WEBVTT - Bloomberg Surveillance: The Bullish Case For 2024 0:00:05.080 --> 0:00:08.280 This is the Bloomberg Surveillance Podcast. I'm Lisa A. 0:00:08.320 --> 0:00:11.640 Bromoid's along with Tom Keane and Jonathan Ferrow. Join us 0:00:11.680 --> 0:00:15.280 each day for insight from the best in economics, geopolitics, 0:00:15.320 --> 0:00:19.480 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:19.600 --> 0:00:22.840 Spotify and anywhere you get your podcasts, and always on 0:00:22.880 --> 0:00:26.400 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. 0:00:26.560 --> 0:00:29.240 To talk about the specific sectors and some of the 0:00:29.400 --> 0:00:31.840 rolling recessions. One of the recessions has been in the 0:00:31.880 --> 0:00:35.400 logistics area and the shipping area. And I do before 0:00:35.680 --> 0:00:38.000 we get to Steve Rashudo of Mizuho here, I do 0:00:38.040 --> 0:00:41.559 want to just touch base with Lee Klascow Senior, a 0:00:41.600 --> 0:00:43.920 logistics analyst at Bloomberg Intelligence. 0:00:43.920 --> 0:00:46.360 And Lee, the reason why you're really. 0:00:46.200 --> 0:00:47.680 The person who I want to speak to is to 0:00:47.800 --> 0:00:50.440 understand how much we could be dealing with potential supply 0:00:50.520 --> 0:00:53.040 chain disruptions again because of what we're seeing in the 0:00:53.080 --> 0:00:53.520 Red Sea. 0:00:54.440 --> 0:00:56.120 Yeah, I don't think these are going to be a 0:00:56.160 --> 0:00:58.200 major dislocation. I think it's going to be more or 0:00:58.280 --> 0:01:00.800 less a hiccup, if you will. And that effect is 0:01:00.800 --> 0:01:04.319 that freight rates are arising. They're actually up but about 0:01:04.400 --> 0:01:07.400 nine percent sequentially. A lot of that increase is being 0:01:07.440 --> 0:01:12.360 driven by freight headed from Singapore, I'm sorry, from China 0:01:12.440 --> 0:01:16.839 to Europe. That's been up pretty significantly, up around fifteen 0:01:16.920 --> 0:01:19.800 sixteen percent over the last week, and it's up around 0:01:19.880 --> 0:01:23.640 fifty percent since bottoming in October. But it also does 0:01:23.760 --> 0:01:26.880 need to remind people that in twenty twenty one, to 0:01:26.920 --> 0:01:29.760 ship a container used to cost fourteen thousand dollars. 0:01:29.800 --> 0:01:30.520 That was a peak. 0:01:30.800 --> 0:01:36.240 Today it's around fourteen hundred dollars. So rates are down significantly, 0:01:36.319 --> 0:01:39.440 but we are seeing a bounce, and you know what's 0:01:39.440 --> 0:01:42.400 going on in the Red Sea. I'm guessing that it's 0:01:42.400 --> 0:01:44.600 not going to be long term in nature, and there's 0:01:44.640 --> 0:01:47.160 going to be a resolution in the coming months. 0:01:47.560 --> 0:01:50.000 And lee with that in mind, just quickly here if 0:01:50.040 --> 0:01:54.000 you anticipate a resolution coming in fairly short order. Does 0:01:54.040 --> 0:01:57.120 this ever touch the consumer if at all? 0:01:57.680 --> 0:02:00.600 Absolutely, because if shippers are paying higher rates, they're going 0:02:00.640 --> 0:02:03.400 to try to push that cost onto the consumer. But 0:02:03.480 --> 0:02:05.600 remember there's a lot of T shirts that go into 0:02:05.680 --> 0:02:08.280 a container, so we're talking about half a penny more 0:02:08.720 --> 0:02:12.359 in terms of shipping costs to ship certain items. Obviously 0:02:12.680 --> 0:02:16.680 larger items the impacts greater, but you know a lot 0:02:16.680 --> 0:02:19.560 of stuff that goes on the ocean are usually lower 0:02:19.639 --> 0:02:22.720 value stuff, where high value stuff is usually shipped via 0:02:22.760 --> 0:02:23.200 air freight. 0:02:23.639 --> 0:02:25.840 Lea Glasgow of Bloomberg Intelligence, thank you so much for 0:02:25.840 --> 0:02:27.799 being with us. Short of visit, I do want to 0:02:27.800 --> 0:02:30.560 get to the economic data that we just got, since 0:02:30.560 --> 0:02:32.880 it is fascinating to be stever Shuddo here with us 0:02:32.919 --> 0:02:35.359 chief economist at Mizuho Securities, and I. 0:02:35.320 --> 0:02:36.040 Want to start there. 