WEBVTT - Time to Sell Weakness? 0:00:12.560 --> 0:00:15.760 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:15.880 --> 0:00:17.880 My name is Mike Reagan. I'm a senior editor at 0:00:17.880 --> 0:00:21.599 Bloomberg and umbled on a higher across asset reported Bloomberg 0:00:22.200 --> 0:00:25.360 this week on the show. Well, as Yogi Barrow once said, 0:00:25.640 --> 0:00:29.639 it's tough to make predictions, especially about the future. That's 0:00:29.640 --> 0:00:31.920 the quote that leads a research report from this week's 0:00:31.920 --> 0:00:34.360 guest on what he and his team expected the markets 0:00:34.400 --> 0:00:37.560 in two And you know what, We're actually gonna listen 0:00:37.560 --> 0:00:39.560 to him and maybe even let him gloat a little 0:00:39.600 --> 0:00:43.680 bit since his predictions for last year were pretty good. Well, Bill, 0:00:43.720 --> 0:00:46.440 do I have to define pretty good in the world 0:00:46.520 --> 0:00:49.440 of predictions? And you know it's gonna sound a little 0:00:49.440 --> 0:00:52.440 bit like I sounded, you know, explaining my report card 0:00:52.440 --> 0:00:54.880 to my dad in college, that that it's it's better 0:00:54.920 --> 0:00:57.480 than it sounds. You know this this was a semester 0:00:57.520 --> 0:01:00.880 where the Grateful Dead had six tour stop within driving 0:01:00.880 --> 0:01:03.240 distance of campus. You gotta you gotta grade me on 0:01:03.280 --> 0:01:07.800 the curve here, But on his predictions, uh, is really 0:01:07.840 --> 0:01:10.560 pretty good. I mean, I'll compare that to our own 0:01:10.560 --> 0:01:13.720 Cameron Chris, I think, one of our most respected columnists 0:01:13.720 --> 0:01:17.000 who grades his predictions every year as well. He was 0:01:17.040 --> 0:01:20.480 seventy as well. Um, he said, that's the best he's 0:01:20.520 --> 0:01:23.360 ever been in making predictions. And that's a guy who 0:01:23.440 --> 0:01:26.640 had like a perfect s a T math score. Um, 0:01:26.680 --> 0:01:29.960 I think anything about fifty is in a in the 0:01:29.959 --> 0:01:32.080 predictions game, Buil Dona, what do you think in the 0:01:32.160 --> 0:01:35.400 predictions game? Probably not for when you're in high school. 0:01:35.440 --> 0:01:38.840 That's like not that good, I would say, But sevent 0:01:39.800 --> 0:01:42.480 when I read that, I also was impressed because last 0:01:42.520 --> 0:01:45.280 year was, as you know, so hard to predict given 0:01:45.360 --> 0:01:48.320 everything that was going on. But so, speaking of our guest, 0:01:48.680 --> 0:01:51.080 I want to introduce Chris Harvey. He's the head of 0:01:51.120 --> 0:01:53.760 equity strategy at Wells Fargo, and Chris, I want to 0:01:53.800 --> 0:01:56.240 welcome you back to the show. Then thank you and 0:01:56.520 --> 0:01:59.360 happy New Year and Chris, before we get to the 0:01:59.360 --> 0:02:02.440 predictions and the way, everyone, I'm I'm I'm recording this 0:02:02.480 --> 0:02:05.080 podcast in my bathroom with a blanket over my head 0:02:05.320 --> 0:02:09.800 for very complicated reasons involving a gas Maine replacement on 0:02:09.840 --> 0:02:12.160 my streets. So if you hear Vildana and Chris just 0:02:12.240 --> 0:02:15.280 first out laughing that that's that's the reason why most 0:02:15.320 --> 0:02:20.040 likely it's quite a spectacle to see something. This is 0:02:20.080 --> 0:02:23.440 a new I've I've you know, I'm no stranger to humiliation, 0:02:23.480 --> 0:02:25.679 but I gotta say this, this is uh, this is 0:02:25.720 --> 0:02:28.119 a high high water mark for me, or maybe low 0:02:28.120 --> 0:02:30.760 water mark. I don't know. But but Chris, I want 0:02:30.800 --> 0:02:33.919 to unpack some of your predictions for two. But I 0:02:33.960 --> 0:02:37.720 want to talk first about the f OMC minutes that 0:02:37.800 --> 0:02:40.120 came out this week. Uh. You know, we're recording this 0:02:40.160 --> 0:02:43.880 podcast on Wednesday, about an hour after the minutes at 0:02:43.880 --> 0:02:47.040 the tape, and we kind of a nasty reaction, you know. 0:02:47.080 --> 