WEBVTT - Bloomberg Surveillance: China Stocks Rebound 0:00:05.040 --> 0:00:08.639 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:08.680 --> 0:00:12.040 with Paul Sweeney. Join us each day for insight from 0:00:12.039 --> 0:00:16.200 the best in economics, finance, investment, and international relations. You 0:00:16.239 --> 0:00:19.599 can also watch the show live on YouTube. Visit the 0:00:19.600 --> 0:00:24.360 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:24.360 --> 0:00:27.400 mornings from seven to ten am Eastern from our global 0:00:27.440 --> 0:00:32.080 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:32.440 --> 0:00:36.000 or anywhere else you listen and always I'm Bloomberg Radio, 0:00:36.200 --> 0:00:39.800 the Bloomberg Terminal, and the Bloomberg Business App. You do 0:00:39.880 --> 0:00:42.560 a book and like, that's okay, that's a big deal. 0:00:43.000 --> 0:00:44.720 But then if you do a second book on the 0:00:44.760 --> 0:00:48.000 same topic, you're like an authority. He is an authority. 0:00:48.680 --> 0:00:53.479 Thomas Orlick has out understanding China's economic indicators. It's a 0:00:53.479 --> 0:00:55.440 good book that doze off to. But when you're done 0:00:55.480 --> 0:00:58.800 with that, you can wake up with China The Bubble 0:00:58.840 --> 0:01:03.319 That Never Pops. It is now the required read as 0:01:03.360 --> 0:01:07.199 the Bubble Pops China, the Bubble that Never Pops. Joining 0:01:07.240 --> 0:01:10.320 as sant, Thomas orl like driving all of our economics 0:01:10.319 --> 0:01:13.480 as well. Did you ever think Tom Orlock it would 0:01:13.520 --> 0:01:16.679 get as bad it is now, where basically the President 0:01:16.720 --> 0:01:19.800 of the United States President g of China has to 0:01:19.880 --> 0:01:23.440 directly intervene to put a bit under equities. Was that 0:01:23.560 --> 0:01:26.479 imaginable two years ago or twenty years ago. 0:01:28.520 --> 0:01:32.920 The Chinese stock market's a strange beast, Tom. I think 0:01:32.959 --> 0:01:35.640 it's important to keep in mind a couple of things. 0:01:36.280 --> 0:01:40.199 The first is that there's a signal there. The fact 0:01:40.280 --> 0:01:43.640 that China's stocks are amongst the worst performing in the 0:01:43.680 --> 0:01:47.840 world this year is a gauge of the weakness in 0:01:48.000 --> 0:01:52.520 China's economy. At the same time, it's important to remember 0:01:52.680 --> 0:01:56.720 that China's stock market, whilst kind of symbolic of the economy, 0:01:57.320 --> 0:02:00.960 is not the economy. There's not a lot household wealth 0:02:01.040 --> 0:02:04.200 in the stock market. Businesses aren't raising a lot of 0:02:04.240 --> 0:02:09.040 capital by issuing shit dares. So, yes, this is scary, Yes, 0:02:09.080 --> 0:02:11.079 this is a bad sign. Yes, this is why t 0:02:11.200 --> 0:02:15.639 jimping himself. We here is planning to intervene. But it's 0:02:15.639 --> 0:02:18.480 not quite the catastrophe for China that it would be 0:02:18.800 --> 0:02:21.120 in the United States. The S and P five hundred 0:02:21.200 --> 0:02:21.880 was down so much. 0:02:22.040 --> 0:02:24.079 Right now, we're clear in a market in New York City. 0:02:24.120 --> 0:02:26.160 It's called office towers and you know, we have a 0:02:26.160 --> 0:02:30.320 whole process bankruptcy or transactions whatever to clear. They don't 0:02:30.360 --> 0:02:35.680 have that structure. How does a totalitarian regime clear a 0:02:35.760 --> 0:02:36.800 distress market. 0:02:37.919 --> 0:02:41.720 So it's a really interesting question, Tom, And actually I 0:02:41.720 --> 0:02:45.280 don't want to sign two kind of Pollyanna. Everything's fine 0:02:45.320 --> 0:02:48.640 about this, But part of the problem here, part of 0:02:48.680 --> 0:02:52.600 the short term pain, is that China is moving to 0:02:52.720 --> 0:02:56.079 get rid of that problem of moral hazard, get rid 0:02:56.120 --> 0:02:59.640 of that problem that investors believe that the government in 0:02:59.680 --> 0:03:02.760 the fire analysis will stand behind all the banks, stand 0:03:02.800 --> 0:03:05.960 behind all the real estate developers, and prevent them from failing. 