0:02:36.160 --> 0:02:39.520 Initial jobbles claims came in below expectations. It's actually a 0:02:39.560 --> 0:02:42.880 positive downside surprise, and yet you're seeing a real rally 0:02:42.880 --> 0:02:44.440 in the two year which makes me think that the 0:02:44.480 --> 0:02:48.720 Philadelphia outlook for manufacturing is of concern. 0:02:48.840 --> 0:02:49.320 Is that right? 0:02:49.400 --> 0:02:49.560 Well? 0:02:49.639 --> 0:02:52.760 I think you have this environment where you have people 0:02:52.800 --> 0:02:56.959 like you mentioned Harker talking about, you know, the grassroots 0:02:57.080 --> 0:02:59.920 kind of sentiment that they're getting in terms of inform 0:03:00.400 --> 0:03:03.040 from companies that tell them that there's a problem in 0:03:03.080 --> 0:03:05.920 the underlying economic fabric, but you're not seeing it in 0:03:05.919 --> 0:03:08.640 the broader macro perspective. I think this gets to what 0:03:08.840 --> 0:03:11.120 was Katy was talking about in terms of rolling sector 0:03:11.120 --> 0:03:13.280 recessions but I think it also gets to the fact 0:03:13.320 --> 0:03:17.519 that expectations are really an issue because when I sit 0:03:17.560 --> 0:03:19.360 down and I talk to CFOs and I talk to 0:03:19.520 --> 0:03:22.520 CEOs of different companies in different industries, I get the 0:03:22.560 --> 0:03:25.760 same message over and over again, which is the economy 0:03:25.840 --> 0:03:26.960 is not going to do well, We're going to go 0:03:26.960 --> 0:03:29.360 into a recession, but my business is doing really well. 0:03:30.120 --> 0:03:32.520 And I kind of like, you know, time out, guys, 0:03:32.840 --> 0:03:35.240 everybody tells me exactly the same thing. So if you're 0:03:35.240 --> 0:03:37.440 all telling me your business is doing well, but you 0:03:37.560 --> 0:03:39.720 all think the world isn't going to do well, then 0:03:39.760 --> 0:03:43.240 maybe you've got to disconnect in terms of the underlying realities. 0:03:43.240 --> 0:03:45.440 And this is why you see the continuing claims numbers 0:03:45.680 --> 0:03:48.160 doing what they're doing, they're moving lower. So you also 0:03:48.160 --> 0:03:50.560 see this in terms of the employment numbers. Everyone says, oh, 0:03:50.600 --> 0:03:53.040 we're laying off workers, but then you go back and 0:03:53.080 --> 0:03:55.120 look at their actual job counts and you see that 0:03:55.120 --> 0:03:58.240 they've repositioned their workers into different parts of their business. 0:03:58.360 --> 0:04:00.040 So put this together, I help us understand what that 0:04:00.160 --> 0:04:00.760 actually going on. 0:04:00.960 --> 0:04:03.440 Is Basically, people are feeling bad because they feel like 0:04:03.480 --> 0:04:05.880 they should feel bad, and the actually things are very good, 0:04:06.240 --> 0:04:09.280 and that the risk is actually to an acceleration in 0:04:09.320 --> 0:04:11.040 the economy that people aren't expecting. 0:04:11.240 --> 0:04:13.240 Well, I think the risk is the recession that the 0:04:13.280 --> 0:04:16.160 market is expecting doesn't happen. You look at things like 0:04:16.200 --> 0:04:19.200 the blue chip average, right, the blue chip average has 0:04:19.279 --> 0:04:22.920 first half growth at zero point five percent. Now zero 0:04:22.920 --> 0:04:25.080 point five percent is the closest you're going to get 0:04:25.080 --> 0:04:28.599 the blue chip numbers to ever saying negative GDP before 0:04:28.640 --> 0:04:32.280 you actually print negative GDP. So recession is priced into 0:04:32.279 --> 0:04:34.720 the structure. If you don't get recession, you're going to 0:04:34.800 --> 0:04:37.440 have to have a readjustment. This is exactly what happened 0:04:37.480 --> 0:04:41.400 after the regional bank situation. Remember everyone forecasted a recession, 0:04:41.760 --> 