:30.800 the reason that the market has gotten off to as 0:02:30.840 --> 0:02:34.200 good a start as it has is you look at 0:02:34.320 --> 0:02:37.440 bottoms up consensus, and it started the year at two 0:02:37.520 --> 0:02:41.040 hundred and thirty. Everyone knew that that was a fictitious number. 0:02:41.440 --> 0:02:44.200 Our number is two oh six. But I would suggest 0:02:44.400 --> 0:02:47.040 that actually, in talking to our clients, the by side 0:02:47.320 --> 0:02:49.800 is looking for more like two hundred. Now, part of 0:02:49.840 --> 0:02:54.320 the narrative around this short covering, among other things, is 0:02:54.400 --> 0:02:57.480 that that number could creep higher. So we were talking 0:02:57.520 --> 0:02:59.400 about some of the cuts that we've seen, the announced 0:02:59.440 --> 0:03:02.120 cuts at technology companies in this morning, as we get 0:03:02.280 --> 0:03:05.440 the slew of SMP companies reporting earnings, we're seeing a 0:03:05.440 --> 0:03:08.239 similar tone. Is that going to be the theme? Cutbacks? 0:03:08.400 --> 0:03:11.360 Is it steep enough to get you excited? So, look, 0:03:12.280 --> 0:03:16.760 cutbacks have actually rewarded stocks over these last several months. 0:03:16.800 --> 0:03:20.760 But there's a finite aspect to that, because you know, 0:03:20.800 --> 0:03:23.000 when you look at the way reports are coming in, 0:03:23.320 --> 0:03:26.520 there's only so much you can do to massage your 0:03:26.520 --> 0:03:29.440 bottom line. If your top line is decelerating, I want 0:03:29.440 --> 0:03:32.440 to talk to you about not so much. It's anathematic 0:03:32.560 --> 0:03:35.680 Julian Emmanuel but he's a fundamental guy working for ed 0:03:35.800 --> 0:03:40.720 Hyman and Edeheiman has always believed in mixing in economics 0:03:41.120 --> 0:03:45.920 with with fundamental analysis and technical analysis. Ralphan Kompora dark 0:03:45.960 --> 0:03:48.840 in the door yesterday, the technician, the giant of the 0:03:48.880 --> 0:03:53.080 CMT world, and he was heated. There was a bottom 0:03:53.120 --> 0:03:57.200 constructed in October? That's a lonely call right now? Was 0:03:57.240 --> 0:04:01.040 there a bottom constructed in October? So what it really 0:04:01.080 --> 0:04:04.600 comes down to is if there's going to be a 0:04:04.600 --> 0:04:10.720 recession in the next twelve months, the answer is no, Okay, 0:04:10.760 --> 0:04:14.080 if the recession is going to be both postponed because 0:04:14.080 --> 0:04:17.320 we have such an accumulated level of savings, because China 0:04:17.400 --> 0:04:21.400 is reopening, because the labor market has confounded everyone with 0:04:21.480 --> 0:04:24.520 its strength, that could have been a bottom because down 0:04:24.560 --> 0:04:28.920 twenty seven five at the low in October was the 0:04:28.960 --> 0:04:32.120 average of a hundred years of non recession full your 0:04:32.240 --> 0:04:37.880 notorious in lonely six point one China GDP call over 0:04:37.880 --> 0:04:42.640 to American equity optimism. So and actually the interesting thing 0:04:42.760 --> 0:04:45.880 is is our China guy took his number down to 0:04:45.920 --> 0:04:50.640 five nine because the fourth quarter of two is going 0:04:50.720 --> 0:04:54.320 to be better than expected reported, better than expected um 0:04:54.440 --> 0:04:58.320 and and what it is. It's less a direct effect 0:04:58.360 --> 0:05:02.440 on the US economy and more a psychological boost because 0:05:02.480 --> 0:05:06.000 you look at the greatest names in corporate America, one 0:05:06.040 --> 0:05:08.560 of which is reporting next week in between the FED 0:05:08.600 --> 0:05:12.599 and the unemployment report, and if those stocks do well 0:05:12.960 --> 0:05:16.240 because