WEBVTT - Bloomberg Surveillance TV: March 21, 2024 0:00:02.440 --> 0:00:08.640 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.159 Terminal and the Bloomberg Business app. Beck let's talk about it, 0:00:37.159 --> 0:00:38.839 and I want to refer to what you told us 0:00:38.880 --> 0:00:41.920 coming into twenty twenty four. It's important to go back. 0:00:42.560 --> 0:00:44.800 This market was priced for six or seven rad cuds. 0:00:44.920 --> 0:00:46.879 You were saying that was nonsense. We wouldn't see ray 0:00:46.920 --> 0:00:50.000 cuts until the second half of twenty twenty four. What 0:00:50.120 --> 0:00:52.519 were you looking at that ultimately has played out in 0:00:52.520 --> 0:00:53.640 the fashion you expected. 0:00:53.960 --> 0:00:56.200 Good morning, It's so great to be here, John and Lisa. 0:00:57.080 --> 0:00:59.280 So back when we were here in December and we 0:00:59.360 --> 0:01:02.720 talked about the five or six rate cuts that were nonsense. 0:01:03.080 --> 0:01:06.160 Don't think that word was used, but certainly we felt 0:01:06.200 --> 0:01:08.720 that the market had priced in too many rate cuts. 0:01:08.920 --> 0:01:12.440 The view there was that inflation would remain sticky, and 0:01:12.480 --> 0:01:16.240 that's exactly what's played out. We've seen services inflation remained 0:01:16.360 --> 0:01:19.720 very straight, sticky, still above five percent. We've seen shelter 0:01:19.840 --> 0:01:23.280 inflation coming down, but not quite at where we would 0:01:23.319 --> 0:01:25.920 have liked it to be. And then yesterday, I must 0:01:26.000 --> 0:01:30.560 say it was very interesting to hear chair Powell sounds 0:01:30.600 --> 0:01:35.920 so confident about the deceleration, you know, to your point earlier, Lisa, 0:01:36.000 --> 0:01:39.000 he did say he's not gaining greater confidence, but he 0:01:39.120 --> 0:01:41.840 still seems to be quite sure that this is just 0:01:41.920 --> 0:01:45.319 a bump along the road. And for the most spot, 0:01:45.360 --> 0:01:47.840 he's focusing on the deceleration that we got in the 0:01:47.840 --> 0:01:50.480 second half of twenty twenty three and not so much 0:01:50.560 --> 0:01:53.120 on the acceleration in the first two months of the year. 0:01:53.240 --> 0:01:55.520 He's not lost confidence, and I think it's probably the headline, 0:01:55.520 --> 0:01:58.880 particularly after we had upside surprises on inflation prints what 0:01:59.000 --> 0:02:01.400 is in the inflation but right now beneath the surface 0:02:01.400 --> 0:02:03.960 and all the detail that he can take confidence from. 0:02:04.720 --> 0:02:06.520 So a couple of things that I was looking at 0:02:06.600 --> 0:02:09.280 yesterday is for us to get to core PCE at 0:02:09.280 --> 0:02:11.760 two point six percent, which is the revised core PCE, 0:02:12.400 --> 0:02:14.600 and you know, we kind of know what this month's 0:02:14.680 --> 0:02:17.000 data is going to be. Given the inputs on CPI 0:02:17.080 --> 0:02:20.760 and ppe PPI, I think the rest of the year, 0:02:20.800 --> 0:02:23.880 you'd have to be quite quite sure that you're going 0:02:23.919 --> 0:02:27.320 to get PCE at point one six or point one seven. 0:02:27.720 --> 0:02:30.480 So I guess that's one thing that they're relying on 0:02:30.520 --> 0:02:35.640 that even if shelter inflation on CPI remains strong, that 0:02:35.680 --> 0:02:38.520 it's PCE, which obviously we know has a lower weight 0:02:39.280 --> 0:02:41.480 that saves them a little bit. So I think that's 0:02:41.480 --> 0:02:44.120 one thing they're looking at. I also think that he 0:02:44.200 --> 0:02:46.640 focused yesterday a little bit when he was asked pressed 0:02:46.720 --> 0:02:51.760 on this question that non housing services they expect that 0:02:51.919 --> 0:02:55.040 to decelerate, so again their super core measure that is 0:02:55.080 --> 0:02:59.040 still at point four to seven, imagining that they expect 0:02:59.040 --> 0:03:01.800 that to come down. The one positive thing that I 0:03:01.880 --> 0:03:06.400 did see in this month's CPI print was, unlike the 0:03:06.480 --> 0:03:12.080 January print, the February every single services sector did not reaccelerate. 