0:04:44.360 it didn't happen. Then we had that major summer sell off. 0:04:44.600 --> 0:04:46.039 I'm not saying we're going to get as much of 0:04:46.080 --> 0:04:47.960 a summer sell off as we got this time through, 0:04:48.160 --> 0:04:50.560 but there certainly needs to be a correction in some 0:04:50.600 --> 0:04:53.600 of these markets to reflect the fact that this economy 0:04:53.720 --> 0:04:57.200 is not rolling over and playing dead, that expectations are 0:04:57.240 --> 0:05:01.120 different than the reality, and eventually expectations have to adjust 0:05:01.160 --> 0:05:04.279 to reality because reality is what it is, it's the reality. 0:05:04.560 --> 0:05:06.960 Well, just to meditate a little bit on the evolution 0:05:07.120 --> 0:05:09.479 of the recession calls. Remember twenty twenty three, it was 0:05:09.520 --> 0:05:12.320 definitely going to happen, and then everyone started pushing out 0:05:12.320 --> 0:05:15.680 the recession calls and then basically abandoning them all together. 0:05:15.720 --> 0:05:18.680 There's actually a story on the terminal right now, City Group, 0:05:18.760 --> 0:05:21.840 Deutsche Bank, Wolls Fargo, some of the last remaining on 0:05:21.880 --> 0:05:24.640 the street who are still calling for a recession. But 0:05:25.200 --> 0:05:28.839 to that idea that maybe rolling recessions are what we're 0:05:28.880 --> 0:05:30.760 seeing at the sector level, is that the way we 0:05:30.760 --> 0:05:33.400 should be thinking about this economy or are we smooth 0:05:33.400 --> 0:05:34.200 sailing from here? 0:05:34.480 --> 0:05:37.760 I think the economy is fundamentally healthy. I think we've 0:05:37.760 --> 0:05:40.039 discovered that, you know, the FED is uncomfortable with a 0:05:40.080 --> 0:05:43.120 five percent ten year note. I think the FED is 0:05:43.120 --> 0:05:46.080 somewhat equally uncomfortable with a ten year note moving below 0:05:46.440 --> 0:05:48.479 a four percent the way it is. But you have 0:05:48.480 --> 0:05:50.680 to keep in mind the fair value trading range on 0:05:50.720 --> 0:05:52.840 the ten year note, if you assume a two percent 0:05:53.240 --> 0:05:56.280 target is basically three and three quarters to four and 0:05:56.360 --> 0:05:58.520 a quarter. We're in the bottom half of that range. 0:05:58.520 --> 0:06:00.520 And no one's going to be selling this market going 0:06:00.560 --> 0:06:03.080 into the end of the year. There's zero sellers out 0:06:03.080 --> 0:06:04.880 there and the bulls are still in favor. So what 0:06:04.920 --> 0:06:06.640 you're seeing happening on the tayl like today with the 0:06:06.680 --> 0:06:09.960 claims numbers coming lower, continuing claims coming lower. The gdpeople 0:06:10.040 --> 0:06:11.760 number probably went down. I don't have the details, wy 0:06:11.800 --> 0:06:14.680 I'm assuming because of inventory. Yeah, okay, so those are 0:06:14.720 --> 0:06:17.040 things to tell you better growth going forward. And then 0:06:17.080 --> 0:06:19.200 we latch onto the one thing here that we can say, 0:06:19.240 --> 0:06:21.360 oh gee, it's time to be bullish again. We'll push 0:06:21.400 --> 0:06:22.680 and I think by the end of the day we'll 0:06:22.720 --> 0:06:24.159 realize it wasn't worth pushing. 0:06:24.480 --> 0:06:26.880 So should we be just applauding the Fed right now? 0:06:26.880 --> 0:06:29.120 Because you think about what we've seen so far. We've 0:06:29.120 --> 0:06:32.240 seen inflation come down from once in a generation highs, 0:06:32.480 --> 0:06:36.520 the unemployment rate is still under four percent, and I 0:06:36.560 --> 0:06:39.040 mean everyone seems to be left and right abandoning their 0:06:39.080 --> 0:06:41.960 recession calls. Have we is it safe to say that 0:06:42.000 --> 0:06:44.320 the plane has just about landed here, that they actually 0:06:44.360 --> 0:06:45.040 have pulled it off? 0:06:45.200 --> 0:06:47.640 Well, I mean, the plane is never going to go 0:06:47.720 --> 0:06:49.920 have a recession. We're never going to have a hard landing. 