WEBVTT - Bloomberg Wall Street Week: September 30, 2022 0:00:00.520 --> 0:00:03.760 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.880 --> 0:00:07.120 to the markets this week. U s CPI never's reinforcing 0:00:07.160 --> 0:00:10.639 concerns about inflation. The financial stories that chief are worth 0:00:10.720 --> 0:00:13.480 a really different reaction to mark. Its more indications of 0:00:13.640 --> 0:00:16.239 just how hot the U. S economy really is. Through 0:00:16.239 --> 0:00:19.520 the eyes of the most influential voices Larry Summers, the 0:00:19.560 --> 0:00:22.479 former Tritor Secretary, Katherine Keating, CEO of the n y 0:00:22.560 --> 0:00:26.160 Mollen Sam's l Sharman and founder of Equatic Group Investment. 0:00:26.200 --> 0:00:29.920 In Bloomberg Wall Street Week with David Weston from Bloomberg 0:00:29.920 --> 0:00:32.920 Ready storm season, from pipeline leaks in the North Sea 0:00:32.960 --> 0:00:35.559 to emergency repair of a broken guilt market in the 0:00:35.640 --> 0:00:40.000 UK to Hurricane Ian rampaging through Florida. This is Bloomberg 0:00:40.000 --> 0:00:43.720 Wall Street Week. I'm David Weston. This week's special contributor 0:00:43.800 --> 0:00:46.199 Larry Summers and the Bank of England's abrupt move to 0:00:46.280 --> 0:00:50.760 shore up the British bond market. We're in very complex 0:00:50.920 --> 0:00:55.960 and uncharted territory with what's happening in the UK and 0:00:56.040 --> 0:00:59.800 New Vine CEO jose meniah On seeking refuge from the 0:01:00.040 --> 0:01:03.040 dorm in the market. It's not just about stocks and bonds. 0:01:03.080 --> 0:01:19.559 Now it's about alternatives. It was a week of stormy weather, 0:01:19.880 --> 0:01:23.119 starting with unexplained leaks in the nord Stream pipeline off 0:01:23.160 --> 0:01:26.399 the coast of Denmark, something special Climate Envoy John Kerry 0:01:26.440 --> 0:01:29.840 says is a real risk for the environment. This is 0:01:29.880 --> 0:01:34.000 a massively bubbling up under the water. Methane is twenty 0:01:34.000 --> 0:01:37.520 eight times more damaging than c O two, so it 0:01:37.560 --> 0:01:40.560 has a profound impact in adding the amount of methane 0:01:40.560 --> 0:01:43.319 in the air. A major storm hit the market for 0:01:43.360 --> 0:01:46.679 British government bonds this week, triggered by the new government's 0:01:46.720 --> 0:01:50.480 proposed tax cuts, which had unintended consequences for the big 0:01:50.520 --> 0:01:54.080 pension plans as guilt yields shot up, requiring the Bank 0:01:54.080 --> 0:01:57.160 of England to step in. As explained by former MPC 0:01:57.360 --> 0:02:01.560 member Kristen Forbes, we are now in situation every central 0:02:01.560 --> 0:02:04.559 banker doesn't want to be in where the fiscal side 0:02:04.680 --> 0:02:07.240 is going in a direction opposite what the monetary side 0:02:07.280 --> 0:02:09.960 is trying to do. The US banks weren't immune from 0:02:09.960 --> 0:02:12.840 the stormy weather either, as major banks were hit with 0:02:12.960 --> 0:02:16.240 one point eight billion dollars in fines for improperly allowing 0:02:16.280 --> 0:02:20.120 their employees. Even some executives to use social media outlets 0:02:20.160 --> 0:02:24.520 outside the record keeping requirements. Regulators reached settlements with a 0:02:24.520 --> 0:02:29.320 dozen banks for failing to monitor employees communications unauthorized messaging 0:02:29.320 --> 0:02:32.760 apps like WhatsApp. And then there was the big storm, 0:02:32.960 --> 0:02:36.240 Hurricane Ian that came up through the Caribbean and slammed 0:02:36.280 --> 0:02:40.080 into Florida, causing destruction. We're still getting our arms around 0:02:40.320 --> 0:02:42.680 the pictures that were coming out of Florida where you know, 0:02:42.720 --> 0:02:46.000 there was just nifting cars up and floating down the street, 0:02:46.120 --> 0:02:48.880 you know, yet corn affter pictures of beautiful little homes 0:02:48.880 --> 0:02:50.720 and then all you could see if the tops of 0:02:50.720 --> 0:02:53.440 the roots. So the storm search looked up to the hype, 0:02:53.480 --> 0:02:57.320 but a really diffut a day. And the markets they 0:02:57.360 --> 0:03:00.440 reflected all that stormy weather with stocks close and down 0:03:00.480 --> 0:03:02.480 for the week, down for the month, and down for 0:03:02.520 --> 0:03:05.720 the quarter. The SMP five hundred lost two point nine 0:03:05.720 --> 0:03:07.520 percent for the week and closed the quarter at the 0:03:07.520 --> 0:03:10.800 lowest point in two years, finishing under thirty six hundred, 0:03:10.919 --> 0:03:13.200 while the NASDA gave up two point seven percent for 0:03:13.240 --> 0:03:15.800 the week, down four point one percent for the quarter. 