0:03:06.480 --> 0:03:10.760 It's the removal of that implicit guarantee, which is actually 0:03:10.800 --> 0:03:13.560 one of the big causes of stress and pain in 0:03:13.639 --> 0:03:17.359 China's markets and economy right now. But when they get 0:03:17.400 --> 0:03:19.000 through the end of it, and there's going to be 0:03:19.000 --> 0:03:21.560 a long process, we think the property correction still has 0:03:21.600 --> 0:03:25.040 a couple more years to run. In economy and markets 0:03:25.080 --> 0:03:28.680 without such a severe moral hazard problem, well, hopefully it'll 0:03:28.720 --> 0:03:30.920 be an economy and a market which is prime to 0:03:30.960 --> 0:03:32.120 grow and rise again. 0:03:32.960 --> 0:03:35.640 Hey, Tom, I know President g and other Chinese leaders 0:03:35.640 --> 0:03:37.640 over the last six months or so we've been courting 0:03:37.840 --> 0:03:43.480 Western investors Western countries kind of arguing about or supporting 0:03:43.560 --> 0:03:46.200 the investment thesis for China. But there are a lot 0:03:46.240 --> 0:03:49.440 of investors, not just em investors are saying China is 0:03:49.760 --> 0:03:54.960 uninvestable because of the China risk, the government risk. Do 0:03:55.000 --> 0:03:58.280 you sense that is that the government of China understands 0:03:58.320 --> 0:04:00.840 that and that they're willing to make any types of 0:04:00.920 --> 0:04:03.120 changes to be more receptive to Western investment. 0:04:04.720 --> 0:04:09.240 So the China investment story has got I think three 0:04:09.480 --> 0:04:13.000 really big problems. The first big problem is that we've 0:04:13.000 --> 0:04:17.200 gone from an economy which in nominal dollar terms was 0:04:17.240 --> 0:04:21.000 growing about twenty percent a year to an economy which 0:04:21.040 --> 0:04:26.360 in nominal dollar terms isn't growing at all. That's significant 0:04:26.839 --> 0:04:31.839 negative for investors. The second is relations with the United States. 0:04:32.400 --> 0:04:35.520 Ten years ago, twenty years ago, you put your money 0:04:35.520 --> 0:04:39.120 in China, there wasn't that geopolitical risk. Now there's the 0:04:39.240 --> 0:04:41.760 risk of tariffs, the risk of sanctions, the risk of 0:04:41.760 --> 0:04:45.680 political blowback. The third challenge, as you mentioned, Paul, is 0:04:45.680 --> 0:04:49.719 that investors now believe that Beijing doesn't have their back, right, 0:04:50.200 --> 0:04:52.320 and I think it's that piece of it which she 0:04:52.880 --> 0:04:56.120 and his premiere and other members of China's leadership are 0:04:56.120 --> 0:04:59.480 now trying to row back from the trouble. Is those 0:04:59.560 --> 0:05:05.880 other two negatives falling growth, increase, geopolitical stress. They're still there, 0:05:06.160 --> 0:05:10.200 and that means the mood music remains pretty pretty challenging. 0:05:10.600 --> 0:05:13.599 What's the expectation, Tom, I kind of think about, I guess, 0:05:13.640 --> 0:05:18.000 what's the expectation that this Chinese economy can fundamentally turn 0:05:18.160 --> 0:05:22.120 itself around. I think of, you know, just the demographics 0:05:22.120 --> 0:05:25.880 of China just don't bode well for the economy longer term, 0:05:25.880 --> 0:05:28.640 and I'm wondering, you know, what can the government do 0:05:28.760 --> 0:05:31.680 to really turn this economy around. 