China is doing better, that's a wealth effect in 0:05:16.279 --> 0:05:18.720 the US. Just real quick here, because this has been 0:05:18.760 --> 0:05:20.920 a theme over the past couple of days and weeks, 0:05:21.040 --> 0:05:24.880 is people are moving toward Europe as the outperformer this year. 0:05:25.160 --> 0:05:28.840 Do you buy that with the China reopening disproportionately affecting 0:05:28.839 --> 0:05:31.560 that region. We buy that. We buy that. And and 0:05:32.120 --> 0:05:36.000 the interesting thing is some people might say, well, the 0:05:36.080 --> 0:05:38.520 e c B is now the most hawkish central bank 0:05:38.560 --> 0:05:42.960 in the world, and and that is probably true looking 0:05:42.960 --> 0:05:45.520 at the next six months. But the fact is that 0:05:45.600 --> 0:05:49.279 you are absolutely ridding Europe once and for all of 0:05:49.320 --> 0:05:52.640 the psychology of negative interest rates, and that is a 0:05:52.680 --> 0:05:55.479 massive positive for equities long term. We have a big 0:05:55.520 --> 0:05:57.680 take story out to this morning, folks. This is from 0:05:57.720 --> 0:06:01.159 our crack Feder Reserve team in bontem Liz Capel McCormick 0:06:01.200 --> 0:06:05.280 writing with Junal Marty as well. And this is outside 0:06:05.279 --> 0:06:07.800 your pur view, but this is something Mr Hyrman's looking at, 0:06:07.839 --> 0:06:11.040 and he has debt ceiling experience. If we have a 0:06:11.040 --> 0:06:14.600 debt limit fight, is the headline goes, does it mean 0:06:14.640 --> 0:06:17.640 the end of q T doesn't radically adjust the FED 0:06:17.760 --> 0:06:22.520 policy that your shop sees. Well, it's certainly ups the 0:06:22.600 --> 0:06:25.440 stakes with regard to what the chairman is going to 0:06:25.520 --> 0:06:29.000 say on February the one, because there's no question that 0:06:29.040 --> 0:06:31.800 he's going to be asked about that. And and look, 0:06:32.400 --> 0:06:34.799 the part of the bowl case of the last month 0:06:34.880 --> 0:06:37.680 is that there are cuts priced in the back half 0:06:37.720 --> 0:06:40.760 of the year, lots of cuts. Are those only going 0:06:40.800 --> 0:06:45.039 to be in response to a debt ceiling debacle or 0:06:45.200 --> 0:06:47.880 are they a consequence of an economy that would be 0:06:47.920 --> 0:06:52.080 turning down naturally. It's really an open question earning season 0:06:52.160 --> 0:06:54.840 earnings edge as well. What you're earning edge gonna say 0:06:54.839 --> 0:06:58.280 when you're write the last report for Q four it 0:06:58.360 --> 0:07:01.880 was it was a sloppy ce season, much more closer 0:07:01.960 --> 0:07:07.520 to the pre pandemic normal. UM numbers are coming down, 0:07:07.880 --> 0:07:11.720 but again at the index level, not as important. It's 0:07:11.800 --> 0:07:14.680 all about picking stocks in this environment. Juliana Manuel, thank 0:07:14.680 --> 0:07:28.400 you so much, really really appreciate that we pern on bigcoin, 0:07:28.440 --> 0:07:30.280 which means we can go to John Farrell. He is 0:07:30.320 --> 0:07:34.520 in London with the always interesting Carol. I'm pickering, Mr Farrell. 0:07:35.280 --> 0:07:37.040 I actually have to start with an apology. Tom just 0:07:37.120 --> 0:07:39.080 quickly taking a lot of heat for this from the 0:07:39.160 --> 0:07:45.600 last segment. Aluminium, okay, just aluminium, You're not aluminum. I 0:07:45.640 --> 0:07:46.920 think we get it back to front. I think you 0:07:46.960 --> 0:07:48.760 did the English version. I did the American version. We 0:07:48.800 --> 0:07:52.080 spent too much time together. T K. Thank you Callum 0:07:52.080 --> 0:07:54.920 pickering with me now, senior economists at Barrenburg. Calum, I 0:07:54.960 --> 0:07:56.240 