0:06:50.480 --> 0:06:52.200 The only way you could have gotten the hard landing 0:06:52.240 --> 0:06:54.919 is if the equity market corrected to earning's numbers, and 0:06:54.960 --> 0:06:57.600 then you had companies being forced to really lay off 0:06:57.640 --> 0:07:00.440 workers to drive up margins that never happened. And because 0:07:00.440 --> 0:07:02.400 the FED kept on telling you we're going to cut rates. 0:07:02.760 --> 0:07:04.920 So because the FED kept on telling you we're we're 0:07:04.920 --> 0:07:07.800 going to cut rates, you never had that adjustment take place. 0:07:08.040 --> 0:07:11.600 So the adjustment in terms of the macroeconomic stories clearly 0:07:11.640 --> 0:07:14.680 why the FED did do that through forward guidance in 0:07:14.800 --> 0:07:16.880 terms of whether or not they're going to achieve the 0:07:16.920 --> 0:07:20.600 inflation numbers that's still open. We're looking at inflation numbers 0:07:20.600 --> 0:07:22.920 that are closer to three percent than two percent now 0:07:23.000 --> 0:07:25.800 unto average inflation targeting. And given the concept of this 0:07:25.840 --> 0:07:28.680 FED in terms of the inflation concept not wanting to 0:07:28.720 --> 0:07:31.040 get back to the zero bound at any particular point 0:07:31.080 --> 0:07:33.720 in time in the future, they're willing to accept three percent. 0:07:34.200 --> 0:07:36.560 The problem is that three percent the ten year note 0:07:36.560 --> 0:07:39.000 is much too expensive. And if the ten year note 0:07:39.040 --> 0:07:41.560 is much too expensive, then the equity market's much too expensive. 0:07:41.760 --> 0:07:43.400 So the reality is the FED may get us to 0:07:43.480 --> 0:07:46.840 a hotter landing, but the markets have to adjust to that, 0:07:46.920 --> 0:07:47.560 and they haven't. 0:07:47.800 --> 0:07:49.960 That's the reason why I was just going to ask you, 0:07:50.000 --> 0:07:53.840 why are you bearish if you see the economy doing better. 0:07:53.760 --> 0:07:55.240 Than expected and no recession. 0:07:55.680 --> 0:07:57.680 Is this because you do think that there is this 0:07:57.760 --> 0:08:01.760 inflationary underlying pressure that people are discounting and that there 0:08:01.800 --> 0:08:04.440 is going to be a meaningful sell off in bonds 0:08:04.440 --> 0:08:05.560 as people understand that. 0:08:05.640 --> 0:08:08.080 Well, you have to keep in mind there is a 0:08:08.200 --> 0:08:12.120 global deflationary force which is real incredible. By the same token, 0:08:12.160 --> 0:08:15.240 there is a domestic cyclical inflationary force that's real incredible, 0:08:15.360 --> 0:08:17.200 and it's been a battle between the two of them. 0:08:17.360 --> 0:08:20.360 Markets never took on board the nine percent spike in inflation. 0:08:20.600 --> 0:08:22.520 We never took that on board. So the fact that 0:08:22.600 --> 0:08:24.520 we've come down to these levels, which are in the 0:08:24.560 --> 0:08:27.240 fair value range of two to three two percent, we 0:08:27.280 --> 0:08:29.480 have to ask ourselves a question is two or three? 0:08:29.840 --> 0:08:32.400 This is the question we haven't answered yet, and that's 0:08:32.440 --> 0:08:35.240 the critical question, and that determines whether or not where 0:08:35.280 --> 0:08:36.920 you want to be in the bond market. And to me, 0:08:37.000 --> 0:08:39.880 it also suggests that if this Federal Reserve were to 0:08:39.920 --> 0:08:42.680 do something like take an insurance rate cut, because you 0:08:42.720 --> 0:08:45.800 hear that conversation all the time. You saw that in 0:08:45.800 --> 0:08:48.480 twenty eighteen to that, you saw that during the green 0:08:48.520 --> 0:08:51.400 Span soft landing in the mid nineteen nineties, they took 0:08:51.440 --> 0:08:55.120 these insurance rate cuts. The question was that these particular times, 0:08:55.120 --> 0:08:58.360 in those particular times, was inflation hadn't spiked and we 0:08:58.400 --> 0:09:01.640 didn't have the cyclical tightness that we have today. We do, 0:09:02.000 --> 0:09:04.800 and in twenty eighteen twenty nineteen we had a disruption 0:09:04.840 --> 0:09:07.880 in financial markets. We have no disruption in financial markets. 