Speaker 1: Welcome you, trilliance. I'm Joel Webber and I'm Eric Baltis.
Speaker 1: Eric is great to be back in the booth with you.
Speaker 1: I was away for a second. Things didn't go so well. Yeah,
Speaker 1: I had to take over your role, and uh it
Speaker 1: was harder than it looks. I gotta I gotta give
Speaker 1: you credit. I don't think I'm gonna mock you anymore
Speaker 1: after you go on what I call the downward spiral,
Speaker 1: especially in the closeouts. First of all, those are incredibly
Speaker 1: rare and you make a bigger deal than they are.
Speaker 1: But you know, it's great to be back. I missed
Speaker 1: I missed my Tony Romo. How was China? Uh? You know,
Speaker 1: there's the conference. This Bloomberg New Economy Forum that we
Speaker 1: do is really interesting huge, Uh turn out, some really
Speaker 1: significant people and a lot of interesting topics that came up.
Speaker 1: So it was an interesting place to go, especially right
Speaker 1: now and in the midst of all the things that
Speaker 1: are happening in the world. I thought it was really interesting.
Speaker 1: And coming back though, I really wanted to have a
Speaker 1: holiday party. So this episode of the podcast we said,
Speaker 1: why don't We Talk to Our Friends? Is over at
Speaker 1: What Goes Up? Podcast? Also here at Bloomberg, which is
Speaker 1: co hosted by Sarah Ponzic and Mike Reagan. So we
Speaker 1: decided let's bring them on and then let's actually like
Speaker 1: talk about what's gone up this year. Yeah, the past
Speaker 1: couple of our podcast episodes have been a little wonky,
Speaker 1: non transparent active direct indexing platforms. So we thought this December,
Speaker 1: let's wrap up what happened in the market where people
Speaker 1: are investing, and that's their specialty. So um, we thought
Speaker 1: we'd look at what went up and what might go
Speaker 1: up next year. What kind of beverages do you serve
Speaker 1: at holiday parties? I don't really have some two young kids,
Speaker 1: so I parties are like nothing too crazy. I picture
Speaker 1: Eric serving ETF That is holiday party. Like, here's some
Speaker 1: t VIX for you, Uncle Joe, or metaphorically, t vix
Speaker 1: would be like grain alcohol, different alcohols, each with a
Speaker 1: sign spy. Pretty easy, it goes down. Well, yeah, yeah,
Speaker 1: here's some o'duel's little voo for you. You You can't handle anything,
Speaker 1: you know, I want some three X leveraged ets. My
Speaker 1: question for you, I'm gonna turn the tables already. Sure,
Speaker 1: I'm used to asking Eric the questions like ten times
Speaker 1: a day over the incident messenger. But why aren't triple
Speaker 1: X levered e t s the biggest thing in the world.
Speaker 1: If you're gonna be a bowl on the market, go bigger,
Speaker 1: go home, Right, I'm looking at the triple Q. How
Speaker 1: do you how do the cool et f guys called
Speaker 1: the triple Q or the t Q cu cu um,
Speaker 1: the triple Q the q q Q yeah, yeah qq.
Speaker 1: They must have called the cubes back in the day
Speaker 1: when it was four. But I like the t q
Speaker 1: q Q. Yeah. So that's the triple leveraged version of it,
Speaker 1: which I think is up like four thousand percent since
Speaker 1: it came out for the decade. Yeah. The problem with leverage,
Speaker 1: um well, first of all, they do have a good audience,
Speaker 1: but there's um the way they rebalance every day because
Speaker 1: when new people come in, they didn't make sure their
Speaker 1: leverage is reset for that day, and that resetting can
Speaker 1: cause some corrosion and so your your triple leveraged. It
Speaker 1: doesn't exactly in the long term, and that's why the
Speaker 1: three X and negative three can be both down over
Speaker 1: a year. But if something goes up in a nice direction,
Speaker 1: you get compounding effect and actually you can get four
Speaker 1: or five times. But it's a very um weird market
Speaker 1: that has really got some wacky math. But other than that,
Speaker 1: I agree with you. I think, um, you know, I
Speaker 1: think if you talk to those companies, half their investors
Speaker 1: are hardcore traders, small hedge fund types, and half our
Speaker 1: retail day traders, like I think the new day trader
Speaker 1: uses those kind of things, but you can tell from
Speaker 1: the volume they're probably trading a short term with the
Speaker 1: day this time on trillions. What went up? What else
Speaker 1: went up? I want to start with the SMP five
Speaker 1: because it's relentless, and you know, I call the utopia year,
Speaker 1: but I think that year the market was up with
Speaker 1: something like that. It's up more this year, So are
Speaker 1: we like beyond utopia? Like isn't crazy, but it doesn't
Speaker 1: quite feel like it, does it. I'm gonna let me
Speaker 1: read you a little bit from this this uh column
Speaker 1: I edited by our colleague. Ye. She literally everything went
Speaker 1: up in two in this year two tho, I'm still
Speaker 1: check so right right given away my age. So he
Speaker 1: basically looked at every major asset class. Literally not only
Speaker 1: did everything go up, but everything went up way more
Speaker 1: than the average gains over the last year, and I
Speaker 1: mean I'm talking everything from your haven's treasuries up more
Speaker 1: than average e M debt, high yield, gold, everything. So
Speaker 1: I don't know, to be honest, I don't know what
Speaker 1: the takeaway is from that, other than there's just a
Speaker 1: whole lot of money chasing returns this year. So I
Speaker 1: have one theory on it, which is, and Sarah, you
Speaker 1: correct me if I'm wrong. For the most part of
Speaker 1: the year. The last month is an exception because I
Speaker 1: think people just went all in bullish recently. But for
Speaker 1: the first up through Halloween, I felt that there was
Speaker 1: a Trump trade developing, which is, I'm gonna just hang
Speaker 1: onto equities. I'm not gonna sell them, but I'm gonna
Speaker 1: buy gold, treasuries or low ball because Trump's Twitter feed
Speaker 1: bothers me a little bit. I'm a little nervous and
Speaker 1: eighteen just happened, and I'm still a little spook from that.