0:03:16.160 --> 0:03:18.480 Bonds sold off as well, with the yield on the 0:03:18.520 --> 0:03:22.160 tenure up thirteen basis points since the week began, ending 0:03:22.240 --> 0:03:24.600 up at three point a two. And here to take 0:03:24.680 --> 0:03:27.560 us through another tough week in the markets are David Bianco, 0:03:27.720 --> 0:03:31.480 chief investment Officer at DWS America, and Lori Calvacina, head 0:03:31.520 --> 0:03:34.920 of equity strategy at RBC Capital Markets. Welcome both of 0:03:34.920 --> 0:03:36.680 you to Wall Street. Good to have you back. So 0:03:36.760 --> 0:03:38.880 let me start with you, David, and the most basic question, 0:03:38.920 --> 0:03:40.720 how bad is it going to get? How bad is 0:03:40.720 --> 0:03:42.840 it gonna get? Well, thank goodness it's Friday. The weekend 0:03:42.840 --> 0:03:46.920 should be a reprieve. Uh. Tough day, tough week, tough year. 0:03:47.040 --> 0:03:51.480 The SMP five hundreds down from its all time high. 0:03:51.520 --> 0:03:54.080 This is uh, this is a bear market. I find 0:03:54.080 --> 0:03:57.680 myself thinking about the nineteen seventies lately, and I think 0:03:57.720 --> 0:04:00.800 something to keep in mind is that you bear market 0:04:01.440 --> 0:04:04.160 when the Fed was fighting inflation aggressively. Back then the 0:04:04.280 --> 0:04:11.240 SMP fell, But in the SMP fell, So I think 0:04:11.240 --> 0:04:13.960 a key question is is this the beginning of a 0:04:14.000 --> 0:04:16.920 high inflationary period? Where we near the end of a 0:04:16.960 --> 0:04:19.520 high inflationary period. If you think we're near the end 0:04:19.560 --> 0:04:22.560 of a high inflationary period, the worst is largely behind 0:04:23.480 --> 0:04:26.000 and the market shouldn't go too much further down. But 0:04:26.080 --> 0:04:28.320 that's the key question, Laura, I'm not feeling much better. 0:04:29.440 --> 0:04:31.000 What do you think? All right, I'm going to try 0:04:31.040 --> 0:04:33.160 to make you feel a little bit better. Um. So, look, 0:04:33.200 --> 0:04:35.679 we think that the market is set to stage a major, 0:04:35.800 --> 0:04:38.800 major battle at thirty five level. And the reason for 0:04:38.839 --> 0:04:40.839 that is if you look back over the course of 0:04:40.839 --> 0:04:44.320 recessions into the thirties, a median recessionary draw down is 0:04:44.360 --> 0:04:47.080 about twenty seven percent, and so we'll get there when 0:04:47.080 --> 0:04:50.479 we're around thirty on the smp UM. And I still, 0:04:50.520 --> 0:04:52.880 as I talked to investors, I think many are still 0:04:52.920 --> 0:04:55.760 in the mild, kind of quicker, shallow camp. But do 0:04:55.839 --> 0:04:58.440 think there's gonna be a sluggish growth backdrop afterwards. I 0:04:58.440 --> 0:05:00.599 think people are not really looking for an anything major 0:05:00.680 --> 0:05:03.320 like what we had in the financial crisis. So I 0:05:03.360 --> 0:05:05.440 think that at least we've gotten that at our back 0:05:05.720 --> 0:05:07.479 I will tell you if you think about kind of 0:05:07.480 --> 0:05:09.680 where investors heads are at. Something else that makes me 0:05:09.720 --> 0:05:12.000 feel a little bit better is I'm not sensing a 0:05:12.000 --> 0:05:15.240 ton of panic. Definitely alarm um. But the big question 0:05:15.240 --> 0:05:17.720 of the day is what do higher rates for longer 0:05:17.920 --> 0:05:22.159 mean for valuation multiples? And that's a very constructive conversation. UM, 0:05:22.160 --> 0:05:24.680 and we've done some work suggesting that we're probably getting 0:05:24.680 --> 0:05:27.560 pretty close if you hit that level on the SMP 0:05:27.680 --> 0:05:29.880 to the same kind of multiple contraction you saw back 0:05:29.880 --> 0:05:32.360 in the seventies over the course of the entire decade. 