0:05:32.400 --> 0:05:36.080 So when I think about China right now, I think 0:05:36.160 --> 0:05:40.200 about a really significant negative in the real estate sector, 0:05:40.760 --> 0:05:44.080 and I think about a really significant positive signal in 0:05:44.160 --> 0:05:49.599 the electric vehicle space. Right real estate is collapsing. We 0:05:49.680 --> 0:05:52.320 can't sort of put lipstick on the pig. They've got 0:05:52.400 --> 0:05:55.920 massive overcapacity there. It's going to be painful as they 0:05:55.960 --> 0:06:01.000 work through that, But this too shall pass. Right by 0:06:01.040 --> 0:06:04.440 twenty twenty five, twenty twenty six, they'll be through the 0:06:04.440 --> 0:06:08.919 worst of this property correction, the electric vehicle story. I 0:06:08.960 --> 0:06:12.440 think what that speaks to is China's longer term potential, 0:06:13.120 --> 0:06:17.640 China's economic miracle from nineteen eighty till today. It's not 0:06:17.680 --> 0:06:20.440 been based on real estate, it's been it's been based 0:06:20.480 --> 0:06:24.679 on moving up the value chain from textiles to toys, 0:06:24.720 --> 0:06:28.400 to leadership in high speed, trained sustainable energy, and now 0:06:28.440 --> 0:06:33.560 electric vehicles. And it's that story, which, if it's sustained, 0:06:34.400 --> 0:06:38.040 means that China's economic miracle, while not what it was, 0:06:38.560 --> 0:06:40.080 is also not overin. 0:06:40.200 --> 0:06:43.080 To clear the market. And let's assume they, you know, 0:06:43.160 --> 0:06:47.560 as they've done before, they just write off refund where's 0:06:47.600 --> 0:06:51.400 the money come from to bail out the property market? 0:06:51.600 --> 0:06:54.440 Do they just print renmnby? Is it that simple? 0:06:55.839 --> 0:06:59.640 So I think there's a couple of things to say here, Tom, 0:07:00.480 --> 0:07:05.200 is that China is a high saving society with a 0:07:05.320 --> 0:07:09.560 closed financial system, and what that means is that the 0:07:09.600 --> 0:07:14.240 banks are almost always really well funded. Think about the 0:07:14.320 --> 0:07:18.280 Lehman collapsed in two thousand and eight, where money fled 0:07:18.720 --> 0:07:21.680 from the big banks in the United States. That's just 0:07:21.840 --> 0:07:25.720 not going to happen in China. So that sort of 0:07:26.040 --> 0:07:29.440 funding crisis, if you isn't going to be an issue 0:07:29.760 --> 0:07:34.120 for bathing now, clearing the market, getting rid of the 0:07:34.480 --> 0:07:38.360 bad investments, getting rid of the bankrupt property developers, that's 0:07:38.400 --> 0:07:42.160 the process which China is in right now. And yes 0:07:42.320 --> 0:07:46.920 it's extraordinarily painful. If you're holding an Evergrand bond, you've 0:07:46.960 --> 0:07:49.600 lost a lot of money. If you're waiting for a 0:07:49.720 --> 0:07:52.920 Chinese property developer to finish building your house, you could 0:07:52.920 --> 0:07:56.360 be waiting a pretty long time. But at the end 0:07:56.400 --> 0:07:59.080 of that process, China is going to have an economy 0:07:59.480 --> 0:08:04.280 with less moral hazard, less dependency on building houses which 0:08:04.360 --> 0:08:06.920 no one is going to live in, and more opportunity 0:08:07.200 --> 0:08:08.640 for folks like the electric. 0:08:08.360 --> 0:08:11.480 View going to be time. He sounds like you know, 0:08:11.520 --> 0:08:13.600 he sounds or like, I mean, he's got this downb cold. 0:08:13.800 --> 0:08:17.360 But what's a timeline on that workout? On a Hyachian basis, 0:08:17.360 --> 0:08:19.600 they got to clear the market. Is it like an 0:08:19.680 --> 0:08:22.040 or like one year or is it a four year 0:08:22.160 --> 0:08:25.960 or is it a perfect date to a party congress. 0:08:26.440 --> 0:08:28.760 It's always nice to time things to these moments in 0:08:28.800 --> 0:08:30.200 the political calendar, isn't it. 0:08:30.800 --> 0:08:30.880 So? 0:08:31.000 --> 0:08:35.680 Look, this is kind of an art rather than a science. 0:08:35.800 --> 0:08:40.000 The Chinese data is not perfect. There's lots of uncertainties there. 0:08:40.760 --> 0:08:46.080 But by our estimate two years ago, China was building 0:08:46.920 --> 0:08:51.760 about twenty thirty percent more property each year than it 0:08:51.880 --> 0:08:56.480 needed to live in each year. Now we're about halfway 0:08:56.640 --> 0:09:00.920 through that correction. What that suggests to me is there's 0:09:00.960 --> 0:09:04.720 a by two years more pain in China's properties. 