Speaker 1: So I think that's why you might have had everything
Speaker 1: go up because people I didn't want to sell equities
Speaker 1: because the FED was there, but they also felt nervous,
Speaker 1: so they bought these other things. For the most part,
Speaker 1: I would agree. I mean, you think about the first
Speaker 1: half of the year, there were still a lot of
Speaker 1: nervousness out there. There are a lot of concerns out there,
Speaker 1: and that's why even within the equity market for months
Speaker 1: you saw that defensive trade really take off. They see
Speaker 1: people piling into consumer staples, you saw people piling into utilities,
Speaker 1: real estate. Also because of the bond proxy side of
Speaker 1: those trades. I mean yields coming down to one and
Speaker 1: a half percent this year. US people last December, in
Speaker 1: the beginning, what they would have thought yields were going
Speaker 1: to do. I highly doubt anyone really would have told
Speaker 1: you that yields were going to drop from uh till
Speaker 1: one and a half on the ten years. So that
Speaker 1: really drove the trade for a while. But now in
Speaker 1: the back half of the year, the last couple of
Speaker 1: months or so, now people are starting to question if
Speaker 1: a lot of that was way overdone. So you have
Speaker 1: started to see uh some faults in the bond trades.
Speaker 1: You've seen it in gold as well. However, because they
Speaker 1: had such a strong run up in the beginning of
Speaker 1: the year, there's still up an extreme amount, and all
Speaker 1: year long, you've just had risk assets inequities rebounding as well.
Speaker 1: But you think about the return for the SMP. A
Speaker 1: lot of people, when you say year today, the smps up,
Speaker 1: they're gonna say, wait, wait, wait. But if you look
Speaker 1: back towards the beginning of December, uh, it's not quite
Speaker 1: that high. You have to really take into account the drop,
Speaker 1: the meltdown that we did see at the end of
Speaker 1: last year. Yeah, it's a it was a really weird phenomenon,
Speaker 1: this roaring bowl market being led by defensives. I don't
Speaker 1: I can't remember a time when I've seen that. You
Speaker 1: saw what looked like out of textbook what they would
Speaker 1: call crowded trades and these staples and utilities. I mean,
Speaker 1: some the valuation is just going through the roof for
Speaker 1: these really defensive sectors. So a strange year for sure.
Speaker 1: And lately I've started to see some research to looking
Speaker 1: at the latest rally that we have seen, talking about
Speaker 1: the proverbial or really scary blow off top that you
Speaker 1: get before a bear market, or that you get before
Speaker 1: a recession. Uh. Some shops pointing out that as of
Speaker 1: the end of November, if you had looked at stocks
Speaker 1: on a one to four all the way through fifty
Speaker 1: two week basis, the return was positive on all of
Speaker 1: them saying that, Okay, maybe this is it, but you
Speaker 1: continue to have investors in the majority I speak with,
Speaker 1: say you think about the caution that is out there,
Speaker 1: that being the makeup of what's driven returns for a
Speaker 1: decent amount of the year, but also flows too. If
Speaker 1: you look at so far this year, fixed income ets
Speaker 1: have taken in more than equity ts for the first
Speaker 1: time since two thousand nine, And a lot of people
Speaker 1: keep talking about this cash on the sideline, which I
Speaker 1: find interesting. Yes, you can look at mutual phone outflows. Uh,
Speaker 1: there certainly is a lot of caution out there. But
Speaker 1: ned Davis has another way of looking at it which
Speaker 1: I've kind of taken to, and they look at cash
Speaker 1: actually as a percentage of total market cap, because if
Speaker 1: you look at the absolute level of cash right now
Speaker 1: on the sidelines or cash in money markets, then sure
Speaker 1: it's high. But if you actually look at it relative
Speaker 1: to market cap, because obviously there's a lot more value
Speaker 1: in the markets right now as a whole since two
Speaker 1: thousand and nine, it's actually pretty low, which makes you think, sure,
Speaker 1: on an absolute level, there's a lot of cash on
Speaker 1: the sidelines, but not actually relative to the actual market
Speaker 1: cap out there, and you know one headline that I
Speaker 1: picked some headlines out that you guys wrote that you're
Speaker 1: talking about that I think captured. The year is here.
Speaker 1: It is sick with recession fever. Investors make power their drug,
Speaker 1: and to me, UM, I felt like the FED has
Speaker 1: been the drug for ten years. Was a year we
Speaker 1: saw the patient off the drug and it spassed out.
Speaker 1: Everything went down like that was the year everything went down.
Speaker 1: But then beginning of this year, Powell came out reassured markets.
Speaker 1: Trump's pressure on him I think is part of the deal. Um,
Speaker 1: But it seems like recession impeachment. I track the mentions
Speaker 1: of these words and they spike up, and they're scary words,
Speaker 1: especially recession. But spy volume never really gets shaken, which
Speaker 1: is a fear gauge. I use, nobody's really doing much.