don't want to start with that. I want to start 0:07:56.280 --> 0:07:59.000 with this. This from BNP Paribah in the last twenty 0:07:59.000 --> 0:08:00.520 four hours. I'll read the quiet out for you when 0:08:00.520 --> 0:08:02.600 I'll get your view on it. Soft landing has been 0:08:02.600 --> 0:08:04.560 the catch phrase for still young twenty three, but we 0:08:04.600 --> 0:08:05.840 think it will go out of the window and the 0:08:05.880 --> 0:08:09.880 same fashion as transitory inflation did in two. That line 0:08:09.960 --> 0:08:13.720 right there, you are great well. I think there are 0:08:13.800 --> 0:08:16.360 risks to this scenario. I think the dangerous in markets 0:08:16.400 --> 0:08:19.200 we start pricing in I would call it law law Land, 0:08:19.280 --> 0:08:21.960 which is we have two risks to worry about. There's 0:08:22.000 --> 0:08:25.800 the huge global energy price shock, which so far. Actually, 0:08:25.800 --> 0:08:27.520 at least in Europe and the US doesn't seem to 0:08:27.560 --> 0:08:30.920 be playing out quite as aggressively as markets amount of thought, 0:08:30.920 --> 0:08:33.600 say six months ago. But then there's the reaction to that, 0:08:33.640 --> 0:08:37.160 which is type financial conditions from central banks. Remember this 0:08:37.280 --> 0:08:40.320 energy shock hit tight labor markets and type product markets 0:08:40.320 --> 0:08:43.120 coming out of COVID and triggered these second round effects. 0:08:43.320 --> 0:08:45.240 And so the danger here is that we think, well, 0:08:45.280 --> 0:08:47.720 if the first risk is not so bad, central banks 0:08:47.760 --> 0:08:50.400 just cruise inflation to two percent. We don't really get 0:08:50.440 --> 0:08:52.520 anything severe when it comes to the recession, and everything 0:08:52.600 --> 0:08:55.679 is going to be fine. History suggests central banks rarely 0:08:55.720 --> 0:08:57.920 get these kind of calls. Right, we already made a 0:08:57.960 --> 0:09:00.880 central bank mistake in one. The danger here is that 0:09:00.920 --> 0:09:03.920 we forget that central banks occasionally make these kind of mistakes, 0:09:04.120 --> 0:09:05.560 and then landing a bit of a mess in the 0:09:05.600 --> 0:09:07.760 second half of the year. What's the mistake potentially this 0:09:07.840 --> 0:09:10.240 year doing too little or doing too much? I think 0:09:10.240 --> 0:09:13.720 probably doing too much is the bigger mistake. Monetary policy 0:09:13.760 --> 0:09:16.400 works with the like, but the problem is, once you've 0:09:16.440 --> 0:09:19.960 reacted late to inflation repressure, it's very difficult as a 0:09:20.000 --> 0:09:24.040 central bank to justify pausing while you still have signs 0:09:24.120 --> 0:09:27.000 of inflation. And so a good example take the latest 0:09:27.040 --> 0:09:31.160 mix of UK data. Clear measures of economic activity week 0:09:31.240 --> 0:09:33.839 through December and January, no question. But then you look 0:09:33.880 --> 0:09:37.360 at the November data for services inflation and December services inflation, 0:09:37.400 --> 0:09:40.120 you look at the wage data and it's still edging up. Now, 0:09:40.360 --> 0:09:43.240 the economist in me says, these price data reflect things 0:09:43.240 --> 0:09:45.360 that were happening in the economy three to six months ago, 0:09:45.559 --> 0:09:47.480 and so the prices three or six months from now 0:09:47.640 --> 0:09:51.160 will reflect these weak measures of activity. So central banks 0:09:51.160 --> 0:09:54.160 should indeed pause. Whether or not you can do that 0:09:54.200 --> 0:09:56.280 with inflation with a nine handle or an eight handling. 0:09:56.280 --> 0:09:58.679 The US is let's talk about the situation. Tom mentioned 0:09:58.720 --> 0:10:01.760 it earlier this morning, when hundred nanos on the jobless climbs. 