0:02:50.520 The tone of it seems to be that not only 0:02:50.960 --> 0:02:54.400 will the rate hikes come a little earlier than people 0:02:54.440 --> 0:02:57.520 were expecting, but also I think the bigger surprise that 0:02:57.639 --> 0:03:00.440 the Fed sounds like they're they're gonna want to wind 0:03:00.480 --> 0:03:03.560 down their balance sheet, let their balance sheet reduce a 0:03:03.560 --> 0:03:06.679 little bit, uh, you know, rather than reinvesting proceeds of 0:03:06.960 --> 0:03:09.480 their holdings like they have in the past. What's your 0:03:09.520 --> 0:03:11.920 takeaway from the minutes? Is this um? Is this a 0:03:11.919 --> 0:03:14.000 reasonable reaction to the market. You know, last time I 0:03:14.000 --> 0:03:17.040 looked SMP down more than one percent in the minutes 0:03:17.080 --> 0:03:20.680 after after the moments after the minutes, and you know, 0:03:21.000 --> 0:03:23.920 NAVSTAC was already getting hurt there down composite down a 0:03:24.000 --> 0:03:26.040 two and a half percent. I think is this a 0:03:26.160 --> 0:03:29.359 rational reaction or what do you think? Like? I think 0:03:29.400 --> 0:03:32.239 it's a reasonable reaction. So there's a couple of things 0:03:32.240 --> 0:03:35.400 that take away. For a while, people have been questioning 0:03:35.400 --> 0:03:38.840 whether the FED had had to wherewithal the will to 0:03:38.840 --> 0:03:42.520 to fight inflation. There's talk about transitory for for some 0:03:42.560 --> 0:03:44.960 period of time, actually too long a period of time. 0:03:45.480 --> 0:03:48.240 Powell recently retired that phrase or said he was going 0:03:48.280 --> 0:03:50.200 to retire that phrase. And then when you listen to 0:03:50.200 --> 0:03:53.440 the minutes, they mean business. And I think people are 0:03:53.480 --> 0:03:56.640 finally realizing that the FED will need will do what 0:03:56.680 --> 0:03:59.800 they need to do to fight inflation. And that's troubling. 0:03:59.840 --> 0:04:03.280 But more importantly, what's really happening underneath the surface and 0:04:03.320 --> 0:04:06.360 behind the scenes real rates. You have to keep a 0:04:06.520 --> 0:04:09.480 very very sharp eye on real rates. If you look 0:04:09.520 --> 0:04:11.800 at ten year real rates, they're up almost twenty five 0:04:11.840 --> 0:04:14.400 basis points from the start of the year. What we've 0:04:14.400 --> 0:04:16.440 been saying to clients and what we've noticed all of 0:04:16.520 --> 0:04:20.080 last year is as real rates go, much of the 0:04:20.120 --> 0:04:22.960 relative price in the achary market goes, so real rates 0:04:23.000 --> 0:04:25.839 go up, that cyclical trade works, real rates go down, 0:04:26.200 --> 0:04:29.040 and that long duration or that tech growth trade works. 0:04:29.240 --> 0:04:31.640 And what's happening right now is real rates are going higher. 0:04:32.040 --> 0:04:34.400 Tech in high growth of rolling over. That's a big 0:04:34.440 --> 0:04:37.120 part of the market. And so we were down earlier 0:04:37.160 --> 0:04:40.839 today this is just an acceleration. Is it the right magnitude? 0:04:41.200 --> 0:04:44.120 I think it's reasonable. Yeah. You know what's such truing 0:04:44.240 --> 0:04:46.120 to me is you know, we got this today on Wednesday. 0:04:46.120 --> 0:04:48.960 On on Tuesday, we got that blog post from Neil 0:04:49.000 --> 0:04:51.919 Cash carry uh long considered sort of the biggest of 0:04:52.560 --> 0:04:55.640 in the FED, not a voter this year, but even 0:04:55.760 --> 0:05:00.479 him expecting two hikes in two I guess that's got 0:05:00.480 --> 0:05:02.920 to be kind of the floor of of expectations. Now. 0:05:02.920 --> 0:05:05.080 You know, the market was pricing into maybe three. But 0:05:05.440 --> 0:05:08.160 I think when even the dovish, most dovish member of 0:05:08.200 --> 0:05:11.640 the FED is expecting to that boy that it's a 0:05:11.640 --> 0:05:14.480 bit of a cold water in the face to some degree. Yeah, 0:05:15.000 --> 0:05:17.440 I think that's right. And what I also think is 0:05:17.760 --> 0:05:19.360 I was a