Speaker 1: I think there's headlines and sentiment gets crazy for a
Speaker 1: week here and there, but people just I guess the
Speaker 1: all comes back to the FED being their drug. As
Speaker 1: long as they get that hit, Um, everything else will
Speaker 1: be short lived. And is that really the case? And
Speaker 1: how does this end? I think something that people are
Speaker 1: going to be studying for years is what happened in
Speaker 1: the repo market this year, and how the FED kind
Speaker 1: of came in to rescue save the day by holding
Speaker 1: these auctions repo auctions. Now everyone's saying it's not quantitative easing,
Speaker 1: it's not quantity of easing, okay, But the Fed expan
Speaker 1: of their bounce sheet by more than a quarter trillion
Speaker 1: dollars within a few months. And a big reason why
Speaker 1: I think you have to assume they did that is
Speaker 1: because here we are running a growing economy and yet
Speaker 1: we're blowing out the federal budget deficit to a trillion
Speaker 1: dollars a year. Everyone got a tax cut, corporations got
Speaker 1: a tax cut. So there is all this money chasing
Speaker 1: all sorts of assets around right now. Extra money. So yes,
Speaker 1: the FED did reverse course on rates and uh, you know,
Speaker 1: started lowering rates. That's one part of it. But I
Speaker 1: would not discount the effect of their moves in the
Speaker 1: repo market because they kept by keeping those uh treasury
Speaker 1: bill rates low. Um, you uninvert the yield curve, so
Speaker 1: people stop worrying about that. All this would qualify under
Speaker 1: the FED. Has the markets back, Yeah, absolutely, And I
Speaker 1: would say even Trump wants to Fed to have the
Speaker 1: markets back right. This is all speculation, but there are
Speaker 1: a lot of people throwing around the idea that a
Speaker 1: few weeks ago when Powell met with manution in Trump,
Speaker 1: that maybe that was something they discussed. If they decided
Speaker 1: to pull the plug on the trade war, do something unexpected,
Speaker 1: will the FED have the markets back? And I've spoken
Speaker 1: to a couple of people, including the head of asset
Speaker 1: Allocation UH this week over for Pacific Life Investments, who
Speaker 1: said that's part of the reason that we are seeing
Speaker 1: this end of year rally continue. I spoke with another
Speaker 1: investor at another point this week who said that he
Speaker 1: sees the possibility that the FED could actually cut rates
Speaker 1: on the first quarter of next year. Also part of
Speaker 1: the reason that the market is continuing to gain, not
Speaker 1: because they think we're going to fall into a recession,
Speaker 1: but because if something unexpected does happen on the trade front,
Speaker 1: or if you do continue to see some deterioration and
Speaker 1: growth but that's not horrible, well, the FED has your back,
Speaker 1: and the FED put is still there, the power put
Speaker 1: is still there, and that's part of the reason we
Speaker 1: continue to see this risk on attitude. There's people on
Speaker 1: Twitter and they are very funny they'll see something like
Speaker 1: I heard today, like somebody taped a banana to a
Speaker 1: wall and it sold in an art exhibit for like
Speaker 1: a d and the person will just say, FED definitely
Speaker 1: has to cut rates or s andp hits all time five,
Speaker 1: FED has to cut rates. They're making fun of like
Speaker 1: it's the best market all time highs all the time.
Speaker 1: Yet Trump's on the FED to cut rates, and I
Speaker 1: kind of get it. I mean, it's almost become a joke. Sir.
Speaker 1: You mentioned something about growth and value a second ago.
Speaker 1: Can we dwell on that for a little bit, because
Speaker 1: this has been actually been a kind of a remarkable
Speaker 1: year for value of all things. So I'd say over
Speaker 1: the last couple of months, if you still look over
Speaker 1: the year, growth not so much in e t F
Speaker 1: flows because we started have started to see a lot
Speaker 1: of et F flows going into not so much just
Speaker 1: value funds like low volatility funds, dividend funds, also those
Speaker 1: bond proxy areas of the market. But if you look
Speaker 1: at performance, I mean, gross had a pretty stilar year
Speaker 1: from the beginning of the year as well. But what
Speaker 1: happened and my colleague Lucawa wrote about it very very
Speaker 1: early on after the steps that happened with Whee Work,
Speaker 1: and he called it the we Work flu the idea
Speaker 1: that all of a sudden, people are going to start
Speaker 1: actually caring about profits again and stop throwing money at
Speaker 1: companies that just have have very high growth prospects. And
Speaker 1: we did see that play out for quite a while.
Speaker 1: We saw it happen with certain companies after earnings. Twitter
Speaker 1: comes to mind, for example. UM. But then we saw
Speaker 1: if I focus on software companies one portion of growth,
Speaker 1: we saw software start to perform pretty well. Again. One
Speaker 1: thing in there is like we work being classified as
Speaker 1: a tech company. Right, everybody came back to reality, Well,
Speaker 1: everything is a tech company. But can I just go
Speaker 1: over this one headline that is totally on this topic.
Speaker 1: I think who wrote it? I think Sarah did. This
Speaker 1: is UM after latest IPO setbacks, there's unicorn blood on
Speaker 1: the streets. That was That was an early, early story.
Speaker 1: That was a business week. Yes it was business people
Speaker 1: get started. That was no problems. But the problem is
Speaker 1: I I wasn't even aware because I've probably written something like, yeah,
Speaker 1: that one was. That was the story. You know, when
Speaker 1: we um a business week, we're thinking about the year
Speaker 1: we did a cover story back in like March, I
Speaker 1: think right as Uber basically listed in I p O
Speaker 1: that we kind of wanted to mark that moment and
Speaker 1: we did cover that had that was by both of
Speaker 1: these guys, both Mike and Sarah about um, the moment
Speaker 1: of private companies leaving Matt what Matt Levien calls the
Speaker 1: enchanted forest of the private markets for the public markets.