0:09:04.720 --> 0:09:07.959 Actor Tom Rlick never enough time. Thank you so much. 0:09:07.960 --> 0:09:10.680 I learned a lot there informative on China as well. 0:09:10.720 --> 0:09:24.000 Look for his wonderful book. Arthur joining us. Now we 0:09:24.080 --> 0:09:26.560 see a good one goal of you on economics, finance, investment, 0:09:27.240 --> 0:09:30.839 and also the correlations, the linkage of all this, and 0:09:30.880 --> 0:09:33.680 no one's better at it than Andrew Sheets of Morgan 0:09:33.760 --> 0:09:40.160 Stanley joins us. As we discussed the linkages of the market. Andrew, 0:09:40.200 --> 0:09:43.000 I saw a stockbond correlation that was wackle. It was 0:09:43.040 --> 0:09:45.480 like the needle pegged, and that it was an odd 0:09:45.520 --> 0:09:49.160 and strange time. How odd and how strange is this time? 0:09:50.760 --> 0:09:50.960 Yeah? 0:09:51.000 --> 0:09:53.520 Thanks, thanks Tom, It's great to be here with you. 0:09:53.520 --> 0:09:55.800 You know, look, as I think you've discussed in this 0:09:55.840 --> 0:09:58.520 program that the stockbond correlation has moved around a lot 0:09:58.640 --> 0:10:02.000 during history. There's a lot of evidence, you know, certainly 0:10:02.160 --> 0:10:04.600 kind of prior to the nineteen nineties, we're stock and 0:10:04.640 --> 0:10:08.320 bond prices moved together, i e. Lower yields were generally 0:10:08.400 --> 0:10:11.440 better for stocks, and then you know, more recently it's 0:10:11.679 --> 0:10:14.720 been the other way around, where stocks have generally preferred 0:10:14.760 --> 0:10:17.160 higher yields, And you know, I do think a good 0:10:17.160 --> 0:10:20.280 way to frame that is previously the markets were more 0:10:20.280 --> 0:10:24.760 worried about inflation, and obviously both bonds and stocks like 0:10:24.800 --> 0:10:28.040 lower inflation, and more recently we've worried about growth. So 0:10:28.480 --> 0:10:31.920 I do think the performance this week was was fascinating. 0:10:32.000 --> 0:10:34.600 Right if you look at Wednesday where you saw this 0:10:34.640 --> 0:10:38.240 big draw down inequities with the FED kind of pushing 0:10:38.280 --> 0:10:41.439 back on March. I mean, yields fell, you know when 0:10:41.480 --> 0:10:43.800 that happened, So this wasn't you know, Oh no, the 0:10:43.840 --> 0:10:45.679 Fed's not cutting rates, are not going to be low 0:10:45.800 --> 0:10:49.199 enough to support stocks. That was not the message of 0:10:49.200 --> 0:10:51.280 the bond market, and I think it was much more 0:10:51.320 --> 0:10:54.320 about concern around around growth, concerned that maybe the FED 0:10:54.400 --> 0:10:56.600 was ignoring some of the weaker data earlier this week. 0:10:56.679 --> 0:10:58.920 So I think we've seen some stronger data. I think 0:10:58.960 --> 0:11:00.959 ultimately that will be the best path for market. 0:11:01.080 --> 0:11:04.360 Paul, I can't emphasize enough what Andrew Sheet said there, 0:11:04.400 --> 0:11:07.640 how important it is, and that the financial media I'm 0:11:07.679 --> 0:11:09.440 as guilty of this. Paul is not guilty of this. 0:11:09.559 --> 0:11:12.680 Lisa Montail's an angel on this. We're addicted to the 0:11:12.720 --> 0:11:16.360 parlor game, the fed, the monetary ballet, and what mister 0:11:16.360 --> 0:11:20.319 Sheets just said, there is hello the real economy, maybe 0:11:20.320 --> 0:11:22.400 the new burgeoning productivity as well. 0:11:22.480 --> 0:11:28.559 Absolutely, Hey Andrew as a cross asset strategist for Morgan Stanley. 0:11:28.880 --> 0:11:31.280 Where do you see the greatest opportunities here? When you 0:11:31.280 --> 0:11:34.000 sit down with your clients, where do you see the 0:11:34.040 --> 0:11:37.600 greatest opportunity? What do you suggest a focus here across assets? 