little dump fout last year, was a 0:05:19.360 --> 0:05:22.280 little dunk bounded because we were looking and we're listening 0:05:22.279 --> 0:05:25.080 to transcripts, we're looking at pricing. I had never seen 0:05:25.480 --> 0:05:28.400 in in my two decades and more than two decades 0:05:28.440 --> 0:05:31.920 on Wall Street this kind of pricing environment. At one 0:05:31.960 --> 0:05:34.080 time I had asked one of my associates, Hey, give 0:05:34.120 --> 0:05:36.120 me a handful of stocks that are raising price. He said, 0:05:36.279 --> 0:05:38.520 just pick any three, And at the end of the 0:05:38.640 --> 0:05:41.359 day I was surprised that it's taken this long for 0:05:41.400 --> 0:05:43.880 the FED to react. But now the FED is reacting 0:05:44.080 --> 0:05:47.080 and you're seeing break evens and you're seeing inflation expectations 0:05:47.080 --> 0:05:49.280 come down. The other thing that I think is also 0:05:49.320 --> 0:05:52.160 happening is there was a lot of talk about stack 0:05:52.160 --> 0:05:55.800 inflation two three, four months ago. Well you have to 0:05:55.839 --> 0:05:59.479 take stackflation off the table because the FED is fighting inflation. 0:05:59.600 --> 0:06:02.880 The other thing that's happening is we have February first 0:06:02.960 --> 0:06:06.119 coming up. February first is Chinese kicks off Chinese New Years. 0:06:06.279 --> 0:06:08.800 That's when goods start to slow into the US. Not 0:06:08.839 --> 0:06:11.240 saying that supply chain is going to be fixed, but 0:06:11.400 --> 0:06:13.560 really what the market is latching onto, or what we 0:06:13.560 --> 0:06:16.920 think it will last onto, is have we seen peak 0:06:16.960 --> 0:06:20.120 pressure or peak congestion? Are we going to be able 0:06:20.160 --> 0:06:22.360 to get rid of some of those logger heads? Will 0:06:22.400 --> 0:06:24.560 we be able to make some improvements and if so, 0:06:25.279 --> 0:06:28.640 that's really important because that has significant ramifications for pricing, 0:06:29.040 --> 0:06:33.520 multiples and margins. So, Chris, speaking of all of these 0:06:33.560 --> 0:06:36.680 expectations and everything that's coming up, you and your team 0:06:36.800 --> 0:06:40.760 come out with price targets for the SMP five Mike 0:06:40.839 --> 0:06:43.920 mentioned in your intro years was spot on for last year. 0:06:44.040 --> 0:06:46.680 So I'm hoping you can sort of walk us through 0:06:46.880 --> 0:06:51.040 your calls for and all of the factors behind it 0:06:51.080 --> 0:06:53.680 and what you're thinking is behind your price target and 0:06:53.760 --> 0:06:57.080 anything else you see coming up. Sure, sir, certainly. Maybe 0:06:57.120 --> 0:07:00.480 I'll just give you the big picture overview. One of 0:07:00.520 --> 0:07:02.680 the things we've been saying is this year, as you 0:07:02.800 --> 0:07:07.120 roll into it's really about risk first and return second. 0:07:07.520 --> 0:07:11.000 When you're looking at a peakish multiples on top of 0:07:11.000 --> 0:07:15.040 peakish growth, that's not a really bullish scenario. In addition 0:07:15.080 --> 0:07:18.480 to that, growth is decelerating, whether you're looking at us 0:07:18.560 --> 0:07:21.560 GDP or whether you're looking at earning. His growth fed 0:07:21.920 --> 0:07:24.720 as we now are are very aware of, is going 0:07:24.760 --> 0:07:27.560 to become more aggressive and accommodations coming off the table. 0:07:27.920 --> 0:07:31.240 We're lapping some very difficult comps and we may be 0:07:31.440 --> 0:07:35.040 hitting peak pricing and again peak margins, which which would 0:07:35.080 --> 0:07:37.760 put pressure downward on multiples. So we've talked about a 0:07:37.800 --> 0:07:40.280 temperacent sell off. We've talked about up and quality, down 0:07:40.280 --> 0:07:43.880 and risk. We've talked about margins multiples. Where would you 0:07:43.920 --> 0:07:46.440 like to start? Well, well, Chris Love, I'll start here. 0:07:46.440 --> 0:07:48.760 You know, I'm I'm just a guy sitting in his 0:07:48.760 --> 0:07:51.240 bathroom with a blanket over