Speaker 1: And we marked that moment with a cover story that
Speaker 1: had a Instead of a deer crossing a road, it
Speaker 1: was a unicorn um, which I thought was fitting because
Speaker 1: you know, deer get hit by cars all the time,
Speaker 1: and like, some of these companies are not going to
Speaker 1: make it to the other side of the road. Uh,
Speaker 1: and they and they actually you know, for a long time,
Speaker 1: a lot of them have struggled and I think will
Speaker 1: continue to of them struggle, with Uber being one of
Speaker 1: one of those examples. But later on in the year
Speaker 1: we came back to it with another story which was
Speaker 1: how bloody this this has been for all these companies, right,
Speaker 1: and that really that headline relates exactly to that theme,
Speaker 1: because man, we saw blood bath for a while and um,
Speaker 1: just I want to go back to growth and value
Speaker 1: because I feel like, and Michae will get this because
Speaker 1: he's a sixers fan. Value is like when Ben Ben
Speaker 1: Simmons hitting a jump shot because he's so bad, so
Speaker 1: he hit a three pointer and the place why crazy,
Speaker 1: Like they won the championship. Value was up this year.
Speaker 1: Growth was up thirty like, just because value didn't lose
Speaker 1: by more. It's like a big year for value. I
Speaker 1: know what you mean. It seems like value had its
Speaker 1: big year, but it's still trailed the market and it's
Speaker 1: still lost to growth again. So it's just it's relative
Speaker 1: to its it's relative because the past performance has been
Speaker 1: I think value it's called a little bit because people
Speaker 1: like it's so bad. I thought you were going to
Speaker 1: go with the Marquel false example of Orlando getting stepping
Speaker 1: up the biggest value stock in the NBA history. Um, yeah,
Speaker 1: I was. Actually Joel has this list for Business Week
Speaker 1: called the Jealousy List. Uh, And I was, you know,
Speaker 1: scrambling around lookier than me. It's the Business Week Business
Speaker 1: Week guest and and forthcoming. Still, Joel informed me he
Speaker 1: was looking for submissions to this after the deadline already.
Speaker 1: So I'm go scrambling around looking looking for examples, and
Speaker 1: Josh Brown. You know, the Reformed Broker blog had a
Speaker 1: really what I thought. I didn't submit it because and
Speaker 1: I'll explain why. But it's definitely an honorable mention because
Speaker 1: he it's before the value rotation started, and he's talking.
Speaker 1: He basically tries to explain why growth is it, why
Speaker 1: it has been for the last decade, and he does
Speaker 1: this great job of it. You know, I actually have
Speaker 1: in front of me. Is like an analysis of book
Speaker 1: value captures things like plant and equipment and facilities and
Speaker 1: hard money, real assets that corporations have managed to accumulate
Speaker 1: over their lifetimes. We're saying, in an era of cheap,
Speaker 1: free money, you don't value of those things anymore because
Speaker 1: they're depreciating assets obviously, So what do you value? You
Speaker 1: value this recurring revenue stream that you get from from
Speaker 1: the dot com you know, your your Google's and your
Speaker 1: facebooks and that's that sort of thing. But he makes
Speaker 1: the point I might be calling the top here of growth,
Speaker 1: you know, very self aware. But the reason I didn't
Speaker 1: submit it is because he does give we Work as
Speaker 1: an example of why growth. Everyone everyone loves growth. But
Speaker 1: I will go out on a limb and say, uh,
Speaker 1: the story is still true. I think growth is perennially perennially,
Speaker 1: perennially perennially. Yeah, this is why, Sarah, we're halfway through
Speaker 1: the party. I'm gonna just predict I don't think the
Speaker 1: value rotation is gonna last forever. I mean, I think
Speaker 1: growth is is what investors want going forward. Can you
Speaker 1: pull his duels bies? You know. I think it's an
Speaker 1: interesting take because after we did see those couple of
Speaker 1: teks of immense value at performance, all of a sudden,
Speaker 1: value managers or even people who aren't value managers but
Speaker 1: aren't growth managers, are saying, Okay, this is values time.
Speaker 1: They've been under performing for way too long. Uh, they've
Speaker 1: got to come back on top at that point, right,
Speaker 1: But they've said it so many times, but actually came
Speaker 1: out right. So Cliff as News, he is known he
Speaker 1: does not like to time the markets, and he actually
Speaker 1: did put out an entire research paper talking about quote
Speaker 1: unquote sinning a little and maybe timing the market a
Speaker 1: bit and saying this could be the time for value.
Speaker 1: But I find it interesting because in the beginning of
Speaker 1: the year or the past couple of years, when you
Speaker 1: talk to investors about the growth out performance. They say,
Speaker 1: the fact of the matter is we are in a
Speaker 1: glow growth environment, and that is when growth that performance
Speaker 1: because people need to go look for growth. Well, if
Speaker 1: you think about the economic environment for next year, how
Speaker 1: is it any different with us GDP expected to be
Speaker 1: one cent sub two percent or around two percent at least.
Speaker 1: I mean, you're not saying that we have a very
Speaker 1: high growth environment that value should outperforming technically, Yeah, And
Speaker 1: I you know, I don't like to look at growth
Speaker 1: and value as sort of these separate asset classes. I
Speaker 1: think it's a matter of what stocks are considered value
Speaker 1: at any given time. And this year it was those
Speaker 1: very cyclical you know, banks, financial companies, UH, material commodity producers.