0:09:08.040 --> 0:09:09.760 I think if the FED were to take insurance rate 0:09:09.760 --> 0:09:12.720 cuts right now, the dollar would collapse. If the dollar 0:09:12.760 --> 0:09:15.319 would collapse, you then get into a situation with the 0:09:15.320 --> 0:09:18.960 global deflationary story no longer helps out the inflationary numbers 0:09:19.080 --> 0:09:22.599 because we've been importing global deflation. But if the dollar collapses, 0:09:22.640 --> 0:09:25.320 we no longer import global deflation, and at that point 0:09:25.360 --> 0:09:28.120 in time, goods prices no longer go down. Goods prices 0:09:28.160 --> 0:09:30.840 no longer go down. Then service prices are fully reflected 0:09:30.880 --> 0:09:33.520 in inflation, and that becomes the rub for the FED. 0:09:33.600 --> 0:09:36.400 That's why they're in this difficult balancing act of pushing 0:09:36.440 --> 0:09:38.920 back when things get too aggressive, and when things go 0:09:39.000 --> 0:09:40.400 too far the other way, they have to push the 0:09:40.440 --> 0:09:43.200 other way. They're trying to fine tune this thing, and 0:09:43.320 --> 0:09:44.960 so far they've been able to pull it off because 0:09:45.000 --> 0:09:47.240 the market gives them credibility. You have to ask yourself 0:09:47.240 --> 0:09:48.400 a question, how many times can you. 0:09:48.320 --> 0:09:48.920 Get that lucky? 0:09:49.520 --> 0:09:50.959 Steve Shuda, thank you so much. 0:09:51.000 --> 0:09:52.800 You'll have to come back on in the new year 0:09:52.840 --> 0:09:55.000 and tell us whether it's working or not. 0:09:55.080 --> 0:09:56.560 Steve Harshuda there of Mizuho. 0:10:07.360 --> 0:10:10.679 Stuart Kaiser ahead of US Equity Strategy, Trading Strategy at 0:10:10.720 --> 0:10:13.680 City Group, joining us now, Stuart, I want to start there. 0:10:13.920 --> 0:10:15.679 Do you sort of worry that you're not getting bullish 0:10:15.800 --> 0:10:17.360 enough because the rest of the streets coming to you. 0:10:18.840 --> 0:10:20.400 It's a good question. I mean, I'm definitely feeling more 0:10:20.440 --> 0:10:22.319 bullish post FED. I think that we weren't going into 0:10:22.320 --> 0:10:24.040 the FED, and as you know, we've been kind of bullish, 0:10:24.120 --> 0:10:26.000 you know, the last few months expected a rally into 0:10:26.040 --> 0:10:28.520 your end. The FED feels like they've extended that window 0:10:28.520 --> 0:10:30.520 a little bit, just in the sense that they're being 0:10:30.559 --> 0:10:32.640 more respectful of the dual mandate and probably a little 0:10:32.640 --> 0:10:34.520 bit you know, quicker to come to the rescue, so 0:10:34.600 --> 0:10:36.480 to speak, if we do see weakness and the growth data, 0:10:36.520 --> 0:10:39.040 so you know, I think we're probably I don't know 0:10:39.040 --> 0:10:40.719 if we're more bullish, but I think the bullishness is 0:10:40.760 --> 0:10:43.599 probably has a wider window to perform in going to 0:10:43.679 --> 0:10:44.360 twenty twenty four. 0:10:44.400 --> 0:10:45.800 Well, the reason why I ask that is because if 0:10:45.800 --> 0:10:48.079 we're at forty eight hundred, essentially you're not talking about 0:10:48.080 --> 0:10:49.960 that big of a game through year end. And this 0:10:50.080 --> 0:10:52.960 comes as you're expecting the economic data to come in 0:10:53.040 --> 0:10:55.720 strong and to still show this is inflationary trend. 0:10:55.960 --> 0:10:57.920 So what would it take for you to boost that 0:10:58.320 --> 0:10:59.040 your end target. 