0:11:38.960 --> 0:11:41.360 So I think you know the this is not going 0:11:41.440 --> 0:11:43.320 to be an easy year. You've seen a big run 0:11:43.400 --> 0:11:46.560 up in prices in November and December, and in many 0:11:46.600 --> 0:11:50.320 cases those prices rapidly move towards targets. We thought, you know, 0:11:50.320 --> 0:11:51.600 you get to by the end of the year. But but 0:11:51.640 --> 0:11:53.920 I think there are some still some opportunities. You know, 0:11:53.960 --> 0:11:57.040 we think Japan is an equity market that still has 0:11:57.080 --> 0:12:01.440 a good cyclical and structural story. Cyclical because the economy 0:12:01.520 --> 0:12:04.280 remains quite strong. You have some of the cheapest cost 0:12:04.280 --> 0:12:06.600 of capital in the world still, and then a good 0:12:06.679 --> 0:12:09.640 structural stories. You still see corporate reform. A number of 0:12:09.640 --> 0:12:13.480 the lad Am equity markets are relatively inexpensive. You have 0:12:13.520 --> 0:12:16.960 policy easing cycles. We think some of those could still 0:12:16.960 --> 0:12:20.280 be relatively attractive, and then it's not nearly as exciting. 0:12:20.360 --> 0:12:22.640 But you know, in an asset class you know I'm 0:12:22.720 --> 0:12:25.360 calling talking to you here in Europe. You know, European 0:12:25.400 --> 0:12:28.000 investment grade credit spreads are kind of at the twenty 0:12:28.080 --> 0:12:31.839 year median, which doesn't seem all that bad considering you've 0:12:31.880 --> 0:12:34.800 got reasonable growth, you're going to have easing of ECB policy, 0:12:34.880 --> 0:12:37.720 a very light supply, and I think that's another area 0:12:37.760 --> 0:12:39.840 where investors can teak out some extra return. 0:12:39.960 --> 0:12:42.640 You can do this on the Bloomberg Professional Service. The 0:12:42.720 --> 0:12:45.959 Equity Index in Japan ye in ye end you're up 0:12:46.000 --> 0:12:49.920 ten plus percent, double digit return. Nice. If you're in dollars, 0:12:50.080 --> 0:12:53.600 as I believe I am, it's not quite as good, 0:12:53.760 --> 0:12:56.440 up seven point six percent, so you're not two hundred 0:12:56.440 --> 0:12:57.360 and fifty beeps off. 0:12:57.559 --> 0:12:59.640 Hey, Andrew, you know, when Tom and I began our 0:12:59.679 --> 0:13:03.880 Wallster careers way back when Japan was the bomb. You 0:13:04.120 --> 0:13:07.080 had to be there, you had to work there, you 0:13:07.120 --> 0:13:10.160 had to have exposure there, you had to have you know, 0:13:10.600 --> 0:13:13.480 people there. But man, we haven't heard about Japan in 0:13:13.520 --> 0:13:16.880 like thirty years. But now in the last year or so, 0:13:16.920 --> 0:13:20.199 I'm hearing Warren Buffett, I'm hearing Andrew Sheets of Morgan Stanley, 0:13:20.320 --> 0:13:23.240 people talking to me about Japan. Why are we talking 0:13:23.240 --> 0:13:24.080 about Japan now? 0:13:25.480 --> 0:13:27.600 So I think it's a fascinating example that you know, 0:13:27.679 --> 0:13:31.520 markets move in in waves, and I do think at 0:13:31.559 --> 0:13:34.679 one level, right you have, Japan is a very interesting 0:13:34.760 --> 0:13:37.680 part of this global economic story. You know, if we 0:13:37.760 --> 0:13:41.439 use the full Goldilocks narrative, you could argue China is 0:13:41.800 --> 0:13:44.680 at risk of being too cold, there's not enough inflation, 0:13:45.440 --> 0:13:48.040 the US and Europe are more in the middle, and 0:13:48.040 --> 0:13:51.640 then Japan is hot. Japan is the market that is 0:13:51.720 --> 0:13:54.080 going to be raising rates on our forecast this year. 0:13:54.120 --> 0:13:56.480 So I think that puts it in an interesting part 0:13:56.520 --> 0:13:59.400 of the macro narrative. You know, valuations have risen, but 0:13:59.440 --> 0:14:02.640 they're notarticularly extreme, and I think that's still a market 0:14:02.679 --> 0:14:05.320 where we see more corporate efficiency to be squeezed out. 0:14:05.360 --> 0:14:07.520 And I think you've seen a push at the corporating 0:14:07.559 --> 0:14:11.240 government level that's that's pretty unique and pretty rare that 0:14:11.320 --> 0:14:13.960 we think can finally change that narrative frame. 