said, so, you know, far 0:07:51.320 --> 0:07:53.680 be it for me to say. But I would also 0:07:53.720 --> 0:07:57.040 great predictions on sort of the boldness of predictions. And 0:07:57.040 --> 0:08:00.520 I want to start with your prediction temper cent correction 0:08:00.800 --> 0:08:04.200 by summertime. Now, in most years, I think if you 0:08:04.240 --> 0:08:06.320 took any average years and made that prediction at the 0:08:06.360 --> 0:08:08.840 beginning of it, it's perhaps not that bold, you know. 0:08:08.920 --> 0:08:11.280 It's something that tends to happen I think more than 0:08:11.320 --> 0:08:13.960 half the time in most years, if if I'm correct, 0:08:14.000 --> 0:08:17.120 But it certainly feels like a very bold predict prediction 0:08:17.400 --> 0:08:20.440 these days, given the fact that boy, it's been so 0:08:20.480 --> 0:08:23.800 long since we've had a real teen percent prediction correction 0:08:24.160 --> 0:08:27.080 in the market. They seem to have gone extinct, you know, 0:08:27.160 --> 0:08:31.280 But it is walks through You're thinking about why, uh, 0:08:31.840 --> 0:08:34.439 we're likely to see one by summertime, And I'm assuming 0:08:34.440 --> 0:08:37.079 the FED plays a role to some degree, but uh, 0:08:37.360 --> 0:08:39.800 you know what makes you confident enough to make that 0:08:39.840 --> 0:08:43.240 you're sort of your first prediction for yea. So a 0:08:43.280 --> 0:08:45.520 couple of things. First, let me say, you're really pulling 0:08:45.559 --> 0:08:48.920 this blanket thing off very very well. It's it's people. 0:08:50.520 --> 0:08:53.480 It's impressive, it's really impressive. A lot of guys would 0:08:53.480 --> 0:08:57.800 have turned their video off. But but now back to 0:08:57.840 --> 0:09:01.040 our show ten percent pullback. Uh, there's a couple of 0:09:01.040 --> 0:09:04.600 things there, and I'm gonna be scattered, I'll be all 0:09:04.600 --> 0:09:06.280 over the place. But I want to bring you back 0:09:06.280 --> 0:09:09.280 to the late nineties, early two thousand's, late nineties, early 0:09:09.320 --> 0:09:11.600 two thousand's, Mike, you probably remember this. There's a company 0:09:11.600 --> 0:09:14.320 called c mg I. C mg I had the naming 0:09:14.440 --> 0:09:16.880 rights to Fox Burger Stadium in two thousand. Stock was 0:09:16.920 --> 0:09:19.480 one sixty at that point in time. I believe in 0:09:19.480 --> 0:09:22.360 two thousand and two the stock was sixty sixty cents 0:09:22.520 --> 0:09:25.080 and they gave back the naming rights. What just happened 0:09:25.120 --> 0:09:28.360 at the Staples Center Crypto dot com no longer the 0:09:28.360 --> 0:09:31.760 Staples Center Crypto dot com. Gosh, that's really familiar. Right. 0:09:32.040 --> 0:09:34.080 There is a whether it's the Matt and curse or 0:09:34.080 --> 0:09:37.360 whether it's the stadium curse, it's telling you we're getting 0:09:37.400 --> 0:09:40.120 close to the top in times of fraud. Those are 0:09:40.200 --> 0:09:42.720 those are signs that we use and we look at right. 0:09:43.120 --> 0:09:45.360 The the other thing that we say, we talked about 0:09:45.360 --> 0:09:48.040 a lot, and you're also absolutely repositively right. This ten 0:09:48.080 --> 0:09:50.600 percent correction in normal times not a big boat call, 0:09:50.960 --> 0:09:53.760 but here, since we haven't had a correction a long time, 0:09:54.400 --> 0:09:57.120 it is a much bigger boulder call. And that gets 0:09:57.160 --> 0:10:00.760 to the second point. The second point is there's pervasive 0:10:00.760 --> 0:10:03.760 belief that the market can bend but not break right. 