0:10:59.360 --> 0:11:00.800 Well, I'd have to call Scott and ask him to 0:11:00.880 --> 0:11:03.720 do that for us. But I think, look, from my perspective, 0:11:03.720 --> 0:11:05.880 we still do have a modest recession in the middle 0:11:05.880 --> 0:11:07.640 of the year from our US economist. So I think 0:11:07.679 --> 0:11:10.079 really the question here is does that recession call continue 0:11:10.120 --> 0:11:11.800 to get pushed out as it did through much of 0:11:11.880 --> 0:11:13.840 twenty twenty three. And if that happens, and if the 0:11:13.840 --> 0:11:16.520 FED is wanting to do quote unquote insurance cuts, then 0:11:16.640 --> 0:11:18.440 you know, then the markets are going to be much 0:11:18.520 --> 0:11:20.400 higher by year end. And I really think that that's 0:11:20.480 --> 0:11:23.080 one of the big topics next year is a recession, 0:11:23.120 --> 0:11:24.640 do we get it or not? And be kind of 0:11:24.640 --> 0:11:26.920 what is the calculus for the FED? If you'd asked 0:11:26.920 --> 0:11:28.360 me a couple of weeks ago, I would have said 0:11:28.360 --> 0:11:30.439 the FED might be too slow to react because they 0:11:30.440 --> 0:11:33.400 want to loosen up the economy. After the December FBC, 0:11:33.520 --> 0:11:35.000 it seems like they're not going to be too slow 0:11:35.000 --> 0:11:36.760 to react, and that might just add a little bit 0:11:36.800 --> 0:11:38.280 of juice to your point as we get it too 0:11:38.280 --> 0:11:38.679 next year. 0:11:38.880 --> 0:11:41.760 Well, on the Fed's reaction function, are you basically saying 0:11:41.760 --> 0:11:44.280 that the FED put is back or is it coming back? 0:11:44.800 --> 0:11:46.800 I mean that that would be an initial takeaway from 0:11:46.840 --> 0:11:49.560 the December FMC. I think my view, if you had 0:11:49.559 --> 0:11:51.960 asked me in November would have been, you know, they're 0:11:51.960 --> 0:11:54.400 not going to hike unless inflation hooks higher, and they're 0:11:54.400 --> 0:11:56.880 probably not going to cut and unless we see meaningful 0:11:56.920 --> 0:11:59.439 weakness in the labor side of the economy. The December 0:11:59.520 --> 0:12:02.320 FMC suggested, you know, no, maybe there is this third 0:12:02.360 --> 0:12:05.480 option where they could actually be doing quote unquote insurance cuts. 0:12:05.520 --> 0:12:08.119 And if they do that, I think that's extremely bullish 0:12:08.160 --> 0:12:10.880 for equities. I mean, if they're cutting in an environment 0:12:10.960 --> 0:12:12.959 let's say, well we're printing one hundred and fifty k jobs, 0:12:13.000 --> 0:12:14.680 then you know, equities, you're going higher. 0:12:14.920 --> 0:12:17.199 Well, something that we've been tussling with is how much 0:12:17.280 --> 0:12:19.679 rate cuts are actually going to matter. You think about 0:12:19.720 --> 0:12:23.320 five hundred basis points of hikes, maybe causing a little 0:12:23.360 --> 0:12:26.559 bit of indigestion in the stock market at one point, 0:12:26.679 --> 0:12:29.199 not at all this year. We did have some turbulence 0:12:29.240 --> 0:12:31.400 over the summer. And then you think about the economy 0:12:31.720 --> 0:12:35.720 overall rate cuts. Does the why for why we're getting 0:12:35.760 --> 0:12:38.559 rate cuts actually matter when it comes to this equity rally? 0:12:38.920 --> 0:12:40.640 I think it does one hundred percent. You know, if 0:12:40.640 --> 0:12:42.920 they're cutting because they're seeing real weakness in the labor 0:12:42.960 --> 0:12:45.320 side of the economy, you know that that's much different 0:12:45.360 --> 0:12:48.719 than if growth is sort of sideways, inflation's easing, and 0:12:48.760 --> 0:12:51.120 they decide, hey, we're too restrictive. So I think I 0:12:51.200 --> 0:12:53.880 think the why matters matter significantly, at least in my 0:12:53.960 --> 0:12:54.760 view at this point. 0:12:54.840 --> 0:12:57.760 Though, there is a question about earnings. And I know 0:12:57.800 --> 0:12:59.160 that you say bad news is bad. 0:12:58.960 --> 0:13:01.559 News, induce is good is have we really gotten such 0:13:01.559 --> 0:13:02.760 good news on the earnings front. 