Speaker 1: And again it's that that sense that everyone had sort
Speaker 1: of recession fever earlier in the year, and those stocks
Speaker 1: were just you know, unloved to the point where they
Speaker 1: got ridiculously cheap in a lot of cases on a
Speaker 1: relative basis, you know, cheap in a in a an
Speaker 1: expensive market otherwise expensive market. So they're gonna kind of
Speaker 1: mean revert back to a reasonable valuation. I don't know
Speaker 1: if it necessarily signals this total regime shift where we're
Speaker 1: gonna see a decade of value outperformance. We did you
Speaker 1: know two thousand nine was a good year for value,
Speaker 1: So I think if there's some kind of a sell off,
Speaker 1: the rebound will be very good. By the way, interesting
Speaker 1: factoid on how growth and value can be a blurry
Speaker 1: apple isn't exactly fourteen value et f s and fourteen
Speaker 1: growth each. I love about that. UM. So there's a
Speaker 1: lot of stocks that you you know, well, you just
Speaker 1: can't miss out on a stock that's up this year,
Speaker 1: so you just gotta put them in everything. It looks
Speaker 1: back again, and at this time of year, there are
Speaker 1: a lot of different UH investment firms that start having
Speaker 1: their outlook events and I was that one recently, and
Speaker 1: I've also been reading a lot of outlooks, and it's
Speaker 1: unbelievable how many firms right now for their expectations for
Speaker 1: if you're just talking about equities US equities, you asked
Speaker 1: some of stocks are likely going to go up? They
Speaker 1: say yes, because stocks typically go up. You say how
Speaker 1: much every single time? Load of mid single digits. No
Speaker 1: one has high conviction about this rally that we saw
Speaker 1: this year really continuing on with the force UH that
Speaker 1: we've seen it. And part of that is because this
Speaker 1: year you had such multiple expansion on the back of
Speaker 1: the Fed cut rates, expectations for a trade deal, and
Speaker 1: now at this point you really do need to get
Speaker 1: growth in profits. And JP Morgan Asset Management really dived
Speaker 1: into this and their outlook to help the market move higher.
Speaker 1: And even if we don't get those ten EPs growth
Speaker 1: in the SMP five hundred stocks next year, that's fine,
Speaker 1: but you need to have some growth and right now
Speaker 1: that's the expectation. And can you talk about these calls? Um?
Speaker 1: You know, people out there, I don't know how many
Speaker 1: regular people read these calls, but they're in the financial
Speaker 1: media a lot. Goldman says this, and to me, it
Speaker 1: just seems like they packaged the last three or four
Speaker 1: months and and put the future tents on it, like
Speaker 1: it's kind of a cop out, Like nobody ever makes
Speaker 1: any really legitimate calls. Um. You know, the biggest one
Speaker 1: that I remind was reminded of is in right late
Speaker 1: Jamie Diamond of JP Morgan, who would know more than
Speaker 1: just about anybody, right, basically, didn't he make a rate
Speaker 1: call that they could go up to like four point
Speaker 1: five percent? And they didn't exact opposite. Um, how much
Speaker 1: to these calls just to feel content versus people trade
Speaker 1: off of them? You know, I think when you look
Speaker 1: at those year end targets that that bank strategists put out, Um,
Speaker 1: the intended audience for those things is us. It's the media,
Speaker 1: you know, and you bite every time. It's like a
Speaker 1: juicy worm. Think about it. Who who really invests based
Speaker 1: on a December thirty one? Yeah, you gotta you gotta
Speaker 1: be done by that. And off the record, I think
Speaker 1: a lot of them will confess that to us. But
Speaker 1: if you really dig into the notes further and you
Speaker 1: get their their sort of sector calls and and there,
Speaker 1: you know different stuff like that, there is value there,
Speaker 1: and there's value I think into knowing what Goldman is
Speaker 1: expecting right, um. And you know, if you can bring
Speaker 1: yourself to disagree with them, if your analysis says differently,
Speaker 1: then you know, to to know that you're betting against
Speaker 1: Golden I think gives you, uh, you know, to go
Speaker 1: against the consensus is kind of what everyone wants to
Speaker 1: do in Wall Street. You want to be that contrarian.
Speaker 1: Uh So, I don't know, I none of us have
Speaker 1: done sort of the back test of all their calls
Speaker 1: and and tested them to see who's the most accurate
Speaker 1: year every year? We probably should start start. I can
Speaker 1: feel it. I can feel like I feel like they're
Speaker 1: like active managers, tend to beat the s and p
Speaker 1: a third of them do. I feel like about a
Speaker 1: third of the calls are right. I feel like more
Speaker 1: are you know, wrong than not? UM, But they provide context,
Speaker 1: they give you something to talk about that a lot
Speaker 1: of the data is very interesting. UM. They don't have
Speaker 1: to be right every time, but it would be cool
Speaker 1: to have their batting average like a baseball player like
Speaker 1: this this this person who made this call is batting one.
Speaker 1: D Okay, well listen to that guy. You can get
Speaker 1: the ticker and then track it. I always feel bad
Speaker 1: for them with the the year end call. You know,
Speaker 1: it's like imagine you're a weatherman and they're like, what's
Speaker 1: the forecast for next few year's day? You know, it's
Speaker 1: like how cold? I think where you get value? And
Speaker 1: I think even you'll read these outlooks and a lot
Speaker 1: of them will be focused on the year ahead, so
Speaker 1: we'll be focused on But if you speak with the
Speaker 1: strategists actually behind the forecast, I'm writing the forecast. They'll
Speaker 1: say to you, yes, this is our view on what's
Speaker 1: likely to happen in but many of them have much
Speaker 1: higher conviction further out. A lot of their investors are
Speaker 1: not just positioned for the year, so they want to
Speaker 1: have a sense on where things are going next year,
Speaker 1: but also in the future. And if you get the
Speaker 1: logistics of wrong, but you're still on the right trajectory
Speaker 1: for the next five ten years, then nods are I mean,
Speaker 1: you're in a good place, Sarah. Can you give me
Speaker 1: a call on US equities next year? My own call?
Speaker 1: Why would you want that? But just again, just want
Speaker 1: I want to hear. Yeah, let's just get it on
Speaker 1: paper right now. I predict the year will end with
Speaker 1: thirty stocks in the Dow Jones. Oh, there we go.
Speaker 1: You know what, by the end of the year, something's
Speaker 1: gonna happen. It's funny. So we're doing a big et
Speaker 1: F event next week and I'm giving my predictions and
Speaker 1: they're all like this. I say, inflows will happen, and
Speaker 1: then I'm like, and then if the last one is
Speaker 1: something will happen. It's very it's very vague, but I
Speaker 1: do go into some things that are somewhat college. But um,
Speaker 1: I I it's very tough to know the future. You've
Speaker 1: seen it happen, what you think is going to happen.