0:05:32.360 --> 0:05:33.839 I want to come back to earnings. But before that, 0:05:33.880 --> 0:05:36.440 we just heard from Laura shortened shallow. I think you said, 0:05:36.480 --> 0:05:39.120 I think he's referring to a recession. Are you rejecting recession? 0:05:39.400 --> 0:05:41.520 And I guess my question really is, normally, if you 0:05:41.600 --> 0:05:43.840 have a recession, we turn our heads and look at 0:05:43.839 --> 0:05:46.039 the FED and say, okay, please cut rates. Do we 0:05:46.120 --> 0:05:48.680 have much room to really deal the recession if and 0:05:48.680 --> 0:05:51.719 when it comes. We're expecting a shortened shallow recession, but 0:05:51.880 --> 0:05:55.120 we're a bit concerned that the troughs might linger. Well. 0:05:56.920 --> 0:05:59.720 We're not expecting a V shaped recovery after the small 0:05:59.760 --> 0:06:01.480 rest US and I think it's gonna be slow real 0:06:01.560 --> 0:06:05.480 growth afterward. The trouble here is that the FED can't 0:06:05.560 --> 0:06:08.800 rescue US because of the inflation problem, and they can't 0:06:08.800 --> 0:06:12.400 attempt to rescue the equity market or even the economy 0:06:12.480 --> 0:06:15.440 broadly until they're confident that the inflation battle has been 0:06:15.440 --> 0:06:17.880 one so I think what you people know, it's pretty 0:06:17.880 --> 0:06:20.279 clear at this stage the FED is committed to fighting inflation, 0:06:20.600 --> 0:06:23.600 and they've decided they're willing to risk a small moderate 0:06:23.640 --> 0:06:27.080 recession Tolery one to make sure that this inflation beast 0:06:27.120 --> 0:06:29.479 is slain. What are you expecting on earnings? We're expecting 0:06:29.480 --> 0:06:33.200 earnings for two to be two. I think at this 0:06:33.200 --> 0:06:35.520 stage you should not expect any growth. It should be 0:06:35.560 --> 0:06:39.719 flat uree. But every day that goes by, with the 0:06:39.720 --> 0:06:42.799 shocks that we're experiencing, higher interest rates, a super strong 0:06:42.920 --> 0:06:46.159 daughter collapses and other currencies around the world. Even oil 0:06:46.200 --> 0:06:48.279 prices have come down a lot, and we are beginning 0:06:48.279 --> 0:06:49.920 to see a lot of companies come out and say 0:06:50.160 --> 0:06:53.760 things are slowing. Okay, Lori Calvacina and David Bianco will 0:06:53.760 --> 0:06:55.480 be staying with us to you give us some investment 0:06:55.480 --> 0:06:58.200 advice next. That's coming up on Wall three Week here 0:06:58.200 --> 0:07:03.400 on Bloomberg. This is Bloomberg Wall Street Week with David 0:07:03.400 --> 0:07:13.559 Weston from Bloomberg Radio. Frailty thy name is Woman, wrote 0:07:13.560 --> 0:07:18.160 William Shakespeare, thereby proving not only that he was arguably sexist, 0:07:18.560 --> 0:07:21.440 but that he indisputably had no knowledge of Wall Street. 0:07:22.160 --> 0:07:26.040 For the most fickle female of poetic imagination would seem 0:07:26.040 --> 0:07:29.840 a symbol of romantic constancy next to the recent behavior 0:07:29.920 --> 0:07:34.400 of the stock market. Indeed, to paraphrase that other male chauvinist, 0:07:34.520 --> 0:07:39.600 Sigmund Freud, what does Wall Street want? One thing it wanted, 0:07:39.600 --> 0:07:43.680 we were told, was Paul Woker. It got him. That 0:07:43.840 --> 0:07:46.680 was Lewis Ruckheiser, of course, calling Shakespeare a sexist. I 0:07:46.760 --> 0:07:49.960 understand it backage j when the stock market was on 0:07:50.040 --> 0:07:53.480 its upward climb after chair of Walker's interest rate shock therapy, 0:07:53.720 --> 0:07:56.720 and the bull market in bonds was just really getting started. 