0:10:01.960 --> 0:10:04.319 What does that day to tell you? Well, again, labor 0:10:04.360 --> 0:10:09.960 market UM data react with like underlying fundamentals. UM. The 0:10:10.040 --> 0:10:13.840 reason why the Phillips curve was so appealing for good 0:10:13.920 --> 0:10:16.840 thirty years as an economic policy model is because government's 0:10:16.840 --> 0:10:19.199 in central banks thought if we create some inflation, we 0:10:19.240 --> 0:10:24.560 will have strong employment data. UM that still holds. We 0:10:24.640 --> 0:10:27.960 have a high inflation re environment. In nominal terms, economies 0:10:27.960 --> 0:10:30.720 are raising ahead. This gives us an illusion of strength, 0:10:31.000 --> 0:10:34.640 which encourages strong labor demand. I don't think we're heading 0:10:34.679 --> 0:10:36.959 here into a severe recession. I think, you know, the 0:10:37.000 --> 0:10:40.959 business cycle dynamics are not late cycle. This is an 0:10:40.960 --> 0:10:44.160 early cycle economy the Western world and early cycle economy 0:10:44.160 --> 0:10:46.720 that's been intercepted by this big Exhulgan shock, and in 0:10:46.800 --> 0:10:49.880 central banks have reacted. But it's far too early to 0:10:49.920 --> 0:10:53.920 say that recessions won't happen as a general rule. Um, 0:10:54.000 --> 0:10:56.120 I think actually all the pain is probably still to come. 0:10:56.240 --> 0:10:58.040 What can you learn from corporate guidance? So we've got 0:10:58.080 --> 0:11:00.160 a couple of earnings reports this morning. Our cherry pick 0:11:00.200 --> 0:11:02.520 to the R Horton as a home builder in the 0:11:02.600 --> 0:11:05.800 United States, purchase contracts the three months through December down 0:11:05.840 --> 0:11:08.040 thirty eight percent from a year ago. I'll pick another one. 0:11:08.080 --> 0:11:10.520 Three M job cuts. I'm told there's a big chin 0:11:10.600 --> 0:11:13.320 to reopening. It's going to have manufacturing industrials. There's one 0:11:13.360 --> 0:11:16.160 kind of jobs. What do you read into these right now? 0:11:16.440 --> 0:11:19.200 But that seems to be the effect of the tight 0:11:19.360 --> 0:11:23.400 financial conditions on economies rather than the initial energy shock. 0:11:23.600 --> 0:11:25.760 And this is again where we just have to consider 0:11:25.800 --> 0:11:28.679 the lags that we're dealing with the energy price shock, 0:11:28.840 --> 0:11:31.400 which actually for the US, the UK, and even in 0:11:31.440 --> 0:11:33.719 Europe where we've managed to get enough supply now it's 0:11:33.720 --> 0:11:35.760 really a terms of trade shock rather than a supply shock. 0:11:35.840 --> 0:11:37.319 We get the energy we need, we just pay more 0:11:37.360 --> 0:11:40.040 for it. We see that immediately. There's not much of 0:11:40.040 --> 0:11:41.960 a lag between the high price and the impact and 0:11:42.000 --> 0:11:44.720 economic activity. But there is a lag between what central 0:11:44.720 --> 0:11:47.959 banks do and economic activity, and so it's not inconceivable 0:11:48.000 --> 0:11:51.120 that there's very unusual window where the first shock isn't 0:11:51.160 --> 0:11:53.920 as bad as expected. Things look fine, but then we're 0:11:53.960 --> 0:11:57.400 just waiting for the monetary shock to come through. That's 0:11:57.400 --> 0:11:59.600 why the housing market data and the labor market data 0:11:59.640 --> 0:12:02.760 are in Houghton, because those are major transmission mechanisms for 0:12:02.760 --> 0:12:05.280 for monetary policy. And that's where I think we we 0:12:05.440 --> 0:12:08.160 fall into this trap of thinking economies are fine, central 0:12:08.160 --> 0:12:10.400 banks need to go a little bit further to cool inflation. 