0:13:02.840 --> 0:13:05.240 I'm going to be speaking with Emily Roland later this morning, 0:13:05.440 --> 0:13:07.880 and she basically pointed out that year on year S 0:13:07.920 --> 0:13:10.640 and P five hundred, earnings barely grew zero xo point 0:13:10.679 --> 0:13:12.520 six percent, and a lot of the gains that we've 0:13:12.559 --> 0:13:15.120 seen are pricing in next year gains that are expected 0:13:15.120 --> 0:13:15.880 to be robust. 0:13:16.280 --> 0:13:18.080 Doesn't that concern you? 0:13:18.080 --> 0:13:19.599 You know, it does a bit, I would say. I 0:13:19.800 --> 0:13:22.560 think year on year we're tracking down about two percent 0:13:22.600 --> 0:13:24.679 for SMP. You know, but if you had asked, if 0:13:24.720 --> 0:13:27.080 you had asked this last December, what is the risk 0:13:27.120 --> 0:13:30.120 to SMP earnings? People were throwing around two hundred numbers 0:13:30.200 --> 0:13:32.280 or sub two hundred numbers, so you know, the year 0:13:32.320 --> 0:13:34.600 on your growth isn't great, But the way the data 0:13:34.640 --> 0:13:37.480 printed relative to expectations has been you know, very very 0:13:37.600 --> 0:13:39.679 very positive. So I think I think that that's how 0:13:39.679 --> 0:13:41.280 I view earnings this year. As we came into the 0:13:41.320 --> 0:13:43.079 year with people throwing around one hundred eighty five to 0:13:43.120 --> 0:13:46.280 two hundred dollars bear market type you know situations on EPs, 0:13:46.320 --> 0:13:47.800 we're now going to print something that looks more like 0:13:47.800 --> 0:13:50.880 two twenty scott On at City is a two forty 0:13:50.920 --> 0:13:52.719 five for next year, which is, you know, got to 0:13:52.720 --> 0:13:54.720 give you a pretty close to double digit EPs growth 0:13:54.760 --> 0:13:57.480 in twenty twenty four, So not too worried. I think 0:13:57.720 --> 0:14:00.360 if I hadn't described twenty twenty three better than feared, 0:14:00.520 --> 0:14:02.480 and then twenty twenty four, it looks like, hopefully we're 0:14:02.480 --> 0:14:04.720 going to get some actual not only EPs growth, but 0:14:04.760 --> 0:14:07.200 a broadening out of EPs growth to a larger number 0:14:07.200 --> 0:14:09.040 of sectors, which we do think is also important. 0:14:09.160 --> 0:14:10.280 Exactly where I was going to go. 0:14:10.280 --> 0:14:12.960 We had Margie ptel on earlier and saying maybe that 0:14:13.000 --> 0:14:15.800 story is a little overplayed. Other people still sticking with 0:14:15.880 --> 0:14:19.480 what's worked, including big tech. You're kind of taking a 0:14:19.520 --> 0:14:20.560 little bit of a different tone. 0:14:20.880 --> 0:14:23.200 Look, we thought big tech and growth was going to 0:14:23.200 --> 0:14:24.560 work it to your end, and then as you got 0:14:24.600 --> 0:14:26.280 into twenty twenty four, you needed to kind of do 0:14:26.320 --> 0:14:29.680 a little bit of a reevaluation of things. And next year, 0:14:29.760 --> 0:14:32.000 if you do get broader Ernie's growth after a year 0:14:32.040 --> 0:14:34.280 in which you had very narrow large cap leadership, I 0:14:34.280 --> 0:14:35.960 think there's a fair argument to say that, you know, 0:14:36.080 --> 0:14:38.240 SMP equal weight, for instance, relative to S and P 0:14:38.360 --> 0:14:39.920 cap weight, would make a lot of sense. What we've 0:14:39.920 --> 0:14:42.840 seen this month is Russell two thousand is massively outperformed. 0:14:43.280 --> 0:14:44.760 So I think what folks are saying is, you know, 0:14:44.840 --> 0:14:47.240 growth growth may be better than we expected. The FED 0:14:47.280 --> 0:14:51.000 actually may cut you know, without a recession. And I've 0:14:51.000 --> 0:14:53.440 got a lot of stocks at the smaller size of 0:14:53.440 --> 0:14:55.440 the cap spectrum that have meaningfully lagged, so I think 0:14:55.440 --> 0:14:58.400 that the theme has legs. I do think Russell two 0:14:58.400 --> 0:15:00.520 thousand were probably a little less comfortable with just from 0:15:00.680 --> 0:15:03.240 a risk of war perspective, but definitely SMP equal weight 0:15:03.240 --> 0:15:05.160 relative to capwaight is something that we think, we think 0:15:05.200 --> 0:15:06.680 makes a lot of sense in earlier next year. 0:15:06.760 --> 0:15:09.400 So we're talking about some big, longer term themes here, 0:15:09.440 --> 0:15:12.120 of course, what the risks look like in twenty twenty 0:15:12.120 --> 0:15:15.600 four and the opportunities. Let's talk about two thirty pm yesterday. 