Speaker 1: The opposite, does um mid to low single digits digits.
Speaker 1: I fit right in the general count. That's the safe
Speaker 1: the safe space because there's a lot of people. They
Speaker 1: wouldn't call you all at at once. You know, it's
Speaker 1: the person who says markets going or down that is
Speaker 1: taking the real risk. Well, i'll tell you one. Cameron
Speaker 1: christ Are Macroman columnist, is one of the smartest guys
Speaker 1: I know, and he's written a few times about now
Speaker 1: valuations are high. It's very almost impossible to time on market.
Speaker 1: Based on valuations, they can keep going higher and surprise
Speaker 1: everyone you know, you can approach dot com valuations for
Speaker 1: all we know. Again, but what he said is the
Speaker 1: longer you look into the future, the higher valuations are,
Speaker 1: that the weaker the long term returns are. And he's
Speaker 1: had a couple of columns saying that both bonds and
Speaker 1: equities that ten year horizon is pitiful right now out
Speaker 1: because of the high valuations in both. So I hate
Speaker 1: to be the downer at the holiday party, but give
Speaker 1: him I will add in a recent research note, Nicolas,
Speaker 1: we had him as a guest on our podcast once
Speaker 1: what's the name of that podcast? What goes up for
Speaker 1: all of you who are not aware? But Nichols data track.
Speaker 1: He sent out a recent note and the title was
Speaker 1: how to make smart predictions. I'll read you what he writes.
Speaker 1: He says, for example, ninety years of spurn data shows
Speaker 1: the index gains in average of eleven point four percent
Speaker 1: a year, and the odds of a twenty plus percent
Speaker 1: gain are three times the chances of a ten percent decline.
Speaker 1: So it's really difficult for someone to make a bearish
Speaker 1: bed on the SMP or just US equities at large
Speaker 1: when history just tells you the odds are much higher
Speaker 1: for you to have a significant gain. Right, Well, I
Speaker 1: mean the market generally will give you about eight nine, right,
Speaker 1: that's what you'd expect. But it's been double and even
Speaker 1: more over the years. So I think that's what people like,
Speaker 1: we're like kind of over our due date for something
Speaker 1: that you know. But then again, in the market was
Speaker 1: down I think four or five percent if you include dividends,
Speaker 1: and it felt like we had gotten like kill, Like
Speaker 1: everybody was so miserable and it almost seemed like, um,
Speaker 1: it made me feel like a child that was spoiled, like, oh,
Speaker 1: you were down four percent, You've been up two d
Speaker 1: and fifty. So in these days when the market goes
Speaker 1: down two or three percent, it just seems like people
Speaker 1: freak out, like it's okay, Like you're up three hundred
Speaker 1: since the financial crisis. You're getting way more than you should.
Speaker 1: How much? Are just investors just too coddled? I think
Speaker 1: advisors try to do the best that they can for
Speaker 1: their own clients to tell them this is normal, it's
Speaker 1: actually okay if we get a bit of a draw down,
Speaker 1: if we get some consolidation. Um. But I will say
Speaker 1: that some advisors that I speak with, they tell me
Speaker 1: how their clients outwardly say to them, why shouldn't I
Speaker 1: just go buy the SMP five t F. It's cheaper
Speaker 1: and it always goes up, And it's something that's very
Speaker 1: difficult for them to try to explain because they try
Speaker 1: to show that they can add value, especially in volatile times.
Speaker 1: But for years, really this entire bowl market, you would
Speaker 1: have been fine if you just bought a passive product.
Speaker 1: Well that's um buffets. We called the buffet ets special
Speaker 1: In his one of his letters, somebody said, what can
Speaker 1: I do as an individual investor? Is like, do what
Speaker 1: I'm doing in my will. My will is to go
Speaker 1: into a Vanguard index fund and then ten percent in
Speaker 1: short term treasury bonds UM. And you know, if if
Speaker 1: that's what he says, and if you do it, that's, um,
Speaker 1: you know, a five basis point trade and that's how
Speaker 1: much it wuld. I was going to say, going to
Speaker 1: that triple leverage t q Q that's yeah, I'm not
Speaker 1: messing around with un leverage. And that's actually a modest
Speaker 1: transition to another thing that we wanted to hit on,
Speaker 1: which is fixed income. It's like what I did there.
Speaker 1: I took treasuries and turned into we're going for triple
Speaker 1: leverage tech to fix. Then come, I mean talk about
Speaker 1: a down. Yeah, but it's on your list of things
Speaker 1: you wanted to talk about. Yeah, I mean, well this
Speaker 1: gets is into rates. I mean obviously fixed income flows.
Speaker 1: You talked about a lot of that function of rates falling. Um.
Speaker 1: You know, look, you wrote an article. I have a
Speaker 1: headline here that I think was from Mike, which is, uh,
Speaker 1: this is how yields could go negative in the near future.
Speaker 1: Now we've heard about negative yields overseas. Could that happen?
Speaker 1: Could we like turn into like a future Japan where
Speaker 1: I mean, what's going on here with this? Before Mike
Speaker 1: is of take I've got to say that was the
Speaker 1: title of our podcast. That wasn't Yeah, I just want
Speaker 1: to I just want to your bio page and picked
Speaker 1: out headlines that kind of like just you know, stood out.
Speaker 1: I love the crossover. By the way, it's this is
Speaker 1: like it's like when Fonzi shows up on the Verne,
Speaker 1: the Globetrotter's Land on Gilligan's Island. You have to define
Speaker 1: those shows now, by the way. You can't just say
Speaker 1: that beyond that. Have you ever seen one episode of
Speaker 1: Gilligan's Island? No? Yeah, see it's we're getting old man.