0:12:10.440 --> 0:12:13.320 But in fact, actually we've just made the opposite mistake 0:12:13.400 --> 0:12:15.520 to what we made in twenty one, which was then 0:12:15.559 --> 0:12:17.640 to ease too much. Now the risk is we tighten 0:12:17.720 --> 0:12:20.040 too so we're price to get what Ko Lana land 0:12:20.160 --> 0:12:22.959 relative to what you expect later This year. I think 0:12:23.000 --> 0:12:25.319 the risk is that we start to price in this 0:12:25.400 --> 0:12:28.200 law law Land situation. I don't think it's inconceivable, but 0:12:28.280 --> 0:12:31.319 it's conditional upon certain things happening. And the main thing 0:12:31.400 --> 0:12:34.120 is that central banks don't make a mistake. And the 0:12:34.120 --> 0:12:35.640 other thing that we just need to keep in mind 0:12:35.760 --> 0:12:40.280 is we are out of the great moderation world where 0:12:40.600 --> 0:12:43.920 inflation was trending to the downside and central banks could 0:12:43.920 --> 0:12:46.600 make a one sided bet that you just stabilize growth 0:12:46.600 --> 0:12:49.560 and trust the inflation will remain low. When now in 0:12:49.600 --> 0:12:55.199 an inflation environment, aging populations, the globalization activism, which means 0:12:55.640 --> 0:12:59.280 monetary policy is asymmetric in the opposite direction, we worry 0:12:59.320 --> 0:13:02.280 more about inflation risks then we worry about deflation risks. 0:13:02.480 --> 0:13:04.360 Or to put in another way, central banks now face 0:13:04.400 --> 0:13:07.640 a trade off between growth and inflation. And remember, we 0:13:07.679 --> 0:13:10.520 wouldn't be worried about a recession now if central banks 0:13:10.520 --> 0:13:12.800 hadn't reacted, If we were happy to just accept the 0:13:12.840 --> 0:13:16.120 inflation risk from this oil and gas shock, then we 0:13:16.160 --> 0:13:18.640 would avoid a recession. But central banks actually, no, we're 0:13:18.679 --> 0:13:22.760 going to accept the growth risk. We'll put economies into 0:13:22.800 --> 0:13:26.679 recession to control inflation and therefore to the extent that 0:13:26.720 --> 0:13:30.240 this oil excuse me, this gas shock is not hitting 0:13:30.280 --> 0:13:32.680 as hard as we thought because demand is stronger. That 0:13:32.880 --> 0:13:35.240 may mean that central banks say, will if demand is stronger, 0:13:35.280 --> 0:13:38.840 we need to go further. That's what we're hearing complicated 0:13:39.040 --> 0:13:41.560 right now. Can I'm pickering of Bamberg Cannam. It's more 0:13:41.559 --> 0:13:43.280 complicated than I think these markets let on in the 0:13:43.280 --> 0:13:50.840 early weeks three right now. And while you can pick 0:13:50.880 --> 0:13:54.640 this economist to that economist, this strategist to that strategist, 0:13:55.120 --> 0:13:57.719 but it helps to have a chief investment strategists in 0:13:57.800 --> 0:14:01.959 chief economists. This is City Global Wealth, who is truly 0:14:02.080 --> 0:14:07.079 expert it linking the earnings and profitability dynamics of American 0:14:07.160 --> 0:14:12.240 corporations into our greater American economy. Owning the high ground 0:14:12.360 --> 0:14:17.199 on that is Stephen Whiting, and he joins us right now. Stephen, 0:14:17.280 --> 0:14:20.760 I loving your research. Note how you say there are 0:14:20.800 --> 0:14:23.520 beats out there and there's a bang up fourth quarter, 0:14:24.240 --> 0:14:28.680 but you're just not all on board the American recovery. 