0:07:56.920 --> 0:07:59.520 By then, the CPI was climbing only two point five 0:07:59.560 --> 0:08:02.400 percent a year. The top movie with Star Wars for 0:08:02.800 --> 0:08:05.920 Return of the Jedi and the Police top the charts 0:08:05.960 --> 0:08:09.440 with every breath you take. Things I can remember actually 0:08:09.560 --> 0:08:12.840 and were welcome back now, David Bianco and Lorie Calvacino. So, 0:08:13.520 --> 0:08:15.240 given what we just talked about, with what's going on 0:08:15.280 --> 0:08:17.760 in the markets, Larry, what's an investor to do? Where 0:08:17.800 --> 0:08:20.120 is their safe harbor from this storm? So look, I 0:08:20.120 --> 0:08:22.000 think it's a question of what your time horizon is, 0:08:22.040 --> 0:08:24.520 and if you're concerned about volatility and markets in the 0:08:24.520 --> 0:08:26.240 near term and want to add some more defense to 0:08:26.240 --> 0:08:28.440 the portfolio. I think the clear choice at this point 0:08:28.480 --> 0:08:31.200 is healthcare. UM. If you look at other defensive sectors 0:08:31.200 --> 0:08:34.240 staples and utilities, you're basically at peak valuation relative to 0:08:34.280 --> 0:08:37.080 the broad market. UM. We also think they're significant earnings 0:08:37.160 --> 0:08:40.320 risk for consumer staples as the consumer weakens, pricing power 0:08:40.320 --> 0:08:42.600 wanes for some of these companies. And also staples have 0:08:42.760 --> 0:08:47.040 massive exposure to the dollar to international issues UM, and 0:08:47.080 --> 0:08:49.800 they're very, very sensitive to a stronger dollar. So I 0:08:49.840 --> 0:08:52.160 think health care you have less of that sensitivity, and 0:08:52.200 --> 0:08:54.959 you have reasonable valuations. It's not a great story, UM, 0:08:54.960 --> 0:08:56.320 but I think it's the best one you can tell 0:08:56.320 --> 0:08:58.280 on the defensives. So what about that? And I think 0:08:58.280 --> 0:09:01.120 of defensive, I think about things like stables or utilities 0:09:01.120 --> 0:09:03.320 and things like that. Good right now, I think the 0:09:03.320 --> 0:09:06.840 consumer staples are not a great place to hide, especially 0:09:06.880 --> 0:09:08.440 if you believe that the market is a you know, 0:09:08.440 --> 0:09:11.160 an a bottoming process. Uh. They are going to suffer 0:09:11.200 --> 0:09:13.560 from the currency hit. They still have a stretch consumer 0:09:14.160 --> 0:09:18.360 packaging costs. So we also prefer healthcare. UM. The thing 0:09:18.360 --> 0:09:20.960 about healthcare is that is not the second largest sector 0:09:21.280 --> 0:09:24.559 of the SMP five hundred, not financials, not industrials, certainly 0:09:24.600 --> 0:09:28.560 not energy or materials. So the SMP is global, the 0:09:28.720 --> 0:09:32.439 SMP is digital tech businesses, and the SMPS medical Now 0:09:32.440 --> 0:09:35.360 the global parts and the foreign currency exposure and helping 0:09:35.440 --> 0:09:37.680 right now. And there's a little bit of valuation risks 0:09:37.679 --> 0:09:40.320 still at some of the big digital names, but the 0:09:40.440 --> 0:09:44.120 medical part has on demanding valuations, and we are quite 0:09:44.120 --> 0:09:46.160 excited about some of the innovation that we're seeing coming 0:09:46.160 --> 0:09:48.040 from the biotech and the and the and the and 0:09:48.080 --> 0:09:50.800 the pharmaceutical companies and medicine makers. You mentioned digital in tech, 0:09:50.880 --> 0:09:52.400 and there are some people, as you know, David, who 0:09:52.440 --> 0:09:54.520 say you want to go into tech right now because 0:09:54.559 --> 0:09:56.640 it comes out of recession. First. It is a bit 0:09:56.679 --> 0:10:00.439 of an early circlical uh it's so or consumer discretionary stocks. 0:10:00.480 --> 0:10:02.760 But every cycle is different, and I think there are 0:10:02.800 --> 0:10:04.520 a few things that we have to be mindful of. 0:10:04.600 --> 0:10:07.000 I think this is going to be the consumer will 0:10:07.040 --> 0:10:10.240 be resilient, but a lot of consumer business models might 0:10:10.280 --> 0:10:11.960 not be able to expand the way they have been 0:10:12.000 --> 0:10:15.160 over the past ten twenty years of low inflation, low 0:10:15.200 --> 0:10:19.200 interest rates. We're trying to find which businesses have that 0:10:19.440 --> 0:10:22.920 long term growth potential through innovation and through solving the 0:10:23.000 --> 0:10:25.840 problems that are causing us to have the weaken productivity. 