0:14:13.640 --> 0:14:16.400 Out the real yield. Had a wonderful evening last night 0:14:16.400 --> 0:14:20.320 with Tracey Loa and Joe Wisenthal Andrew Sheets, and my 0:14:20.400 --> 0:14:25.600 first question within their wonderful event was went downtime? Well, 0:14:25.800 --> 0:14:28.040 I went, you know, Andrew Sheets came on just because 0:14:28.040 --> 0:14:32.440 he celebrated. I went below fifty seventh Street. Someone's ever 0:14:32.480 --> 0:14:35.200 heard of that? Andrew the real yield frame out the 0:14:35.240 --> 0:14:38.640 Morgan Stanley view or the Andrew Sheets view on what 0:14:38.720 --> 0:14:41.200 we do from one point nine zero percent? Do you 0:14:41.240 --> 0:14:43.240 just see a lower real yield? 0:14:44.400 --> 0:14:46.880 So I think the Morgan Stanley view here is quite clear. 0:14:46.920 --> 0:14:49.840 We do see a lower real yield. And you know, 0:14:49.880 --> 0:14:52.680 I think that that will be driven by our thinking 0:14:52.760 --> 0:14:55.600 is that that will be driven by clarity that policy 0:14:55.640 --> 0:15:00.000 is sufficiently restrictive, that core inflation will continue to come down. 0:15:00.040 --> 0:15:02.200 And again, if we think about you know, what is 0:15:02.240 --> 0:15:05.040 one of the more surprising stories over the last six months. 0:15:05.440 --> 0:15:07.240 You know, a lot of last year was driven by 0:15:07.360 --> 0:15:10.320 fear of this last mile of inflation. We could get 0:15:10.360 --> 0:15:12.960 down to three, we could never get down to two. 0:15:13.080 --> 0:15:16.360 You know, six month annualized core PCE in the US 0:15:16.800 --> 0:15:20.160 is one point nine. I mean we've kind of made it. 0:15:20.200 --> 0:15:22.800 I mean it will still be choppy, but you've come 0:15:22.800 --> 0:15:24.560 a long way. So I think as the market gets 0:15:24.600 --> 0:15:28.440 more confident that policy is sufficiently restrictive, it will become 0:15:28.480 --> 0:15:30.800 more confident that real rates do not need to be 0:15:30.880 --> 0:15:33.720 this high over a longer period of time. And I 0:15:33.760 --> 0:15:36.480 think that's where we think the most kind of value is. 0:15:36.560 --> 0:15:40.400 So we're estimating really yields being somewhat lower. And then conversely, 0:15:40.440 --> 0:15:42.880 I think as you move closer to the election, you 0:15:42.960 --> 0:15:47.120 might get more concern around inflation longer run inflation expectations. 0:15:47.160 --> 0:15:50.200 Could you see larger policy fifth there, So if yield 0:15:50.240 --> 0:15:52.920 were to rise due to political uncertainty, we think that 0:15:52.960 --> 0:15:55.240 comes through much more. Is more likely to come through 0:15:55.240 --> 0:15:58.600 the inflation expectation side of the yield than the real 0:15:58.640 --> 0:15:59.240 real side. 0:16:00.040 --> 0:16:02.040 Hey, Andrew, just in fixed income last year, I was 0:16:02.080 --> 0:16:05.280 surprised to see that the best performing fixed income area 0:16:05.400 --> 0:16:08.520 was high yield. And with all the talk about recession 0:16:08.640 --> 0:16:10.360 and it's right around the corner you got to be 0:16:10.360 --> 0:16:12.240 worried about. I was surprised to see how yield does 0:16:12.280 --> 0:16:14.520 so well. Where do you see opportunities in a fixed 0:16:14.520 --> 0:16:15.400 income space here in. 0:16:15.320 --> 0:16:19.160 Twenty four So I think that's absolutely right. High yield 0:16:19.520 --> 0:16:22.920 was a surprisingly strong asset last year and benefited a 0:16:22.960 --> 0:16:26.000 lot from the surprising strength of the economy. You know, 0:16:26.040 --> 0:16:28.560 I think again, if we go back to a lot 0:16:28.600 --> 0:16:32.040 of investors, and you know, we certainly fell victim to 0:16:32.080 --> 0:16:34.600 this somewhat as well thought that you know, you were 0:16:34.640 --> 0:16:36.800 in more of a late cycle market last year, or 0:16:36.840 --> 0:16:40.200 a market that would be more have more growth risks 0:16:40.240 --> 0:16:43.280 associated with them, even even as our economists expected the 0:16:43.360 --> 0:16:47.000 soft landing, and so high yield really benefited from from 0:16:47.200 --> 0:16:51.440 you know, the economy going down that more positive middle 0:16:51.480 --> 0:16:54.560 path of avoiding those recessionary concerns. And then you know, 0:16:54.640 --> 0:16:56.800 hy yield as a low to ration asset, so as 0:16:56.880 --> 0:16:59.760 yield sold off, it benefited. So you know, that's I 0:16:59.760 --> 0:17:02.960 think one explanation for the strength that we've had. You know, 0:17:03.000 --> 0:17:06.840 the challenges yields have spreads of tightened yields have come down, 0:17:07.400 --> 0:17:09.200 So you know, I think when we look within high yield, 0:17:09.200 --> 0:17:11.919 we do have to be somewhat more more selective. You know, 0:17:11.920 --> 0:17:15.080 we do think the loan market, where threads have lagged, 0:17:15.119 --> 0:17:17.640 if if higher for longer loans can do somewhat better. 