0:03:12.320 --> 0:03:14.040 We did see that in the jan print, which was 0:03:14.080 --> 0:03:16.240 scary to me this time around, when you looked at 0:03:16.320 --> 0:03:20.359 education and healthcare and medical services, all of those did 0:03:20.400 --> 0:03:22.400 come back to Trent, So I think that is a 0:03:22.400 --> 0:03:26.200 positive sign. And then finally, I mean Goods had that 0:03:26.320 --> 0:03:29.720 aberration for U scars. I think that's something we can 0:03:29.760 --> 0:03:32.520 see moderated based on Mannheim prices. 0:03:32.720 --> 0:03:34.520 So I understand why the front end of the yield 0:03:34.560 --> 0:03:37.280 curve would rally m hm. As John was mentioning this earlier, 0:03:37.760 --> 0:03:40.440 I have less of a clear sense of why you're 0:03:40.440 --> 0:03:42.840 seeing such a rally in the tenure with yields now 0:03:42.840 --> 0:03:45.720 at four point two percent, down from a high just 0:03:45.960 --> 0:03:47.600 earlier this month, a couple of days ago, over three 0:03:47.680 --> 0:03:50.040 and you've seen this come in around ten basis points 0:03:50.120 --> 0:03:52.840 the past couple of trading sessions. Does this make sense 0:03:52.840 --> 0:03:54.560 to you if the feed is basically saying that they're 0:03:54.600 --> 0:03:57.400 okay with inflation running a little bit hotter for a 0:03:57.400 --> 0:03:58.400 longer period of time. 0:03:58.920 --> 0:04:01.520 Yeah, to your point, I definitely agree that the front 0:04:01.720 --> 0:04:04.360 end makes sense. The rally that we saw made sense. 0:04:04.400 --> 0:04:06.760 I think on the tenure, look, it's just range bound, right, 0:04:06.920 --> 0:04:09.600 We've seen that four thirty one level a few times. 0:04:09.640 --> 0:04:12.520 We got there, we're coming back off. I think between 0:04:12.560 --> 0:04:16.480 now and the next important print, which most likely is 0:04:16.520 --> 0:04:18.760 going to be the non farm payroll that we get 0:04:18.920 --> 0:04:20.880 I think we trade in a little range of bound 0:04:20.880 --> 0:04:24.840 fashion over the longer the medium period of time. Can 0:04:24.880 --> 0:04:27.839 we see yield curves steepen from here? Absolutely, I think 0:04:27.880 --> 0:04:30.240 that belly of the curve, looking at that three to 0:04:30.360 --> 0:04:32.440 seven year part, maybe even just a pittle of five 0:04:32.520 --> 0:04:34.960 year part, that's where you want to own fixed and come. 0:04:35.400 --> 0:04:37.440 I don't think you quite need to get to the 0:04:37.440 --> 0:04:40.400 tenure point. I think we can certainly see four thirty, 0:04:40.440 --> 0:04:44.240 maybe even four a little bit higher than that, But 0:04:44.320 --> 0:04:45.720 for now, I think it's range bound. 0:04:45.800 --> 0:04:47.360 So this is why I think the gold rally is 0:04:47.400 --> 0:04:49.760 actually quite interesting, sort of where do you get that 0:04:49.880 --> 0:04:53.839 ballast if longer term treasuries don't have the same features 0:04:53.839 --> 0:04:56.200 at a time where the Fed is willing to ease 0:04:56.320 --> 0:04:59.359 even though inflation isn't back down to their target, is 0:04:59.400 --> 0:05:02.520 there a sense that longer term bonds don't hold the 0:05:02.520 --> 0:05:04.440 same kind of ballast that they used to just simply 0:05:04.480 --> 0:05:08.160 because this is an economy that will tolerate higher inflation. 