0:10:25.880 --> 0:10:28.160 One thing is we expect jobs to hold up but 0:10:28.280 --> 0:10:30.760 a small recession. But if you're adding jobs and the 0:10:30.760 --> 0:10:33.800 economy is not growing much, that means productivity is really weak. 0:10:34.280 --> 0:10:36.560 That's where we need companies to address that. That that 0:10:36.559 --> 0:10:39.000 that that problem, which Lauria I think takes us back 0:10:39.040 --> 0:10:41.000 to something David said earlier, which is it depends on 0:10:41.040 --> 0:10:43.439 what you think the comeback and sooner later there will 0:10:43.440 --> 0:10:45.080 be a rebound. What does it looks like? Is it 0:10:45.120 --> 0:10:46.959 a v or is it more gradual, because that will 0:10:47.000 --> 0:10:49.000 affect which one is a better place to be, right. 0:10:49.080 --> 0:10:51.319 I think if you're thinking about rebound place, I think 0:10:51.360 --> 0:10:52.760 you do want to look to some of these beaten 0:10:52.840 --> 0:10:54.959 up growth areas. I think you want to be very selective. 0:10:55.000 --> 0:10:56.600 I think you want to stick with quality. I think 0:10:56.600 --> 0:10:59.719 you want to stick with bigger market caps. But technology 0:10:59.760 --> 0:11:02.240 is area that we think looks really really interesting with 0:11:02.280 --> 0:11:06.080 reasonable valuations. Areas like semiconductors look to me like they've 0:11:06.080 --> 0:11:09.080 bottomed out in terms of earning sentiment. Basically nobody is 0:11:09.120 --> 0:11:11.400 taking numbers up there right now, and that's usually a 0:11:11.400 --> 0:11:13.720 good contrarian buy signal for that part of the market. 0:11:14.240 --> 0:11:15.880 But you know, going back to kind of what does 0:11:15.920 --> 0:11:17.800 this recovery look like. If you think it's going to 0:11:17.840 --> 0:11:19.680 be a hot economy, you want to buy value stocks, 0:11:19.679 --> 0:11:21.480 you want to buy cyclicals. But if you think it's 0:11:21.480 --> 0:11:23.080 going to be a cool economy, you do want to 0:11:23.080 --> 0:11:26.199 buy secular, growth oriented areas of the market. They typically 0:11:26.200 --> 0:11:29.040 outperform when GDP is below two per cent, and I 0:11:29.040 --> 0:11:31.160 think that is probably the kind of recovery we're headed for. 0:11:32.120 --> 0:11:33.720 How do you feel about them? Um, you're asking me 0:11:33.760 --> 0:11:36.360 to talk about my first professional child. So I spent 0:11:36.400 --> 0:11:39.360 a long time covering this space, um, and I think 0:11:39.360 --> 0:11:41.959 people who have covered this space for quite some time 0:11:42.440 --> 0:11:44.880 realized that in the middle of recessions, in the middle 0:11:44.880 --> 0:11:47.440 of these very challenging periods economically, this is when you 0:11:47.480 --> 0:11:49.400 do want to buy them. And if you look at 0:11:49.400 --> 0:11:51.880 small caps, they've been in a trading range versus large 0:11:51.920 --> 0:11:55.319 all year. There's some stability in the performance. They're mostly domestic, 0:11:55.360 --> 0:11:58.160 they're very cheap on valuation, basically at the bottom of 0:11:58.160 --> 0:12:01.040 their of their historical range, and small caps are already 0:12:01.080 --> 0:12:04.640 pricing in a collapse in manufacturing. Two typical troughs and 0:12:04.640 --> 0:12:06.760 a big spike and jobless claims from here. So I 0:12:06.800 --> 0:12:09.520 think the recession is largely baked in, and this is 0:12:09.559 --> 0:12:11.880 where you typically want to be on the rebound, and 0:12:12.240 --> 0:12:15.120 people want domestic us exposure right now. So what about 0:12:15.120 --> 0:12:17.199 that issue domestic us exposure? Do you want to hide 0:12:17.200 --> 0:12:20.920 in America? You want to hide in America for now? Yeah? Um, 0:12:21.200 --> 0:12:24.640 And we are looking for businesses that, like Gloria said, 0:12:24.679 --> 0:12:26.679 the ones that we'll have a strong rebound. We want 0:12:26.679 --> 0:12:28.079 to be a little bit careful in small caps and 0:12:28.120 --> 0:12:30.319 some my conductors for a little longer, but those are 0:12:30.360 --> 0:12:32.920 ones that will likely have v shaped price recoveries once 0:12:32.960 --> 0:12:37.120 we get past this. Um. The cousin of technology is communications, 0:12:37.760 --> 0:12:41.080 and that's been beaten up very badly this year. We 0:12:41.080 --> 0:12:46.680 think that's overdone, so banks and communications, entertainment companies, internet companies. 