0:14:28.760 --> 0:14:32.880 How out of how how painful will those corporate earnings 0:14:32.920 --> 0:14:38.840 announcements be throughout the year. Well there's something to adjust 0:14:38.840 --> 0:14:42.880 too later. It's it looks so much in the analysts 0:14:42.920 --> 0:14:46.720 earnings estimates, like the fourth quarter was the recession, and 0:14:46.800 --> 0:14:49.600 here we are sitting in the recovery. And it actually 0:14:49.600 --> 0:14:53.000 looks a little bit like that in financial markets. And 0:14:53.080 --> 0:14:55.680 it would be wonderful if that were really the truth, 0:14:56.120 --> 0:14:58.640 if we weren't just on the leading edge of the 0:14:58.720 --> 0:15:01.640 hit that we're going to have profits um And of 0:15:01.720 --> 0:15:06.000 course how markets traded last year are not anticipating this 0:15:06.080 --> 0:15:08.440 to be, you know, some kind of profit Nravana. We 0:15:08.440 --> 0:15:12.520 don't have declines, uh, you know about something. But if 0:15:12.520 --> 0:15:14.800 you really take a look at the estimates, they fall 0:15:14.960 --> 0:15:18.240 at a annualized rate in the quarter past. This is 0:15:18.280 --> 0:15:21.480 like a setting a hurdle that a toddler could leap over. 0:15:21.920 --> 0:15:24.720 Most companies, by far are going to beat those estimates. 0:15:24.960 --> 0:15:27.400 But then they're putting all that promise of the future 0:15:27.720 --> 0:15:30.440 that the year will be a growth here for EPs 0:15:30.440 --> 0:15:32.720 and the out quarders, but as soon as the second 0:15:32.720 --> 0:15:37.600 calendar quarter, the April through June quarter, there's a substantial gain. Now, 0:15:37.600 --> 0:15:40.320 there's some complexities when you beat your earnings estimates, it's 0:15:40.360 --> 0:15:43.000 easier to hit those later numbers because of the level 0:15:43.000 --> 0:15:45.440 they come in. And but the idea that this is 0:15:45.480 --> 0:15:48.760 all behind us in the economy. I don't think that's 0:15:48.760 --> 0:15:51.400 true at all. Then how do you participate? I'm going 0:15:51.480 --> 0:15:55.360 to assume that City Global Wealth Management is not enjoying 0:15:55.440 --> 0:15:59.720 being a hundred and in cash like the triple leveraged 0:15:59.760 --> 0:16:03.960 on cash fun How do you participate? I know, how 0:16:04.000 --> 0:16:07.960 do you participate if you're not all in cash? We look, 0:16:07.960 --> 0:16:09.840 we've got to live with the ups and downs of 0:16:09.840 --> 0:16:13.640 equities markets, and we've had three rallies and excess of 0:16:13.760 --> 0:16:18.480 ten percent since the Fed started tightening the real rally 0:16:18.720 --> 0:16:21.600 the turning point for the economy, the beginning of a 0:16:21.640 --> 0:16:26.760 new recovery is likely to begin. This year could be 0:16:26.760 --> 0:16:29.640 a stronger year for the economy. Do we think that 0:16:30.080 --> 0:16:33.640 we should already be discounting this recovery. No, so we 0:16:33.720 --> 0:16:38.000 are playing it safer. Again, our largest overweights are in 0:16:38.400 --> 0:16:42.720 firms that are the most consistent dividend growers, in pharmaceutical 0:16:42.800 --> 0:16:46.440 shares that have low cicklutality. I think this very near 0:16:46.600 --> 0:16:51.320 term period, especially before we see the January employment report 0:16:51.400 --> 0:16:55.560 and we probably see the Fed deliver hawk is UH 0:16:55.880 --> 0:16:57.760 is probably going to be a period where we're gonna 0:16:57.800 --> 0:17:00.800 have to settle back a bit. UH. And again that 0:17:00.840 --> 0:17:03.520 does not tell us to time the market and be 0:17:03.640 --> 0:17:07.399 all out of equities. But we're okay with a short 0:17:07.480 --> 0:17:11.480 covering rally and low quality shares and just missing that 0:17:11.560 --> 0:17:13.480 for the mere terms. Even how much it would you 0:17:13.560 --> 0:17:17.639 lean into oil majors in particular because of that dividend story, 