0:05:08.880 --> 0:05:11.240 I think that there is a sense that it's not 0:05:11.360 --> 0:05:14.320 just the inflation point, but the supply point. There is 0:05:14.360 --> 0:05:16.920 a sense that when you have this much supply coming 0:05:16.960 --> 0:05:20.000 to the markets and you have a yield curve that 0:05:20.160 --> 0:05:23.400 is still not pricing in enough term premium. There is 0:05:23.440 --> 0:05:26.480 a sense that you have better ballast in the value 0:05:26.520 --> 0:05:28.279 of the curve, so I don't think it's about fixed 0:05:28.279 --> 0:05:31.280 and CUM losing its ballast. We certainly have ballast here. 0:05:31.480 --> 0:05:33.240 I think it's in the two to five year point 0:05:33.240 --> 0:05:36.560 where you're much better off stepping out of cash or 0:05:36.600 --> 0:05:40.200 just diversifying away from equities too, so you don't need 0:05:40.279 --> 0:05:43.000 to step out into tens, twenties, thirties. Get it in 0:05:43.040 --> 0:05:44.680 the five year, get it in the seven year, get 0:05:44.680 --> 0:05:48.279 it in ig credit about six percent, get it in bank, 0:05:48.360 --> 0:05:50.960 which is, you know, sort of getting you that income 0:05:51.320 --> 0:05:53.760 in fixed income market. So I think that's kind of 0:05:53.839 --> 0:05:56.320 what investors should be thinking about. And I want to 0:05:56.360 --> 0:05:59.360 hit your point on gold. It's been interesting to see 0:05:59.400 --> 0:06:03.880 how equities and gold are making all time highs and 0:06:03.960 --> 0:06:07.320 I place a little bit of that in the inflation fear, 0:06:07.760 --> 0:06:10.320 but tips haven't done as well. So I think the 0:06:10.360 --> 0:06:13.200 way to play this might be an allocation into an 0:06:13.240 --> 0:06:16.919 asset class that actually appreciates with CPI, which of course 0:06:17.000 --> 0:06:18.479 is interesting link bonds, So just. 0:06:18.480 --> 0:06:20.320 To cut through that again, you think the opportunity might 0:06:20.320 --> 0:06:22.400 be in tips, more than what is already rally in, 0:06:22.400 --> 0:06:23.360 which is stocks and gold. 0:06:24.120 --> 0:06:26.760 Certainly, I think stocks can continue probably to do well, 0:06:26.880 --> 0:06:29.320 high quality stocks. So I think we might see a 0:06:29.360 --> 0:06:32.880 little bit of a small gap rally here, but what's 0:06:33.240 --> 0:06:35.240 going to work for the medium term is up in 0:06:35.360 --> 0:06:38.559 quality rally. And I think tips make a lot of sense. 0:06:38.600 --> 0:06:41.400 Front end tips, something like SDIP make a lot of sense. 0:06:41.440 --> 0:06:43.640 So that's fixed income. You touched on stocks. Let's just 0:06:43.640 --> 0:06:46.039 finish on our creative weekend. What is it about small 0:06:46.040 --> 0:06:48.160 caps that you would like at the moment? Really big 0:06:48.240 --> 0:06:50.039 out performance yesterday continues this morning. 0:06:50.120 --> 0:06:52.200 Oh, I was going to say that we don't think 0:06:52.279 --> 0:06:54.600 that small caps is going to be the output even 0:06:54.600 --> 0:06:57.719 though it did well yesterday for the longer period of time, 0:06:57.800 --> 0:07:00.279 you know, over the the next three to six monthstually 0:07:00.760 --> 0:07:04.320 large gap and quality that has done well, that has 0:07:04.360 --> 0:07:06.920 the earnings growth, that's going to continue to do well. 0:07:06.920 --> 0:07:09.680 I think the small gap is more of a rebound 0:07:09.680 --> 0:07:11.800 trade that's happening at the back of a dubbish fed, 0:07:11.880 --> 0:07:13.720 but I doubt how long it will last. 0:07:13.840 --> 0:07:16.240 That rebound continues this morning by three quarters of one 0:07:16.240 --> 0:07:18.840 percent on the russo Ghaghi love it as always Gagi 0:07:18.920 --> 0:07:31.560 Chandry a black rock. Richard Burnst state of Richard burst 0:07:31.560 --> 0:07:34.720 in advice, is not expecting any reductions this year, even 0:07:34.800 --> 0:07:38.680 suggesting there's a chance of a hike Richard, and plays 0:07:38.760 --> 0:07:40.680 to say is with this around the table, Richard, good 0:07:40.680 --> 0:07:41.080 morning to you. 0:07:41.160 --> 0:07:41.760 Good morning, John. 0:07:41.840 --> 0:07:43.480 Let's start at a press conference. What did you make 0:07:43.480 --> 0:07:44.560 of that just yesterday? 