0:12:46.880 --> 0:12:49.760 We think that's an area where investors can start, um uh, 0:12:50.000 --> 0:12:53.480 stepping up and buying where the reward should be worth 0:12:53.480 --> 0:12:55.520 the risks. I know you've been going around the country 0:12:55.600 --> 0:12:57.720 talking to people. What are you hearing in terms of 0:12:57.760 --> 0:12:59.640 what they're interesting? What are they nervous about when it 0:12:59.640 --> 0:13:02.280 comes to investment. So it's funny I mean, nobody feels 0:13:02.280 --> 0:13:04.880 particularly bullish right now. Um, but I think there is 0:13:04.920 --> 0:13:07.360 a general recognition that people have plenty of defense in 0:13:07.400 --> 0:13:09.959 their portfolio, plenty of safety trades, and so they are 0:13:10.040 --> 0:13:12.200 concerned about when does the market bottom, what do I 0:13:12.240 --> 0:13:14.760 need to own coming out on the other side, because 0:13:14.760 --> 0:13:17.719 I think there's a general recognition that when rebound, when 0:13:17.720 --> 0:13:20.360 the rebound finally does happen, they're under exposed to the 0:13:20.440 --> 0:13:22.640 kinds of things that do well in those rebounds. Do 0:13:22.640 --> 0:13:23.760 you hear from people I don't want to be an 0:13:23.760 --> 0:13:25.200 equities no matter what they are, if this is not 0:13:25.240 --> 0:13:26.880 the time to be an equity, I don't hear that. 0:13:26.920 --> 0:13:28.600 I mean, to be honest, you know, as I talked 0:13:28.640 --> 0:13:31.000 to some of my more bearish kind of global multi 0:13:31.000 --> 0:13:34.280 caap multi asset investors, UM I can usually talk them 0:13:34.320 --> 0:13:36.640 into looking into small caps right now. UM So, I 0:13:36.640 --> 0:13:38.440 think kind of the desire to kind of put everything 0:13:38.440 --> 0:13:40.400 in cash, it's just not something that's in the DNA 0:13:40.480 --> 0:13:42.680 of a lot of these people. But I do think 0:13:42.760 --> 0:13:45.319 even the most barish investors out there are trying to 0:13:45.360 --> 0:13:47.560 figure out what has been de risked and if there's 0:13:47.559 --> 0:13:49.400 an opportunity to put money to work in here and 0:13:49.480 --> 0:13:52.280 ultimately that is very healthy. What are the bonds? Is 0:13:52.280 --> 0:13:54.760 it time to go back into bonds? Well, I think 0:13:54.760 --> 0:13:58.480 it's more of environment to go into bonds right now, 0:13:58.920 --> 0:14:01.560 you know, very short to rage and cash and trying 0:14:01.600 --> 0:14:04.000 to find the equities where the upside is worth taking 0:14:04.000 --> 0:14:05.960 the risks, in the pain and the volatility you'll like 0:14:06.000 --> 0:14:08.240 you to go through the next few months. I think 0:14:08.240 --> 0:14:10.880 this week frayed nerves though a lot of people were 0:14:10.880 --> 0:14:14.160 fairly calm up until this week, and and even today 0:14:14.200 --> 0:14:17.599 didn't end very well. Um, so we still want to 0:14:17.600 --> 0:14:19.680 be a bit cautious. We are acting on this tip, 0:14:19.720 --> 0:14:22.680 we are buying it, but we're also keeping dry powder 0:14:23.480 --> 0:14:28.720 with cash, and it's probably best to just keep in 0:14:28.760 --> 0:14:31.840 mind that this will be a market that I think 0:14:31.880 --> 0:14:35.120 has a rally during the holidays on the idea that 0:14:35.160 --> 0:14:37.360 the FED is done hiking. They won't cut anytime soon, 0:14:37.400 --> 0:14:39.600 but they'll be done hiking probably at the end of 0:14:39.600 --> 0:14:41.760 the year. That probably gives us a rally. But I 0:14:41.760 --> 0:14:44.240 think we find ourselves at these levels once again early 0:14:44.280 --> 0:14:46.960 next year in the spring. Okay, thank you so very much. 0:14:47.000 --> 0:14:48.920 It was great to have you both as Lori Calvacina 0:14:49.160 --> 0:14:53.400 and David Bianco. Coming up, we'll get some