0:17:17.680 --> 0:17:20.000 that share buyback story, and not necessarily a call on 0:17:20.080 --> 0:17:25.000 commodity prices. It's a full waiting despite a poor ciplical backdrop, 0:17:25.040 --> 0:17:27.520 and we think that a lot of industrial and materials 0:17:27.560 --> 0:17:31.679 companies are going to see earnings down visions are going 0:17:31.720 --> 0:17:35.399 to see weaker activity this year. I would say though 0:17:36.080 --> 0:17:40.439 that petroleum generally um is pretty well positioned for for 0:17:40.480 --> 0:17:43.760 a week period for the world economy. The downside maybe 0:17:43.800 --> 0:17:47.119 seventy dollars in the Brent price in what will be 0:17:47.160 --> 0:17:49.960 a probably a mild global recession or something that we 0:17:50.040 --> 0:17:53.560 might call that. Uh literally, the US economy is going 0:17:53.600 --> 0:17:56.919 to have some significant job losses. We don't believe that 0:17:56.960 --> 0:18:00.359 you have sales declines without real job declines. We're not 0:18:00.440 --> 0:18:03.680 just talking about job openings. But even with that said, 0:18:03.880 --> 0:18:08.840 OPEC has cut production early supply sources around the world 0:18:09.000 --> 0:18:12.359 are recovering slowly, so I think this is not going 0:18:12.400 --> 0:18:16.280 to be a particularly bad cycle for energy. Meanwhile, you 0:18:16.320 --> 0:18:18.280 mentioned the FED, and we have been steering clear of 0:18:18.320 --> 0:18:20.200 the FED because they are in the quiet period ahead 0:18:20.200 --> 0:18:23.360 of next week. But there is this question inherent in 0:18:23.560 --> 0:18:28.040 a strengthening financial conditions index, a lesser negative actually a 0:18:28.119 --> 0:18:30.399 positive that Tom has been sighting. As you see the 0:18:30.960 --> 0:18:33.679 stocks rally and as you see ponds rally, at what 0:18:33.760 --> 0:18:36.000 point does this bush the FED to go further, to 0:18:36.080 --> 0:18:39.160 do more than people currently expect, simply because this really 0:18:39.200 --> 0:18:42.440 does kind of make it more difficult for them. Well, look, 0:18:42.640 --> 0:18:47.040 I think the FED can't entirely ignore the fact that 0:18:47.400 --> 0:18:50.840 real data two months of decline and industrial production, two 0:18:50.840 --> 0:18:54.080 months of decline and retail sales uh, you know too much, 0:18:54.440 --> 0:18:56.960 two months of a decline in total hours worked, and 0:18:57.040 --> 0:19:00.000 all of that survey data that you mentioned or softening. 0:19:00.280 --> 0:19:03.560 Plus we are seeing a deceleration and and inflation. That's 0:19:03.560 --> 0:19:05.879 for real. Here we have a decline in money supply. 0:19:06.359 --> 0:19:10.840 Yet the FED is not going to be satisfied, And unfortunately, 0:19:10.920 --> 0:19:13.240 I think that that is their mistake because you've heard 0:19:13.240 --> 0:19:16.200 from an earlier guest that the reality is that there's 0:19:16.200 --> 0:19:18.919 still pipeline effects on the economy that are coming The 0:19:19.000 --> 0:19:22.760 problem for markets is that they can't ignore the slowdown 0:19:22.760 --> 0:19:26.000 in the economy that will change the Fed's view. And 0:19:26.040 --> 0:19:29.560 the FED isn't all likelihood going to try to weigh 0:19:29.600 --> 0:19:33.040 against these easing the easing and financial conditions. You know, 0:19:33.119 --> 0:19:35.920 will they do that by tightening more and harming the 0:19:36.000 --> 0:19:39.000 labor market even more? They probably won't, But they're gonna 0:19:39.040 --> 0:19:41.600 leave it to markets to sort this out, and there 0:19:41.640 --> 0:19:45.200 can be certainly more corrections ahead simply because of that mispantter. 