Speaker 1: It wasn't like it was when I stayed home on
Speaker 1: a day and that no longer. Okay, what was the
Speaker 1: question for again, um, negative yields? Could we go there?
Speaker 1: Most people don't think that in the US we're going
Speaker 1: to get negative rates. It's possible, and we had Lauren
Speaker 1: Goodwin on our podcast. She talked about how we could
Speaker 1: get there, and a large part of us getting there
Speaker 1: would be that the US has to go into a
Speaker 1: recession and that the FED would be cutting rates lower.
Speaker 1: But many members of the Federal Reserve have come out
Speaker 1: and said that they have no interest at the moment
Speaker 1: a negative interest rates, and they don't see that happening
Speaker 1: in the US. They don't want it to happen after
Speaker 1: seeing some of the repercussions that have happened another geography
Speaker 1: cases of the world. Right, it's it's very very difficult.
Speaker 1: And President Trump might say over and over and over
Speaker 1: again that he would love negative interest rates, but I
Speaker 1: would say, at the current standpoint, negative rates next year
Speaker 1: very very very rare. Call well, and I think it's
Speaker 1: important to define what you mean by negative rates. We
Speaker 1: have seen T bill rates go negative in the US.
Speaker 1: Many bank depositors out there. Guess what you're You're getting
Speaker 1: a negative rate on your savings, especially if you use
Speaker 1: the eight tem a lot you're paying those a t
Speaker 1: M feast. They're easily gonna overwhelm your zero point zero
Speaker 1: zero one percent interest you're getting. So you know, if
Speaker 1: you're talking about the FED funds rate or the tenure Treasury,
Speaker 1: I don't I don't see it either. But again, if
Speaker 1: the President wants it sometimes. Uh. You know, the bully
Speaker 1: pulpit is a is a big thing. But I do
Speaker 1: think there's a bit of confusion over where. I say
Speaker 1: you just focus on the tenure. Where the tenure goes
Speaker 1: from here. We've been in this range between one and
Speaker 1: a half to like one point nine percent for much
Speaker 1: of a year. Uh, and a lot of calls I've
Speaker 1: seen either put it a tiny bit above that range,
Speaker 1: maybe a little bit above two percent, or say for
Speaker 1: most of the year. The fact is we're going to
Speaker 1: be range bound because at this point in time, the
Speaker 1: FED has said that they are on hold. Who knows
Speaker 1: what will happen next year. Things can be very different.
Speaker 1: We know how things changed from last year. But if
Speaker 1: the FED is truly on hold, what's the driver that
Speaker 1: takes the tenure out of that one point five to Well,
Speaker 1: I'll go over that, which is the bully pulpit. I
Speaker 1: think Trump is gonna run on the SMP at all time.
Speaker 1: Has that's one of his like four pillar campaign, So
Speaker 1: he has what eleven twelve months to run on that,
Speaker 1: and I think if you need low rates for that
Speaker 1: to happen. Um, which brings me to the election, right,
Speaker 1: you wrote a story which resonated with me, Obama will
Speaker 1: kill stock market, No Trump will, no Warren will, and
Speaker 1: this solves the politics and the presidency. We had um
Speaker 1: our two dad's on one time, and my dad he
Speaker 1: actually bought t vix because he asked me what will
Speaker 1: go up the most when the stock market crashes? Because
Speaker 1: he thought Hillary would win and the market would crash.
Speaker 1: So he got both wrong and then he forgot to
Speaker 1: sell t vix, which is another adding insult to injury,
Speaker 1: which I won't go into that, but um, I think
Speaker 1: a lot of people kind of think that politics are
Speaker 1: connected to the market. It does feel like Trump has
Speaker 1: a lot of sway over the market. Can you talk
Speaker 1: about what if Trump loses in Warren wins that scenario.
Speaker 1: What are people saying. Do you think that's gonna be
Speaker 1: something that could shock the market into a massive sell
Speaker 1: off if Trump wins, loses, if Trump loses in war
Speaker 1: like a Warren or Bernie. Okay, So I'll tell you
Speaker 1: right away that that story we got a lot of
Speaker 1: praise on it. We also got a lot of backlash
Speaker 1: on it, depending on what many readers political beliefs are
Speaker 1: or where they stand. There's multiple people who viewed, that
Speaker 1: story is pretty accurate. The idea that in the past,
Speaker 1: UH pundits strategists always make forecasts on what the market
Speaker 1: is going to do if a certain candidate wins. Uh.
Speaker 1: The reality being that typically the president actually doesn't have
Speaker 1: as much control over the entire economy or the stock
Speaker 1: market as some might think. Um. Now, if you think
Speaker 1: about President Trump versus and Elizabeth Warren or Bernie Sanders,
Speaker 1: for example, there are a lot of people out there
Speaker 1: who have said that if Warrnt wins, the market will crash. Uh.
Speaker 1: She's a socialist, she doesn't care about the stock market.
Speaker 1: But it really depends on which policies actually will make
Speaker 1: it through uh and actually get imposed. Because I mean,
Speaker 1: in the lead up to the election, you can talk
Speaker 1: all you want about healthcare or breaking up big tech,
Speaker 1: and recently she did propose this new bill that's going
Speaker 1: to try to roll back some mega mergers. Yeah, that
Speaker 1: will absolutely affect certain stocks if they are imposed. If
Speaker 1: it actually happens. Uh. But the problem is a lot
Speaker 1: of these really extremist policies, I wouldn't say it's a
Speaker 1: problem they don't actually get through as advertised during the election,
Speaker 1: especially if you have a Senate and it and right right, right, yeah, yeah,
Speaker 1: anyone who bought shares of wall building stocks, for example,
Speaker 1: might be uh, talk about that. One thing under Obama
Speaker 1: would was fascinating to me is that I read an
Speaker 1: article was in like Yahoo or something or in two
Speaker 1: thousand and when did he win two thousand eight? So
Speaker 1: two thousand seven it said, um, how to play the
Speaker 1: Obama presidency And it was basically like buy a bunch
Speaker 1: of clean energy. Clean energy stocks were flat, defense and
Speaker 1: banks double the market. I mean, it makes no sense sometimes.