0:07:45.200 --> 0:07:48.880 I have the unfortunate view of kind of viewing him 0:07:49.080 --> 0:07:53.000 as a bartender still pouring drinks. I think we haven't 0:07:53.040 --> 0:07:56.560 heard last call yet. And as you said, that's causing 0:07:56.640 --> 0:07:59.760 speculative assets to go up. And that's the natural reaction 0:07:59.840 --> 0:08:02.080 that should go on when the FED is going to 0:08:02.080 --> 0:08:05.200 provide a lot of liquidity in an already liquid environment. 0:08:05.520 --> 0:08:10.160 So what's the onset? Keep drinking, keep drinking, I suppose. 0:08:10.240 --> 0:08:13.280 I guess my confusion is that there's as you said, 0:08:13.320 --> 0:08:15.920 everything's going up. It seems to me that we should 0:08:15.920 --> 0:08:19.120 be seeing the cyclical sort of pro inflation side doing 0:08:19.240 --> 0:08:21.480 much better, and I'm not sure that's actually happening. And 0:08:21.520 --> 0:08:24.320 so I think there's still very much a speculative fervor 0:08:24.360 --> 0:08:27.400 within the market, whether it's a magnificent seven, whether it's cryptocurrencies, 0:08:27.640 --> 0:08:30.880 anything like that. I think that's kind of the warning 0:08:30.920 --> 0:08:34.199 sign out there. But the more economically sensitive stuff should 0:08:34.200 --> 0:08:34.720 be doing well. 0:08:34.920 --> 0:08:35.079 Well. 0:08:35.400 --> 0:08:37.480 You point to some of the more speculative stuff and 0:08:37.520 --> 0:08:40.240 they say magnificent seven, fabulous five if you want to 0:08:40.240 --> 0:08:43.319 take out Apple and Tesla. I am curious though about 0:08:43.480 --> 0:08:46.600 why that is speculative if the earnings are there, And 0:08:46.640 --> 0:08:50.520 that's basically the justification that everyone comes on the show gives. 0:08:50.520 --> 0:08:53.960 Right, I think it's not that they're bad companies. Right, 0:08:54.000 --> 0:08:55.720 there's always this notion that we have to worry that 0:08:55.800 --> 0:08:59.000 somehow these are bad companies. They're not bad companies. The 0:08:59.080 --> 0:09:02.360 question is are they you nique companies? And I don't 0:09:02.360 --> 0:09:05.320 think they are. Right in the latest reporting period, we 0:09:05.440 --> 0:09:07.600 have just for the S and P five hundred, one 0:09:07.720 --> 0:09:11.640 hundred and fifty companies growing earnings twenty five percent or more. Right, 0:09:11.720 --> 0:09:14.120 So what's and that only three of the Magnificent seven 0:09:14.160 --> 0:09:17.720 passed that screen. So there's clearly a lot of choice 0:09:17.720 --> 0:09:20.880 out there. Why would anybody focus on the Magnificent seven? 0:09:20.920 --> 0:09:23.840 And history says then when profit cycles traf and you 0:09:23.880 --> 0:09:26.760 start getting this broadening of the earnings base, that the 0:09:26.800 --> 0:09:30.520 market starts broadening. And that's kind of happening in fits 0:09:30.520 --> 0:09:31.840 and starts, but is not happening. 0:09:31.920 --> 0:09:33.800 The theory that we hear from a lot of strategists 0:09:33.880 --> 0:09:35.599 is that if the FED were to cut rates, that 0:09:35.640 --> 0:09:38.440 would actually allow the broadening out. It would allow some 0:09:38.480 --> 0:09:41.200 of the other four hundred and ninety five stocks to 0:09:41.559 --> 0:09:44.120 really gain some momentum, just because those are the most 0:09:44.120 --> 0:09:48.160 affected by high interest rates. Why do you disagree? 0:09:48.360 --> 0:09:51.720 I don't disagree with that. I think where my confusion 0:09:51.840 --> 0:09:54.839 is more that why would the Fed want to spur 0:09:55.320 --> 0:09:58.600 a speculative aspect to the stock market and to the 0:09:58.600 --> 0:10:04.320 financial markets period? Right, cryptocurrencies, Because ultimately bubbles or very 0:10:04.320 --> 0:10:06.840 speculative period if you don't like the word bubble, bubbles 0:10:06.840 --> 0:10:08.719 are inherently inflationary. 