0:15:15.640 --> 0:15:17.840 Of course, that sudden plunge that we saw on the 0:15:17.880 --> 0:15:20.080 S and P five hundred, A lot of people pointing 0:15:20.080 --> 0:15:22.720 to zero day options and the heavy put volume that 0:15:22.760 --> 0:15:23.320 we saw there. 0:15:23.360 --> 0:15:24.560 What do you make of that argument? 0:15:25.040 --> 0:15:27.200 You know, our view is that the zero date options 0:15:27.280 --> 0:15:30.080 is probably less likely to have caused that yesterday. Just 0:15:30.960 --> 0:15:32.800 talking to the clients that we talked to on a 0:15:32.800 --> 0:15:35.200 regular basis, everybody was searching. You know, some people said, oh, 0:15:35.200 --> 0:15:36.880 it must be their twenty year bond auction, or maybe 0:15:36.920 --> 0:15:39.320 it's just low volumes, you know, kind of late in 0:15:39.360 --> 0:15:41.880 the month. You know, people throw zero date options out there. 0:15:41.880 --> 0:15:43.640 I think is as a reason if they don't have 0:15:43.680 --> 0:15:46.320 another reason. It's an easy kind of fallback reason. So 0:15:46.720 --> 0:15:49.040 it's always possible that in a low volume day, a 0:15:49.080 --> 0:15:51.040 small amount of flows can kind of get you going. 0:15:51.360 --> 0:15:53.560 And it does feel like the markets were now, once 0:15:53.560 --> 0:15:55.520 a direction is determined, we're just going to kind of 0:15:55.520 --> 0:15:57.440 go that way because there's not a lot of volume 0:15:57.440 --> 0:15:59.880 to push it back. So, you know, we're not generally 0:16:00.080 --> 0:16:02.480 the camp of blaming zero date for these type of things. 0:16:02.880 --> 0:16:04.640 It could it be one of a few things that 0:16:04.680 --> 0:16:05.280 got listed. 0:16:05.360 --> 0:16:05.560 You know. 0:16:05.760 --> 0:16:07.920 Some people said, oh, a delayed reaction to FedEx numbers. 0:16:07.920 --> 0:16:10.080 Some people said the twenty year bond auction, you know, 0:16:10.160 --> 0:16:13.000 other people said zero date options. It's this is just 0:16:13.040 --> 0:16:15.080 one of those I think late in the year, low volume, 0:16:15.240 --> 0:16:17.120 you know, kind of we rallied a lot, take some 0:16:17.200 --> 0:16:17.880 risk off the table. 0:16:18.080 --> 0:16:20.000 I like the theory that it was a delayed reaction 0:16:20.080 --> 0:16:22.680 to FedEx, because that would be quite a delayed, well 0:16:22.760 --> 0:16:23.680 reaction if. 0:16:23.560 --> 0:16:24.920 You don't have an answer, I mean people were I 0:16:24.920 --> 0:16:27.800 think people were groping yesterday. Yeah, and you just kind 0:16:27.800 --> 0:16:30.200 of you're looking for anything what has been bad news 0:16:30.280 --> 0:16:32.440 theoretically that we've received in the last couple of days 0:16:32.480 --> 0:16:34.160 that could have done it. I think the most notable 0:16:34.200 --> 0:16:36.480 thing which you mentioned earlier, is equities move but other 0:16:36.520 --> 0:16:39.160 assets didn't, and I think that's why people were a 0:16:39.200 --> 0:16:41.920 little bit confused by it. Clearly didn't come from the 0:16:41.960 --> 0:16:44.120 bond side of the ledger. Some folks said there were 0:16:44.200 --> 0:16:46.560 just some you know, equity sell programs going through the system, 0:16:46.600 --> 0:16:49.280 and that might just be risk reduction into your end. 0:16:49.560 --> 0:16:51.280 Last year we kind of had this a little bit too, though. 0:16:51.280 --> 0:16:52.640