0:10:03.840 --> 0:10:06.720 Market can go down five percent, we can break through 0:10:06.720 --> 0:10:08.679 the fifty day, we can break through, we can hit 0:10:08.720 --> 0:10:12.520 the hundred day, but we really can't collapse. Well, again, 0:10:12.640 --> 0:10:15.040 we're in the second year recovery. Typically in a second 0:10:15.120 --> 0:10:17.679 year recovery you have multiple compression and you have a 0:10:17.720 --> 0:10:21.240 lot of other interesting things happening. What you have is 0:10:21.320 --> 0:10:24.120 growth decelerating, you have a more aggressive bed. You you 0:10:24.200 --> 0:10:26.920 have your laughing very difficult comps, and you have the 0:10:26.960 --> 0:10:30.520 speculation and when people turn down right. So one of 0:10:30.559 --> 0:10:32.760 the things that that's helped a lot of these names 0:10:32.920 --> 0:10:37.080 is you've had money chasing performance when the performance isn't there, 0:10:37.480 --> 0:10:41.600 then the money goes away. And we think that people 0:10:41.679 --> 0:10:43.640 are going to sell weakness for the first time in 0:10:43.679 --> 0:10:47.680 a while for fundamental reasons, for technical reasons. And I 0:10:47.720 --> 0:10:52.200 think the operative another operative word for two is normalization. 0:10:52.559 --> 0:10:55.080 We're going to use this this word time and time again. 0:10:55.400 --> 0:10:58.160 We're going to get back to more normal times, whether 0:10:58.200 --> 0:11:02.400 it's consumers spending, whether it's latility, or whether it's valuation. 0:11:04.080 --> 0:11:06.280 I love the point about the stadium naming right and 0:11:06.920 --> 0:11:09.079 even before the subprime crisis. I'm trying to remember that. 0:11:09.160 --> 0:11:11.559 I think there were a few players in that who 0:11:11.640 --> 0:11:14.320 got some naming rights right before. I want to say 0:11:14.360 --> 0:11:18.480 it was three Com Stadium with play. And we also 0:11:18.520 --> 0:11:21.800 have the f t X Arena, which is uh which 0:11:21.840 --> 0:11:24.400 has been renamed It's the Miami Heat Arena down in 0:11:24.400 --> 0:11:28.800 in Miami. That was another recent rename. Yeah, yeah, great, 0:11:28.840 --> 0:11:31.120 great indicator. Who knows if it's really true? Is someone's 0:11:31.160 --> 0:11:32.559 got to do a deep dive on that foot. I 0:11:32.679 --> 0:11:36.360 I nominate you to. I'll take care of them. So 0:11:36.520 --> 0:11:40.080 all the stadium names throughout history, yeah, I'll take care 0:11:40.120 --> 0:11:50.120 of it. So, Chris, so you have this call for 0:11:50.400 --> 0:11:53.760 a ten correction. That's in the first half of the 0:11:53.840 --> 0:11:55.679 year and then for the second half of the year. 0:11:55.720 --> 0:11:58.120 I know I was reading one of your recent notes 0:11:58.240 --> 0:12:01.920 and you talked about how how important the midterm elections are, 0:12:02.000 --> 0:12:05.240 and so I actually really haven't been hearing very much 0:12:05.280 --> 0:12:08.200 about this from people I I talked to. So maybe 0:12:08.200 --> 0:12:10.640 you can walk us through your thinking there as well, 0:12:10.679 --> 0:12:14.040 and in relation to the market. So so another thing 0:12:14.120 --> 0:12:16.200 before before we get into that and we get into 0:12:16.200 --> 0:12:18.760 politics a little bit, we're going to talk about religion. No, 0:12:18.960 --> 0:12:23.320 um no, what or what we're gonna do is I 0:12:23.360 --> 0:12:25.640 want to lay the groundwork and I want to level 0:12:25.640 --> 0:12:28.320 set things. What what we're saying and what we think 0:12:28.360 --> 0:12:30.760 we need is we need a repricing of risk, the 0:12:30.840 --> 0:12:34.200 systematic risk. This is not O seven a way where 0:12:34.240 --> 0:12:37.000 systematic root risk was through the roof. What this is 0:12:37.000 --> 0:12:39.920 is we think that we need a repricing of risk 0:12:40.000 --> 0:12:42.360 to bring in new investors. Things have got a little 0:12:42.400 --> 0:12:46.400 bit too frothy. Once that occurs, the consumer still has money. 