0:10:08.440 --> 0:10:10.080 Left the word bubble, I'm right? 0:10:10.120 --> 0:10:11.599 Oh yeah, okay, okay. 0:10:11.600 --> 0:10:16.200 And they're inherently inflationary because you misallocate capital within the economy, right, 0:10:16.360 --> 0:10:18.880 You allocate capital things you don't need, and you don't 0:10:18.920 --> 0:10:21.880 allocate capital things you do need, so ultimately you spur inflation. 0:10:22.559 --> 0:10:25.280 And I don't think the FED has thought that one. 0:10:25.320 --> 0:10:28.319 For where are the signs of euphoria right now? How 0:10:28.320 --> 0:10:30.400 do you identify that in stocks of the moment? 0:10:30.679 --> 0:10:34.720 I think if you look at just stocks for a second, 0:10:35.000 --> 0:10:37.240 if you look at the magnificent seven effect in environment 0:10:37.240 --> 0:10:39.280 where one hundred and fifty companies are growing earnings twenty 0:10:39.320 --> 0:10:41.640 five percent or more, that I would argue that to you. 0:10:41.679 --> 0:10:43.080 For you, that was the tech bubble. By the way, 0:10:43.080 --> 0:10:45.600 in nine nine two thousand, the profit cycle was accelerating 0:10:45.600 --> 0:10:48.600 the United States, but nobody cared. Everybody just wanted tech. Today, 0:10:48.640 --> 0:10:51.240 the profit cycles accelerating, nobody cares. They want seven stocks. 0:10:51.559 --> 0:10:53.160 So I was in the stock market, I would say 0:10:53.160 --> 0:10:54.439 that's the place where you see it the most. 0:10:54.559 --> 0:10:57.000 When you talk about how they're fueling a bubble or 0:10:57.000 --> 0:11:00.480 some kind of speculative fervor, there is a question of 0:11:00.640 --> 0:11:04.160 whether their policy matters at all with respect to inflation. Right, 0:11:04.360 --> 0:11:07.360 this idea that what's spurring the speculative bubble is not 0:11:07.400 --> 0:11:10.640 Fed policy at all, it's something else, maybe fiscal, and 0:11:10.679 --> 0:11:13.080 that the FED is trying to respond to what they 0:11:13.120 --> 0:11:16.640 can control, commercial real estate, some of these other aspects 0:11:17.000 --> 0:11:18.520 which have felt the bite of it. 0:11:18.800 --> 0:11:21.840 Yeah, I think the key word and what you said 0:11:21.880 --> 0:11:23.680 there that I think is most iportant is the word 0:11:23.720 --> 0:11:27.040 respond That a lot of investors believe that the FED 0:11:27.080 --> 0:11:30.600 is somehow a leading indicator. The FED is a lagging indicator, 0:11:30.640 --> 0:11:33.000 always has been, maybe with it, maybe not the vulgar FED, 0:11:33.080 --> 0:11:35.480 but every FED has been a lagging indicator. You think 0:11:35.480 --> 0:11:37.120 about what they look at. They look at inflation and 0:11:37.200 --> 0:11:41.400 unemployment to lagging indicators, and they respond to lagging indicators. 0:11:41.720 --> 0:11:45.600 So that's the thing that I think presents the opportunity 0:11:45.679 --> 0:11:49.520 right now is that you've got leading indicators that are 0:11:49.559 --> 0:11:52.079 starting to get stronger, so building permits the other day 0:11:52.120 --> 0:11:54.640 a leading indicator of the economy getting stronger, but the 0:11:54.640 --> 0:11:57.480 FED is still reacting to the lagging indicators. I think 0:11:57.600 --> 0:12:01.000 that presents a tremendous investment opportunity because it says that 0:12:01.040 --> 0:12:03.920 we're likely to have more growth rather than less when 0:12:03.920 --> 0:12:05.920 the leading indicators are heating up and the FED is 0:12:05.920 --> 0:12:08.880 going to ease. That's that to me, says you're gonna 0:12:08.880 --> 0:12:11.640 see more growth raather than less, and that calls for cyclicals. 