0:19:45.280 --> 0:19:47.600 That's a critical distinction, Steve Whiting. If they're going to 0:19:47.680 --> 0:19:51.840 quote unquote leave markets to sort it out at the 0:19:52.000 --> 0:19:55.560 end of the day, do markets tell the Fed what 0:19:55.640 --> 0:20:01.040 to do with its understood asymmetries whate I think about 0:20:01.080 --> 0:20:03.360 the message at the long end of the bond market, 0:20:03.800 --> 0:20:06.800 the treasury market is saying that the FED has already 0:20:06.800 --> 0:20:10.679 at an unsustainable funds rate, particularly now that they shrink 0:20:10.720 --> 0:20:13.240 their balance sheet four or fifty billion dollars, and they'll 0:20:13.240 --> 0:20:15.720 continue to lend less to the bond market. You know, 0:20:15.800 --> 0:20:18.399 that yield curve steepening that they predicted on q T 0:20:18.720 --> 0:20:23.000 didn't happen again. So I think that ultimately the FED 0:20:23.119 --> 0:20:26.080 is going to get this forecast. But again it is 0:20:26.119 --> 0:20:29.959 predicated on the notion that are labor markets, that demand 0:20:30.080 --> 0:20:32.840 for labor is going to fall now that we have 0:20:32.880 --> 0:20:36.359 sky high inventories and massive declines and home sales to 0:20:36.560 --> 0:20:39.840 reckon with in terms of labor markets. So the Fed 0:20:39.880 --> 0:20:42.480 will get the message of markets. I believe the longer 0:20:42.600 --> 0:20:45.720 term bond market is telling the FED the right the 0:20:45.800 --> 0:20:49.280 right message. I just do think that they're going to say, 0:20:49.320 --> 0:20:52.120 like they said in the minutes, uh that if they 0:20:52.240 --> 0:20:55.240 markets have misjudged their reaction function and they're going to 0:20:55.320 --> 0:20:58.480 ease here quickly. Um, that's not what they're going to do. 0:20:58.640 --> 0:21:00.800 I wish they would pause if they're not going at 0:21:00.840 --> 0:21:03.040 least you dove tell that with what Andrew holland Horst 0:21:03.040 --> 0:21:08.159 said the other day. Yeah, we go up call from fifty, etcetera. 0:21:08.240 --> 0:21:11.160 But then you get to a level into Mr Whiting's comments, 0:21:11.240 --> 0:21:13.400 they stay there, Which is the reason why some people 0:21:13.400 --> 0:21:15.480 are leaning into the long end, because they do believe 0:21:15.720 --> 0:21:18.480 that or restrict growth. They do believe that the Fed 0:21:18.680 --> 0:21:22.000 will induce something that's more significance. Even how much are 0:21:22.040 --> 0:21:25.840 you using longer term treasuries longer term sovereign debt as 0:21:25.880 --> 0:21:29.159 a ballast in a really uncertain time. Well, we are. 0:21:29.240 --> 0:21:33.520 We're overweight long term treasuries, underweight other markets like Japan 0:21:34.520 --> 0:21:38.800 for example. Again, because we believe the correlation between stocks 0:21:38.920 --> 0:21:41.560 and long term treasures, equities and long term treasuries will 0:21:41.560 --> 0:21:45.720 break down, it will be negatively correlated. Again, portfolios will 0:21:45.800 --> 0:21:49.440 work with you know, barbells of high risk and low 0:21:49.560 --> 0:21:51.879 risk at the same time. Though, it's the front end 0:21:51.880 --> 0:21:53.880 of the curve and the belly of the curve that's 0:21:53.960 --> 0:21:58.199 offering real yield, so we have larger overweights there. And 0:21:58.200 --> 0:22:01.240 again this is not to be negative in the long run. 0:22:01.320 --> 0:22:04.600 We can't be too cute about when markets can recover, 0:22:04.800 --> 0:22:06.560 but we're just not going to load up on a 0:22:06.600 --> 0:22:09.920 lot of cyplical risk. Interest rate risk we think is 0:22:10.040 --> 0:22:12.800 peaked in market, so we don't have to worry about 0:22:13.280 --> 0:22:16.199