advice on 0:14:53.520 --> 0:14:57.320 where investors should hide out in these turbulent times from 0:14:57.400 --> 0:15:02.400 Moving CEO Jose Mania. That's coming up next on Wall 0:15:02.400 --> 0:15:07.160 Street Week on Bloomberg. This is Bloomberg Wall Street Week 0:15:07.360 --> 0:15:19.800 with David Weston from Bloomberg Radio. That rainy day is here. 0:15:20.160 --> 0:15:23.960 Everywhere you look, economies and markets are struggling, with Jason 0:15:24.040 --> 0:15:26.960 Furman of the Kennedy School saying Europe maybe in the 0:15:27.080 --> 0:15:30.000 worst shape. I think Europe is one of the biggest 0:15:30.080 --> 0:15:33.000 risks for a recession. Even as the world was also 0:15:33.080 --> 0:15:35.840 focused this week in the United Kingdom and the British pound, 0:15:36.120 --> 0:15:39.880 something the British Opposition Party hammered home. What we've seen 0:15:40.040 --> 0:15:43.600 in the past few days has no precedent. The government 0:15:43.680 --> 0:15:47.560 has lost control of the British economy and for what 0:15:49.120 --> 0:15:52.520 they've crushed the pound. But what happens in the UK 0:15:52.800 --> 0:15:56.480 and Europe doesn't necessarily stay there. As Atlanta FED President 0:15:56.560 --> 0:15:59.480 Raphael Bostick pointed out, what we've seen in terms of 0:15:59.480 --> 0:16:04.320 Markeury action is that the proposal has really increased uncertainty 0:16:04.720 --> 0:16:07.479 and really cause people the question about what the trajectory 0:16:07.480 --> 0:16:10.000 of the economy is going to be or might be 0:16:10.120 --> 0:16:13.640 moving forward. All of this leads Alvaro Pereira, the chief 0:16:13.680 --> 0:16:16.720 O E c D Economists, to take down growth estimates 0:16:16.840 --> 0:16:20.920 overall worldwide. Our forecast certainly is a challenging one because 0:16:20.920 --> 0:16:24.480 we are forecasting a significant slowdown of the economy um 0:16:24.520 --> 0:16:27.280 to say, the United States growing zero points of episode 0:16:27.280 --> 0:16:31.160 next year, the Euro Area growing zero point globally, we're 0:16:31.160 --> 0:16:34.360 talking about significant slowdown right now. It looks like more 0:16:34.400 --> 0:16:37.040 than just a rainy day. We may be headed into 0:16:37.040 --> 0:16:40.280 a real storm. And if so, where are the ports 0:16:40.400 --> 0:16:43.520 for the smart investor to head into? As we battened 0:16:43.560 --> 0:16:50.120 down the hatches, and we welcome now someone whose job 0:16:50.120 --> 0:16:52.000 it is to figure out how bad the storm is 0:16:52.040 --> 0:16:54.360 and where we should head as investors when it happens. 0:16:54.560 --> 0:16:58.400 He is Jose Mania. He's the CEO of Nuvin. Welcome back. 0:16:58.400 --> 0:16:59.920 Great to have you. Okay, thanks for having me the 0:17:00.280 --> 0:17:03.080 first on the storm as I'm calling it. How bad 0:17:03.200 --> 0:17:06.159 is the storm? Do you think? Economically? Like? The storm 0:17:06.240 --> 0:17:09.160 is choppy, but it hasn't really changed much in our view, 0:17:09.280 --> 0:17:11.919 right I've been going into now the latter half of 0:17:11.920 --> 0:17:14.840 the year. We still see volatility ahead, but you know, 0:17:15.080 --> 0:17:17.920 the fundamentals are strong, and that you're seeing consumer household 0:17:18.119 --> 0:17:20.920 balance sheets are really good, the labor market, so we're 0:17:20.920 --> 0:17:26.040 not really forecasting a prolonged downturn or or recession. That 0:17:26.160 --> 0:17:29.119 being said, I think our view is the same it 0:17:29.240 --> 0:17:32.120 was back in right. We we we've been telling our 0:17:32.119 --> 0:17:35.560 clients be prepared for lower returns in the previous decade, 0:17:35.640 --> 0:17:39.080 be prepared for more volatility and by the way, inflation 0:17:39.280 --> 0:17:40.760 while you haven't seen it for a long time and 0:17:40.840 --> 0:17:42.840 may show up, and here it is in our shores. Right, 0:17:42.840 --> 0:17:46.160 So for us, it's about staying invested, staying disciplined, maybe 0:17:46.160 --> 0:17:49.399 more defensive today, but always diversification. Right, it's not just 0:17:49.440 --> 0:17:52.200 about stocks and bonds now, it's about alternatives. How do 0:17:52.240 --> 0:17:55.240 you get more outcomes and solutions because there's really nowhere 0:17:55.280 --> 0:17:58.040 to hide in a world where all correlations go to one. Well, 0:17:58.119 --> 0:18:00.439 let's talk about it. That exactly as we have a 0:18:00.520 --> 0:18:03.120 federal Reserve and other center banks raising rates, it looks 0:18:03.160 --> 0:18:04.520 like they're going to continue doing it for a while. 