0:12:11.880 --> 0:12:14.640 This isn't just a tactical coal from you. We've been 0:12:14.640 --> 0:12:16.480 talking for a while about this. This is a long 0:12:16.600 --> 0:12:19.160 term coal, a change of regime. If you will, can 0:12:19.200 --> 0:12:19.920 you just explain that. 0:12:20.280 --> 0:12:22.040 Journal I think I think on top of what we're 0:12:22.040 --> 0:12:24.640 seeing with monetary policy and everything else. You've got the 0:12:24.679 --> 0:12:28.440 secular backdrop of globalization contracting, and I think that is 0:12:28.600 --> 0:12:30.960 the long term story. I know, all the excitement about 0:12:30.960 --> 0:12:34.040 AI and everything else, I think contracting globalization is the 0:12:34.080 --> 0:12:36.800 real story because the United States is now in the 0:12:36.880 --> 0:12:41.040 unfortunate position of having a massive trade deficit as globalization contracts. 0:12:41.280 --> 0:12:44.360 That is a really bad combination, and it means that 0:12:44.440 --> 0:12:46.800 the United States is going to have to rebuild our 0:12:46.800 --> 0:12:52.160 own capital stock. You know, people call this reshoring, near shoring, friends, shoring, infrastructure. 0:12:52.280 --> 0:12:54.000 You know, there's so many words for this, but it's 0:12:54.000 --> 0:12:56.160 all the same theme that we have to rebuild the 0:12:56.240 --> 0:12:58.720 United States capital stock. I think that is the most 0:12:58.760 --> 0:13:00.240 important story out there now. 0:13:00.320 --> 0:13:01.600 So what do you think is going to work this 0:13:01.679 --> 0:13:04.240 time in this site core that didn't work last time 0:13:04.360 --> 0:13:05.679 in a previous decade. 0:13:05.960 --> 0:13:10.160 I think small cap stocks, in particular, the area that 0:13:10.200 --> 0:13:12.160 I think that people aren't paying any attention to, which 0:13:12.160 --> 0:13:15.280 I don't understand as small and MidCap industrial stocks. Small 0:13:15.280 --> 0:13:17.199 and mid cap industrial stocks have outperformed the S and 0:13:17.200 --> 0:13:19.360 P five hundred over the last decade, even though small 0:13:19.360 --> 0:13:22.520 caps have not. Small and MidCap industrials have, which I 0:13:22.520 --> 0:13:25.800 think is the beginning sign of this kind of deglobalization 0:13:25.960 --> 0:13:27.480 rebuilding the American capital stock. 0:13:27.520 --> 0:13:29.520 Would you push back against people who say that bigger 0:13:29.559 --> 0:13:32.520 companies are better equipped to actually handle some of the 0:13:32.600 --> 0:13:35.439 volatility that we're seeing in inflation and just the global backdrop. 0:13:36.679 --> 0:13:39.559 I find the love of large companies very interesting. When 0:13:39.559 --> 0:13:42.200 I started my career, which was too long ago to 0:13:42.240 --> 0:13:44.360 talk about now I hate talking about because it just 0:13:44.400 --> 0:13:48.120 as I'm old. But when I started, senior analysts followed 0:13:48.160 --> 0:13:51.719 small companies because in the late seventies early eighties, it 0:13:51.800 --> 0:13:55.280 was a massive small camp rally and small comps were 0:13:55.280 --> 0:13:58.400 considered sexy, and so senior analysts followed small camp companies, 0:13:58.679 --> 0:14:01.320 and the big companies that were and that we're boring, 0:14:01.760 --> 0:14:04.319 we're followed by junior analysts because there was no excitement there. 0:14:04.679 --> 0:14:06.880 And as you go through the eighties and into the 0:14:06.960 --> 0:14:09.680 nineties and the investment banking cycle starts picking up, you 0:14:09.720 --> 0:14:12.920 find that starts switching. And so now you have everybody 0:14:13.000 --> 0:14:15.920 loving large caps saying small capsure no place to be, 0:14:16.559 --> 0:14:18.679 and I think we've gone one hundred and eighty degrees. 0:14:19.080 --> 0:14:21.040 I think it's an amazing thing to see when I 0:14:21.080 --> 0:14:24.640 think the opportunities are. So the way I describe to 0:14:24.640 --> 0:14:27.120 people is are there really only seven growth stories in 0:14:27.160 --> 0:14:29.480 the entire world? Are there only seven growth stories in 0:14:29.480 --> 0:14:30.640 the entire US economy? 