0:12:47.000 --> 0:12:50.040 What we argue is that spending is going to normalize, 0:12:50.080 --> 0:12:52.640 but balance sheets are still strong. There's some some risk there, 0:12:53.000 --> 0:12:56.079 but overall we just need a more attractive level to 0:12:56.120 --> 0:12:59.280 get aggressive. If and when we get that, we'll want 0:12:59.320 --> 0:13:00.920 to buy the more could or will want to add 0:13:01.000 --> 0:13:04.400 risk into the portfolio. How However, your possess um one 0:13:04.440 --> 0:13:06.080 of the things that we've noticed, and we were looking 0:13:06.080 --> 0:13:07.680 for a catalysts in the second half of the year. 0:13:07.960 --> 0:13:11.040 We're going to have midterm elections. One of things. One 0:13:11.040 --> 0:13:13.079 of my associates does a very nice job on the 0:13:13.080 --> 0:13:15.440 political front, and and it's done a good job over 0:13:15.440 --> 0:13:17.960 the last couple of years. Now it's kind of obvious, 0:13:18.000 --> 0:13:21.160 but not that long ago, we were talking about a 0:13:21.360 --> 0:13:25.000 shift right, a shift from from blue to red. And 0:13:25.800 --> 0:13:29.080 we've seen what happened in Virginia. I can't believe how 0:13:29.120 --> 0:13:32.680 close the race was in in New Jersey for the governorship, 0:13:33.160 --> 0:13:36.360 and it's really telling you something. And so I think 0:13:36.400 --> 0:13:38.480 it's pretty consensus at this point in time, and I 0:13:38.520 --> 0:13:41.560 think most people believe there's going to be a red 0:13:41.600 --> 0:13:44.400 wave and with that, you're going to have a split government. 0:13:44.440 --> 0:13:47.240 And typically when you have a split government, not a 0:13:47.240 --> 0:13:49.880 lot of things get done. And the lack of government 0:13:49.920 --> 0:13:51.920 is good government as far as the markets are concerned. 0:13:52.320 --> 0:13:56.800 UM Traditionally, Republicans controlling that government, controlling the Senate is 0:13:56.800 --> 0:13:59.240 a good thing as well. We can argue about why 0:13:59.280 --> 0:14:02.280 that is, why that might be, but but just say 0:14:02.480 --> 0:14:04.679 we think this is going to be midterm elections will 0:14:04.720 --> 0:14:06.959 be the catalyst that we need to pull us out 0:14:07.000 --> 0:14:09.280 of the slump or the malaise that that we expect 0:14:09.360 --> 0:14:13.720 to see over the summertime. So that call, it's based 0:14:13.720 --> 0:14:17.000 on history basically in the way the market performs with 0:14:17.040 --> 0:14:20.000 the Republican control. Because I look at this particular setup 0:14:20.040 --> 0:14:24.120 and I'm thinking, well, okay, and I you're right, you know, 0:14:24.160 --> 0:14:25.960 all the pundits seem to think there's gonna be a 0:14:25.960 --> 0:14:30.000 red sweep and and Republicans will control most likely the 0:14:30.040 --> 0:14:33.200 House and and quite possibly the Senate. Yeah, but I wonder, 0:14:33.320 --> 0:14:37.920 you know, fundamentally, uh, that seems to take stimulus completely 0:14:37.920 --> 0:14:41.440 off the off the table. I also would think, you know, 0:14:41.520 --> 0:14:46.040 any further tax reductions would be pretty unlikely, uh you know, 0:14:46.080 --> 0:14:48.480 given the Democrats still in the White House with with 0:14:48.640 --> 0:14:52.960 veto power. So that sense of history, she was enough 0:14:53.120 --> 0:14:56.040 to to overcome sort of the fundamentals that are a 0:14:56.120 --> 0:15:00.240 little bit cloudier with with the Republican controlled Congress, you know, 0:15:00.280 --> 0:15:04.120 given you know what a tail when stimulus was leading 0:15:04.160 --> 0:15:06.280 up to this year. So so what one thing I 0:15:06.320 --> 0:15:08.520 would just add to that is, and the Finn talks 0:15:08.520 --> 0:15:11.520 about this a lot. It's planning. Right. If you go 0:15:11.600 --> 0:15:14.120 back to when we had the tax cuts, If I 0:15:14.160 --> 0:15:16.960 remember correctly, M and A slowed down because people didn't 0:15:17.000 --> 0:15:19.760 know what the tax situation was going to be. When 0:15:19.760 --> 0:15:22.680 you have a situation where it's pretty placid and people 0:15:22.920 --> 0:15:25.600 people really know what the tax situation is going to be, 0:15:26.000 --> 0:15:29.440 fiscal stimulus, monetary stimulus, they can plan better and they 0:15:29.440 --> 0:15:33.200 can move back. Then well, once I wants to pay more, 0:15:33.240 --> 0:15:36.200 once I wants to pay less. But when you have 0:15:36.320 --> 0:15:40.680 a more stable type situation, the bit aspread