Speaker 1: Well that's also what I find interesting in a lot
Speaker 1: of people talking about Warren. People were pointing to healthcare obviously,
Speaker 1: which was under performing for part of the year. No
Speaker 1: one was really bringing up energy, which is pretty big
Speaker 1: part of her platform. So it was interesting. Yeah, it's
Speaker 1: a very ambitious platform that I agree. I don't think
Speaker 1: the real drastic stuff we'll ever see the light of day.
Speaker 1: We'll make it through Congress. That said, I I look,
Speaker 1: I could see some turbulence, Yeah, it come the primaries.
Speaker 1: If she starts taking the lead. I you know, I
Speaker 1: do think we'll see some volatility in the markets for sure.
Speaker 1: So we've spent a lot of time being US centric,
Speaker 1: let's like talk about something other than the US, maybe
Speaker 1: emerging markets, So China, Brazil, I'll stick with China. How
Speaker 1: about that. I'd say, if if you think about emerging
Speaker 1: markets and even China, it's almost part of the value trade,
Speaker 1: the idea that what's underperformed the last decade is going
Speaker 1: to eventually have to turn and it's going to have
Speaker 1: its moment in the sun. But a big part of
Speaker 1: the China trade is everything going on with US China
Speaker 1: trade negotiations. Well, just give me a second, give me
Speaker 1: a second. What I'm gonna say is, yes, the U
Speaker 1: s comes into it, but the idea of being that
Speaker 1: if this really does get resolved, that China should perform
Speaker 1: better than the US likely that that's a very popular
Speaker 1: take for emerging markets. What you're going to need to
Speaker 1: see largely is you're eventually going to see weakness in
Speaker 1: the dollar. And there are a good amount of people
Speaker 1: who do believe that we will see weakness in the dollar,
Speaker 1: bringing it back to the US once again, but the
Speaker 1: dollar is a really big factor when it comes to
Speaker 1: emerging market returns. Yeah, and since you mentioned Brazil, I
Speaker 1: did notice a lot of banks are very bullish on
Speaker 1: Brazil going into um, I don't know that they finally
Speaker 1: had pension reform a couple of years. Yeah. Well that's
Speaker 1: the thing though, is the politics in ladd m Is
Speaker 1: is pretty dicey right now. Extremely well, it seems like
Speaker 1: these single countries as long as the person because I've
Speaker 1: seen it in ETFs. If the person that's looking like
Speaker 1: they're gonna win is a very right leaning pro business
Speaker 1: like it happened with Moti in India, the brazil guy. Um,
Speaker 1: you'll see that's things starts to go up. So I
Speaker 1: always say that, but then there's often a LT town
Speaker 1: after these Absolutely, yeah, there's a build up. It's I
Speaker 1: saw the news type of Argentina. Yeah. Yeah, I'm not
Speaker 1: saying but you definitely tend to see that. Or the
Speaker 1: opposite can happen. If somebody's coming in, it's going to
Speaker 1: really just go the other direction. You'll see it sell off. Okay,
Speaker 1: So this is the favorite question that we like to
Speaker 1: ask people. I haven't asked them for a while. We're
Speaker 1: a little scared, Uh Sarah, what is your favorite et
Speaker 1: F ticker? Uh? Mill, That's it's a popular one, Like
Speaker 1: there's a gold ETF that's like nugs Nugget and you
Speaker 1: gt it's a triple leverage back to your triple leverage. Yeah,
Speaker 1: triple leverage. Gold miner on marijuana didn't bring it, should it?
Speaker 1: Golden marijuana? There's a weed e t F Right, Yes,
Speaker 1: I'm want to switch to the Tokas instant mount rushmore
Speaker 1: level in my opinion, um UFOs up there. By the way, Nugget,
Speaker 1: the standard deviation on Nugget is just for perspective, I
Speaker 1: can tell you what spy is. I think it's probably
Speaker 1: like yes, seventeen, so Nugget Nugget should come with his
Speaker 1: xan X. I love how triple levered products are so
Speaker 1: ingrained in Mike that he picked triple lever ticker without
Speaker 1: even knowing here that's right, I know. I want to
Speaker 1: make all the e t F list's just like that
Speaker 1: streaming man. You all like kind of like pretend that
Speaker 1: these triple levered products don't exist. That it's it's like
Speaker 1: like we've we've done this on the show before. No,
Speaker 1: I like he's going because it's a great top. There's
Speaker 1: a lot of virtues signaling on triple leverage. People are like,
Speaker 1: how are these things? Twit You finding you're going the
Speaker 1: other direction. You're saying, how are these things not put
Speaker 1: more popular? I love them. I think you're just being
Speaker 1: more honest threshing Mike, Sarah, thanks for joining us, centralizing,
Speaker 1: thanks for having us, Thank you. Thanks for listening to
Speaker 1: Trillions until next time. You can find us on the
Speaker 1: Bloomberg terminal, Bloomberg dot com, Apple podcast, Spotify, or wherever
Speaker 1: else you'd like to listen. We'd love to hear from you.
Speaker 1: We're on Twitter, I'm at Joel Webber Show. He's at
Speaker 1: Eric Call Tunes. You can find Sarah and Mike at
Speaker 1: Sarah Plantec and at Reaganonymous. Trillions is produced by Magnus Henrickson.
Speaker 1: Francessica Leaving is the head of Bloomberg Podcast