0:18:04.640 --> 0:18:07.280 It necessarily takes asset values down, whether it's stocks or 0:18:07.280 --> 0:18:09.560 its bonds, and we're seeing that, goodness knows, in the 0:18:09.600 --> 0:18:12.560 market's overall. Right, Now, what do you do if you're 0:18:12.560 --> 0:18:15.560 an investor in that world, are there some assets that 0:18:15.640 --> 0:18:18.920 are better than other assets? Well, one I would say 0:18:18.960 --> 0:18:21.080 this is where active management I think comes back into 0:18:21.080 --> 0:18:23.879 the fold. Right, So there's going to be winners and losers. Clearly, 0:18:23.880 --> 0:18:27.159 in today's environment, we see buying opportunities. You have to 0:18:27.160 --> 0:18:30.400 be careful at value traps um as well. But then 0:18:30.440 --> 0:18:32.800 you think about inflation rising rates. While you look at 0:18:32.920 --> 0:18:35.439 middle market bank loans, senior loans while they have floating 0:18:35.520 --> 0:18:38.800 rate paper, you think about getting more exposure to commodities, 0:18:39.359 --> 0:18:41.800 things that have a higher correlation to inflation as well, 0:18:42.240 --> 0:18:44.800 real estate um. These are all the different mixes. That's 0:18:44.800 --> 0:18:47.879 why when I talked about diversification, it's like there's active management, 0:18:47.920 --> 0:18:51.040 but there's also you can be more explicit and intentful 0:18:51.400 --> 0:18:54.359 to ride the wave with benefit from rising rates to 0:18:54.600 --> 0:18:58.000 actually be highly correlated to inflation and inflation. Every environment 0:18:58.359 --> 0:19:00.520 in active advantage that you're going to have options to 0:19:00.520 --> 0:19:02.480 any rule, so you have to be careful. But as 0:19:02.520 --> 0:19:05.320 a rule is that it's time to stay away from 0:19:05.359 --> 0:19:07.720 equities because that discount rate is going up and that 0:19:07.840 --> 0:19:10.600 automatically just reduces the value of the equities. I would 0:19:10.640 --> 0:19:13.200 never say it's time to stay away from equities obviously, 0:19:13.320 --> 0:19:17.000 when you know, we believe in staying invested. That being said, today, 0:19:17.240 --> 0:19:20.879 on the margins, we see more value in on the 0:19:20.920 --> 0:19:23.080 fixed and club side versus credit. We see more value 0:19:23.080 --> 0:19:25.320 actually in high yield. Right, you've got a high yield 0:19:25.320 --> 0:19:28.720 market almost topping eight percent in yields. You know, maybe 0:19:28.920 --> 0:19:31.920 again more active management, they're picking the better, better credits, 0:19:31.920 --> 0:19:34.760 stronger credits. So yeah, on average we see a tilte 0:19:34.760 --> 0:19:38.200 more towards fixed income, a tilted more towards private markets. 0:19:38.720 --> 0:19:41.320 But I would never say completely stay away from equities. 0:19:41.359 --> 0:19:43.439 So talk about HW yields because I've heard others suggest 0:19:43.520 --> 0:19:45.840 that's sort of almost a substitute for equities in a way. 0:19:45.960 --> 0:19:48.440 And obviously we're getting some bigger returns now, but we're 0:19:48.440 --> 0:19:51.120 getting bigger returns for a reason. As we're worried about 0:19:51.119 --> 0:19:53.199 a recession of downturn. You're worried about some of those 0:19:53.200 --> 0:19:55.479 companies not being able to pay back the money. And 0:19:55.520 --> 0:19:58.080 by the way we we acknowledge it, actually spreads can 0:19:58.080 --> 0:20:00.440 continue to widen from here. That being said, when you 0:20:00.480 --> 0:20:02.800 look at a risk return perspective, you look at some 0:20:02.920 --> 0:20:05.760 of the most attractive pricing we've seen you know, in 0:20:06.080 --> 0:20:08.400