0:14:30.640 --> 0:14:31.120 Of course not. 0:14:31.440 --> 0:14:33.800 There has to be a lot more. That's where the 0:14:33.800 --> 0:14:34.560 opportunity is. 0:14:34.640 --> 0:14:37.040 What if there only seven growth stories people care about? 0:14:37.080 --> 0:14:38.920 It doesn't matter how much you talk about it, it 0:14:38.960 --> 0:14:41.720 doesn't change things. Well, money's gone passive, the way we 0:14:41.760 --> 0:14:44.240 invest has changed, and the winners just keep on winning. 0:14:44.360 --> 0:14:45.160 How do you change that? 0:14:45.240 --> 0:14:47.120 So, John, that's kind of the argument that people say, Well, 0:14:47.200 --> 0:14:48.720 value investing ever come back? 0:14:49.280 --> 0:14:49.600 Right? 0:14:49.680 --> 0:14:52.480 And my point is that everything in life is centered 0:14:52.520 --> 0:14:55.680 around Everything we do is centered on value. If I 0:14:55.760 --> 0:14:58.040 tried to sell you a Volkswagen for a Bentley price, 0:14:58.040 --> 0:14:58.960 you would not buy it. 0:14:59.360 --> 0:14:59.480 Right. 0:14:59.600 --> 0:15:02.680 We all understand value, but for some reason there's periods 0:15:02.680 --> 0:15:04.640 in the stock market where people say it doesn't matter. 0:15:05.040 --> 0:15:08.160 I think this presents a tremendous opportunity for value. Given 0:15:08.200 --> 0:15:10.120 that nobody cares about it anymore. 0:15:09.880 --> 0:15:11.960 You're gonna be sticking with us. We'll continue this conversation. 0:15:12.080 --> 0:15:25.560 Richard Vanstein, that of Ape advises. Stephanie Roth of wolf 0:15:25.640 --> 0:15:27.600 Race sets joins us. Now for more, Stephanie, we need 0:15:27.640 --> 0:15:29.440 to begin that good morning to you need to start 0:15:29.480 --> 0:15:31.760 with those projections. What jumped off the page for you 0:15:32.000 --> 0:15:34.640 when you open that document yesterday, by far. 0:15:34.640 --> 0:15:36.920 Was the GDP number. I mean, seeing that jump by 0:15:37.080 --> 0:15:40.840 seventy basis points in combination with inflation bumping by twenty 0:15:40.880 --> 0:15:43.760 basis points and the median dot being unchanged, that just 0:15:43.800 --> 0:15:47.840 tells you that we're seeing one a supply side dynamic 0:15:47.880 --> 0:15:49.800 in terms of GDP that's not going to bring too 0:15:49.840 --> 0:15:53.680 much inflation. And by the way, the inflation upward revision 0:15:53.760 --> 0:15:55.360 was kind of just a marked market and that's what 0:15:55.360 --> 0:15:56.320 Powers said yesterday. 0:15:56.520 --> 0:15:58.640 So directionally it feels like a contradiction, but when you 0:15:58.640 --> 0:16:00.680 go into the details like that, you don't think it 0:16:00.720 --> 0:16:01.520 is a big contradiction. 0:16:01.960 --> 0:16:03.440 Well, I think it tells you something a little bit 0:16:03.480 --> 0:16:06.120 about the reaction function. It's maybe shifted to some extent, 0:16:06.160 --> 0:16:08.840 and that well, maybe they can see slightly higher inflation 0:16:09.000 --> 0:16:11.040 and they'll be okay with it because they see the 0:16:11.880 --> 0:16:15.440 path coming down and they're not worried about strong growth anymore. 0:16:15.720 --> 0:16:17.920 Last year, that was something that they were legitimately concerned 0:16:17.920 --> 0:16:19.880 about strong growth would bring inflation, and now they see 0:16:19.880 --> 0:16:22.640 strong growth as not necessarily inflationary because that's coming from 0:16:22.680 --> 0:16:23.960 the supply side of the economy. 