narrows and 0:15:40.720 --> 0:15:43.040 things can get done. So I don't you know, I 0:15:43.080 --> 0:15:45.040 think about it a couple of different ways. But one 0:15:45.080 --> 0:15:48.000 way it could be positive is you just know that 0:15:48.040 --> 0:15:50.400 the tax situation is not going to change very much. 0:15:50.920 --> 0:15:52.880 And now one of the things that we keep saying 0:15:52.960 --> 0:15:55.520 is you've got a lot of cash on hand. Rates 0:15:55.520 --> 0:15:59.360 are still incredibly low. Credit markets for now are wide open, 0:16:00.120 --> 0:16:04.800 and as growth slow, as an opportunity is more selective, 0:16:05.240 --> 0:16:08.320 that pushes people into that M and A. And again, 0:16:08.360 --> 0:16:11.200 if there's not much coming out of the government regulation wise, 0:16:11.240 --> 0:16:13.480 tax wise, we can see a lot more m and 0:16:13.560 --> 0:16:17.480 A activity, and eventually that's usually a pretty good positive 0:16:17.480 --> 0:16:20.560 for the market. And then, Chris, I think for a 0:16:20.560 --> 0:16:23.360 while now you had been saying that investors have been 0:16:23.360 --> 0:16:28.720 gaining confidence in the feds um willingness to an ability 0:16:28.800 --> 0:16:30.840 to find inflation. I think that was in one of 0:16:30.880 --> 0:16:33.040 your notes a couple of weeks ago, and then earlier 0:16:33.080 --> 0:16:36.520 this week you read reiterated that you think the Fed 0:16:36.560 --> 0:16:39.760 will avoid a policy error. So I'm wondering what makes 0:16:39.800 --> 0:16:43.920 you confident in that and how you're thinking about it. Right, So, 0:16:44.600 --> 0:16:46.800 when we first started talking about it, it was a 0:16:46.840 --> 0:16:49.960 non consensus thought and one of the things that we 0:16:50.040 --> 0:16:52.920 began to seeze we began to see the curve flatten, 0:16:53.400 --> 0:16:56.480 and we also saw break evens or inflation expectations come 0:16:56.520 --> 0:17:00.440 down before the Fed even talked about retiring. You know, 0:17:00.520 --> 0:17:03.160 what we were saying back then is either the markets 0:17:03.200 --> 0:17:06.800 going to push the Fed or the Fed will eventually 0:17:06.840 --> 0:17:09.400 do what they need to do. Now, what we think 0:17:09.560 --> 0:17:11.760 is the Fed is very open to doing what they 0:17:11.760 --> 0:17:15.159 need to do, the markets believing it. The curve has flattened, 0:17:15.280 --> 0:17:18.680 break evens are coming down, our inflation expectations are coming down, 0:17:18.800 --> 0:17:21.560 and you see from the minutes that they mean business. 0:17:22.080 --> 0:17:24.919 And you know, a lot of people have brought this up. 0:17:25.000 --> 0:17:27.040 I don't know how to handicap this. I don't know 0:17:27.080 --> 0:17:30.840 what this means. But it's funny that Chairman Powell, right 0:17:30.920 --> 0:17:33.760 after it was announced who was going to be reappointed, 0:17:34.160 --> 0:17:36.240 got a lot more aggressive and a lot of people 0:17:36.320 --> 0:17:39.240 point that out and say that's really interesting, and maybe 0:17:39.280 --> 0:17:41.320 that has something to do with it. But at the 0:17:41.440 --> 0:17:43.120 end of the day, they're saying all the right things, 0:17:43.160 --> 0:17:44.919 they're doing all the right things, they're doing what they 0:17:44.960 --> 0:17:47.919 would you would expect them to do. Labor markets in 0:17:47.960 --> 0:17:51.000 a decent spot, and they really do have to fight inflation. 