0:17:17.680 --> 0:17:21.160 You also benefit potentially from some refinancing of loans into bonds. 0:17:21.520 --> 0:17:24.520 And then while it's a much more difficult to be 0:17:25.040 --> 0:17:28.119 kind of strategic about it, you know, triple C credit 0:17:28.200 --> 0:17:30.439 has really lagged, and so you do have this market 0:17:30.480 --> 0:17:33.600 and the one hand is seeming to embrace a soft 0:17:33.680 --> 0:17:37.440 landing narrative, and yet the kind of riskiest, most economically 0:17:37.520 --> 0:17:40.040 sensitive part of credit has really lagged in the US 0:17:40.040 --> 0:17:41.640 in Europe, and I think that could be hard to 0:17:41.960 --> 0:17:44.280 sustain if if the economy really is okay. 0:17:44.600 --> 0:17:46.960 Andrew Sheets, thank you, it's been too long with Morgan, 0:17:47.040 --> 0:17:53.480 Stanley and Londons. Just thrilled to have a mind. Peters 0:17:53.480 --> 0:17:56.239 shere's one of those young guys. He joins us right now. 0:17:56.320 --> 0:18:01.040 Real holistic view on the market with Academy security. Peter. 0:18:01.440 --> 0:18:03.800 Is it a bull market? And by that, I mean, 0:18:04.440 --> 0:18:09.320 do you see the exuberance in the silliness that comes 0:18:09.440 --> 0:18:10.919 always with a bull market? 0:18:12.800 --> 0:18:16.120 Not quite. I don't think. I've been thinking we saw 0:18:16.119 --> 0:18:18.359 a little bit too much exuberant. I've been a little 0:18:18.359 --> 0:18:21.040 bit concerned that we were topee on the market. I 0:18:21.080 --> 0:18:23.560 would have to say some of the data, especially jobs 0:18:23.640 --> 0:18:26.480 last week, is making me reconsider that we've seen an 0:18:26.560 --> 0:18:30.080 uptick in the economic data since the middle of January. Yeah, 0:18:30.119 --> 0:18:34.560 and I've been in this blowing economy's view and I'm 0:18:34.600 --> 0:18:37.400 rethinking that maybe I'm missing something. Maybe we can really 0:18:37.480 --> 0:18:39.720 sound to be strong, in which case is plenty of 0:18:39.800 --> 0:18:41.680 room for the rest of the market to run. Are 0:18:41.680 --> 0:18:43.480 with some of the big tech maybe's gone too far? 0:18:43.600 --> 0:18:47.960 Peter? Are we aneuittizing cash flows? In that the romance 0:18:48.040 --> 0:18:51.080 here and the rationalization and whatever the pe multiple is 0:18:51.119 --> 0:18:55.520 depending on the sector, is that corporate leaders are having 0:18:55.680 --> 0:19:01.240 persistent day after day, tick after tick casuals like say 0:19:01.240 --> 0:19:04.480 the Apple app store is just one example. Is that 0:19:04.560 --> 0:19:06.480 part of our bullmarket feel? 0:19:07.880 --> 0:19:10.159 That is definitely part of the bullmarket feel. And I 0:19:10.160 --> 0:19:12.080 would have to say, though, one thing that does give 0:19:12.119 --> 0:19:14.600 me pause for caution, though that could keep running, is 0:19:14.600 --> 0:19:16.919 when you have a trillion dollar company gain twenty percent 0:19:17.000 --> 0:19:19.280 or two hundred billion dollars in market cap on Friday. 0:19:19.600 --> 0:19:22.160 It really makes you question this market sor efficient or not. Now, 0:19:22.160 --> 0:19:24.760 maybe we have that stock way under price, But that's 0:19:24.800 --> 0:19:27.560 just a move that struck me as odd. It might 0:19:27.600 --> 0:19:30.159 be significant that we could get more, but it's certainly 0:19:30.200 --> 0:19:34.040 odd that we can be mispricing a company by so much. Collectively. 