0:16:24.320 --> 0:16:26.640 So what's inflationary and how much control do they have 0:16:26.720 --> 0:16:27.160 over it. 0:16:27.920 --> 0:16:31.240 Inflationary could still be the labor market. If that labor 0:16:31.280 --> 0:16:34.200 supply doesn't actually come through, then that's where you could 0:16:34.520 --> 0:16:37.000 run into some challenges. If you continue to see really 0:16:37.040 --> 0:16:40.480 strong payrolls growth and the labor supply doesn't come through, 0:16:40.760 --> 0:16:43.520 then that becomes a challenge. But the trends in terms 0:16:43.760 --> 0:16:45.880 of immigration is looking a lot stronger if you look 0:16:45.920 --> 0:16:49.240 at the recent CBO projections, there could be a lot 0:16:49.280 --> 0:16:51.680 more labor supply coming from immigration that could really help. 0:16:51.920 --> 0:16:54.520 I guess I'm struggling to understand whether the Fed is 0:16:54.560 --> 0:16:57.720 had any influence over inflation at all, because essentially, if 0:16:57.720 --> 0:16:59.560 what we're saying is that it comes from other factors 0:16:59.560 --> 0:17:01.640 that are un related to interest rates, so that doesn't 0:17:01.640 --> 0:17:03.200 really matter if you move them up or if you 0:17:03.240 --> 0:17:05.320 move them down, then what are we even talking about 0:17:05.320 --> 0:17:07.119 with the FED care Like, what is their role in 0:17:07.160 --> 0:17:09.840 bringing down inflation If the inflation that we're looking at 0:17:10.240 --> 0:17:11.920 is not related to their policy? 0:17:12.560 --> 0:17:14.600 I mean, some of it was transitory, and you had 0:17:14.600 --> 0:17:18.159 this conversation up here before. Is that they just had 0:17:18.400 --> 0:17:20.280 they had to in terms of risk management, they had 0:17:20.280 --> 0:17:22.720 to raise rates aggressively because in case that wasn't true, 0:17:22.920 --> 0:17:24.400 they would have been had a real problem. That would 0:17:24.400 --> 0:17:26.440 have been nineteen seventy style inflation. So they would have 0:17:26.480 --> 0:17:28.440 had a real problem on their hands. So it's hard 0:17:28.560 --> 0:17:31.480 to disentangle what was transitory and what was driven by 0:17:31.960 --> 0:17:34.840 FED policy. Was probably a combination of both, but the 0:17:34.880 --> 0:17:37.479 transitory factor seemed to be perhaps some of the more 0:17:37.520 --> 0:17:38.240 important ones here. 0:17:38.280 --> 0:17:40.720 This just raised an important question though, when the chairman 0:17:40.800 --> 0:17:43.720 is asked and when FED officials aroused, are we sufficiently restrictive? 0:17:44.000 --> 0:17:45.840 And they point to the labor market as evidence that 0:17:45.840 --> 0:17:48.280 they are? Are they right to point the labor market 0:17:48.280 --> 0:17:50.560 as evidence that they are sufficiently restrictive. 0:17:51.320 --> 0:17:53.880 Well, that's a tough one, I mean, and Pwell talked 0:17:53.880 --> 0:17:55.360 about his models and it was, you know. 0:17:55.560 --> 0:17:57.440 A very big we could sit here in all degree, 0:17:57.480 --> 0:18:00.320 there is a massive supply site dynamics taking place now 0:18:00.560 --> 0:18:02.920 that is leading to changes in the labor market. How 0:18:02.960 --> 0:18:05.119 can we draw a dot edline all the way back 0:18:05.160 --> 0:18:06.520 to the federal Reserve based on that? 0:18:07.320 --> 0:18:09.200 I mean, I think that's a tough one. It's probably 0:18:09.200 --> 0:18:12.600 a combination of the labor supply or the labor market 0:18:12.640 --> 0:18:16.320 just coming back into better balance, partially because companies who 0:18:16.359 --> 0:18:19.359 have had excess demand for labor kind of satisfied that 0:18:19.400 --> 0:18:21.439 and productivity picked up. So a lot of it was 0:18:21.640 --> 0:18:24.240 a little bit of luck and a little bit of 0:18:24.040 --> 0:18:25.640 some of the hikes doing their job. 0:18:25.880 --> 0:18:29.040 Some people were talking about the awkwardness of basically the 0:18:29.080 --> 0:18:32.480 FED fighting fiscal stimulus and that that was kind of 0:18:32.520 --> 0:18:34.679 going to be where we were this year, And it 0:18:34.720 --> 0:18:38.240 seems as though everyone's talking about spending that's still coming 0:18:38.280 --> 0:18:40.439 back into the market or coming into the market from 0:18:40.480 --> 0:18:43.280