0:17:51.200 --> 0:17:54.719 The funny thing now for us is we're beginning to 0:17:54.720 --> 0:17:58.680 see things that we think are transitory. We think that 0:17:58.760 --> 0:18:02.520 we're either at keep pricing, were possibly very close to 0:18:02.560 --> 0:18:06.040 peak pricing. We think at the beginning of February you've 0:18:06.080 --> 0:18:09.240 got a shot at improving the supply chain, which puts 0:18:09.240 --> 0:18:12.679 downward pressure on pricing. And so as they get more aggressive, 0:18:13.160 --> 0:18:15.920 and as the market and some of the market dynamics 0:18:15.920 --> 0:18:18.960 play out, they may not have to be as aggressive 0:18:19.359 --> 0:18:21.399 as a lot of people think. Well, we will see. 0:18:21.880 --> 0:18:23.840 And the last thing I would point to and this 0:18:23.840 --> 0:18:25.720 this comes from our economics team. They did a really 0:18:25.800 --> 0:18:29.920 nice job on this. It's not all supply. One of 0:18:30.000 --> 0:18:32.760 the things they pointed out if you look at retail sales, 0:18:32.920 --> 0:18:36.760 retail sales is up from the pre pandemic peak in 0:18:36.840 --> 0:18:40.560 twenty months post grade financial crisis. It took years for 0:18:40.600 --> 0:18:43.280 that to occur. So the demand side has been off 0:18:43.320 --> 0:18:45.680 the charts. And we used to joke around with people 0:18:45.720 --> 0:18:49.239 that last year what the consumer would say is if 0:18:49.280 --> 0:18:51.919 you raise prices teen percent, we'll take two. Now they 0:18:51.920 --> 0:18:54.359 didn't actually say that, but it gives you an indication 0:18:54.440 --> 0:18:57.960 of how price. They didn't care about price at that 0:18:58.000 --> 0:19:00.119 point in time, and now we think they will be 0:19:00.160 --> 0:19:02.880 a lot more price conscious and many of these factors 0:19:02.920 --> 0:19:07.640 will lead to lower inflation. And I think again, many 0:19:07.680 --> 0:19:10.400 more people now that they see the curve flattening, break 0:19:10.480 --> 0:19:14.160 evens coming down, and things beginning to slow, more confidence 0:19:14.200 --> 0:19:16.240 in the FED and the fetacing all the things you 0:19:16.240 --> 0:19:19.239 would expect them to say as you start to a 0:19:19.280 --> 0:19:24.040 tightening cycle. Chris one prediction. I've really found interesting. Uh 0:19:24.240 --> 0:19:26.240 number eight on the list. I think we're jumping around 0:19:26.280 --> 0:19:30.800 here counting down like David Letterman style, but let me 0:19:30.840 --> 0:19:33.399 just read it to you and uh talk about this 0:19:33.440 --> 0:19:36.359 a little bit. With about one quarter of US household 0:19:36.400 --> 0:19:40.600 assets invested in equities and the FED retiring the transitory phase, 0:19:41.119 --> 0:19:44.520 the Fed's implied put is lower, while the equity markets 0:19:44.600 --> 0:19:49.560 economic real impact is higher. This that's a good one 0:19:49.600 --> 0:19:52.119 to me. I think it's you know, to some degree, 0:19:52.200 --> 0:19:54.399 you know, question one I guess would be, you know, 0:19:55.280 --> 0:19:57.720 is that time part of that time percent correction trying 0:19:57.720 --> 0:19:59.760 to sort of price figure out where the price of 0:19:59.800 --> 0:20:02.960 that put is and walk us through what you you know, 0:20:03.000 --> 0:20:06.760 what you mean about their economic real impact is higher? Um, 0:20:07.000 --> 0:20:09.600 you know what it would a really weak stock market, 0:20:09.720 --> 0:20:14.199 sort of depressed consumer spending, consumer confidence, and eventually you know, 0:20:14.359 --> 0:20:17.040 put that FED put into play, walk us through how 0:20:17.080 --> 0:20:19.800 that you see all that playing out this year. So 0:20:19.800 --> 0:20:21.840 so the first thing I'll say is that that's a 0:20:21.920 --> 0:20:25.600 savory veteran market call out, that that that is really 0:20:25.640 --> 0:20:27.719 one of the things that we've been harping on, and 0:20:27.760 --> 0:20:30.600 it's kind of you know, people aren't quite grasping it 0:20:30.760 --> 0:20:34.040 just yet, because what we're saying is, hey, balance sheets 0:20:34.040 --> 0:20:37.000 are a lot stronger, no doubt about it. Right. House 0:20:37.040 --> 0:20:40.200 prices are up, Equity prices are up, people have more cash. 0:20:40.600 --> 0:20:43.879 Balance sheets are fantastic. But what they're missing is there's 0:20:43.880 --> 0:20:46.679 a lot more equity risk on the balance sheet today 0:20:46.760 --> 0:20:49.159 than there's ever been. If you look back to the 0:20:49.200 --> 0:20:52.880 percentage of the balance sheet a decade ago is about 0:20:53.560 --> 0:20:57.320