0:19:34.320 --> 0:19:38.200 Yeah, that was a great Bloomberg piece on Friday, noting 0:19:38.240 --> 0:19:41.439 that big, big move up in marketcap two hundred billion dollars, 0:19:41.640 --> 0:19:45.120 and of course mister Zuckerberg has a big shareholder benefits there. 0:19:46.040 --> 0:19:50.080 Talk to us, Peter. It's just kind of about valuation here, 0:19:50.160 --> 0:19:52.600 when I feel like we don't talk about valuation enough. 0:19:52.600 --> 0:19:55.159 We had this big, big move up in the market 0:19:55.160 --> 0:19:58.240 in November and December, I don't recall a commensurate increase 0:19:58.280 --> 0:20:00.440 in earnings per share for the S and P. So 0:20:00.480 --> 0:20:02.360 I'm wondering, are we stretched your own valuation? 0:20:03.560 --> 0:20:03.600 No? 0:20:03.920 --> 0:20:05.640 I think two things are happening to me when I'm 0:20:05.640 --> 0:20:08.960 looking at valuation. One seems to be people have now 0:20:09.040 --> 0:20:11.920 just accepted that big tech can trade at a much 0:20:11.960 --> 0:20:13.960 higher pe maybe than it did in the past. It 0:20:14.040 --> 0:20:16.200 felt like last year people wanted to be underweight, that 0:20:16.240 --> 0:20:20.560 people spot those highps. It seems like that fighting's going away, 0:20:20.600 --> 0:20:22.760 which is a contrarion tells me maybe it's trying to 0:20:22.760 --> 0:20:25.120 be a bit cautious there, and we have gotten away 0:20:25.240 --> 0:20:27.720 like I liked it. In late November, when we finally 0:20:27.720 --> 0:20:30.640 started seeing small tech rally, we saw not small tech 0:20:30.720 --> 0:20:33.879 small caps rally. You saw a bank's rally, and you 0:20:33.920 --> 0:20:36.520 really started getting this fixation on valuation. Hey, I can 0:20:36.560 --> 0:20:39.280 buy these things that lower multiples. These are interesting companies 0:20:39.520 --> 0:20:43.280 strong free cash flow, and that discussion dictated. So I'm 0:20:43.320 --> 0:20:45.240 waiting for a sign to get back into those because 0:20:45.240 --> 0:20:47.680 they've underperformed a lot this year. It is what I'm 0:20:47.680 --> 0:20:50.000 looking at. And the one thing that does strike me 0:20:50.000 --> 0:20:52.840 somewhere in between is I look at ARKK so Arc 0:20:53.560 --> 0:20:57.240 kind of as you know, yep, weird tech, and that struggled. 0:20:57.320 --> 0:20:59.480 So people are being a little bit discerning, right It's 0:20:59.520 --> 0:21:03.080 not like it was during the peak of COVID, where 0:21:03.200 --> 0:21:06.040 anything with the story was getting bought. This is really 0:21:06.080 --> 0:21:08.119 a little bit more specific, which gives me some comfort 0:21:08.119 --> 0:21:10.520 that we're not going to have a major pullback and 0:21:10.600 --> 0:21:12.640 that we have some upside if these other stocks really 0:21:12.640 --> 0:21:15.360 start catching you know a bit. Again, are there. 0:21:15.320 --> 0:21:17.880 Any sectors out there in the marketplace that maybe screen 0:21:18.040 --> 0:21:20.760 well for you right now? 0:21:20.800 --> 0:21:24.480 I love the commodity space, commodity commodity RATEDTOX. I think 0:21:24.520 --> 0:21:28.000 we are doing reshoring. There's deeopolitical pressure. I think we're 0:21:28.000 --> 0:21:31.560 finally getting our story together, our act together on sustainable 0:21:31.640 --> 0:21:33.600 energy in that for the next ten years we're going 0:21:33.640 --> 0:21:35.960 to build out sustainable but we're also going to build 0:21:36.000 --> 0:21:38.320 out traditional energy sources. So I think the energy is 0:21:38.320 --> 0:21:40.520 great and for a trade I like China right. 0:21:40.480 --> 0:21:43.960 Now, Well that's where I wanted to go, Paul, excuse me, Peter, 0:21:45.040 --> 0:21:49.000 I need to go to China with the admirable securities differential, 0:21:49.040 --> 0:21:54.480 which is a huge board commitment by our American military, 0:21:55.240 --> 0:22:00.560 the thought of Academy securities on China and on the 0:22:00.600 --> 0:22:03.800 new projection of the United States the Pacific Room. 0:22:05.600 --> 0:22:08.520