1
00:00:00,040 --> 00:00:03,680
Speaker 1: Our guest is Walter Todd, President, chief investment officer and

2
00:00:03,800 --> 00:00:07,720
Speaker 1: managing director at Greenwood Capital. Walter, great to have you

3
00:00:07,760 --> 00:00:11,360
Speaker 1: with us here weekend. Reading on the terminal, for me,

4
00:00:11,840 --> 00:00:14,600
Speaker 1: it's it seems to suggest that everybody's aboard the train

5
00:00:14,720 --> 00:00:17,480
Speaker 1: now that the rally that we've seen in the credit markets,

6
00:00:17,680 --> 00:00:20,680
Speaker 1: the narrowing of spreads and and the equity markets to

7
00:00:20,720 --> 00:00:24,520
Speaker 1: the upside, that that rally off the June lows is done.

8
00:00:25,040 --> 00:00:31,040
Speaker 1: Do you agree, Yeah, Well, good evening, great to be here. Um. Yeah,

9
00:00:31,320 --> 00:00:33,559
Speaker 1: we would tend to agree with that sentiment. Um. I

10
00:00:33,600 --> 00:00:35,919
Speaker 1: think this week has the potential to be pretty interesting

11
00:00:36,000 --> 00:00:38,200
Speaker 1: because you know, you've got the last couple of weeks

12
00:00:38,200 --> 00:00:40,080
Speaker 1: here before Labor Day, so there's a lot of probably

13
00:00:40,080 --> 00:00:41,960
Speaker 1: a lot of people out of the office, a lot

14
00:00:42,000 --> 00:00:45,360
Speaker 1: of people in their chairs trading, You've got Pal's comments

15
00:00:45,360 --> 00:00:46,640
Speaker 1: at the end of the week, You've got a lot

16
00:00:46,680 --> 00:00:48,800
Speaker 1: of economic data is going to be released this week,

17
00:00:48,920 --> 00:00:52,800
Speaker 1: so you could see some definite volatility. But the technical

18
00:00:52,840 --> 00:00:55,520
Speaker 1: setup is certainly suggestive that we may have seen a

19
00:00:55,560 --> 00:00:59,240
Speaker 1: temporary top here off the off the lows. M But

20
00:00:59,320 --> 00:01:02,200
Speaker 1: when we look at this time, I mean in what regard,

21
00:01:02,400 --> 00:01:05,600
Speaker 1: in what form do you think that perhaps earnings could

22
00:01:05,640 --> 00:01:11,400
Speaker 1: be supportive and have they been or is it speculative? Well,

23
00:01:11,440 --> 00:01:15,200
Speaker 1: you know, earnings. I think everybody's so happy that earnings

24
00:01:15,200 --> 00:01:18,240
Speaker 1: were not as bad as we feared. Uh, they've forgotten

25
00:01:18,240 --> 00:01:21,200
Speaker 1: the fact that they're actually going down. So the revisions

26
00:01:21,200 --> 00:01:24,280
Speaker 1: are actually you know, headed lower, although not to a

27
00:01:24,280 --> 00:01:27,160
Speaker 1: great degree, but they are going down. So this move up,

28
00:01:27,360 --> 00:01:29,240
Speaker 1: you know, seventeen percent off the leaves and the SMP

29
00:01:29,360 --> 00:01:32,120
Speaker 1: has really you know, the valuation is really expanded because

30
00:01:32,200 --> 00:01:34,360
Speaker 1: earnings have come down a little bit, and when you

31
00:01:34,360 --> 00:01:38,000
Speaker 1: pull out of energy then it really looks worse. Earnings

32
00:01:38,000 --> 00:01:41,720
Speaker 1: are actually down um on a quarter over quarter basis

33
00:01:41,720 --> 00:01:44,440
Speaker 1: if you take out energy. So earnings are not great,

34
00:01:44,480 --> 00:01:46,400
Speaker 1: but they were better than a lot of people feared.

35
00:01:47,800 --> 00:01:51,040
Speaker 1: One trade that has worked through thick and thin this

36
00:01:51,120 --> 00:01:53,600
Speaker 1: year seems to be uh, buying the long end of

37
00:01:53,600 --> 00:01:57,040
Speaker 1: the treasury curve and and selling at the short end

38
00:01:57,560 --> 00:02:00,120
Speaker 1: because we've seen the yield flattened. Do you think that

39
00:02:00,200 --> 00:02:05,080
Speaker 1: continues to work? Yeah? I mean, if you are a

40
00:02:05,080 --> 00:02:07,800
Speaker 1: believer in the idea that you know, the Fed's gonna

41
00:02:07,880 --> 00:02:10,520
Speaker 1: do too much here and and send us into a

42
00:02:11,080 --> 00:02:13,359
Speaker 1: significant slow down and recession, then you know, the back

43
00:02:13,480 --> 00:02:16,160
Speaker 1: end should continue to come down, as of course has

44
00:02:16,200 --> 00:02:18,360
Speaker 1: gone up a little bit here recently. But but that

45
00:02:18,480 --> 00:02:21,120
Speaker 1: trade of you know, buying the long end and selling

46
00:02:21,160 --> 00:02:23,160
Speaker 1: the short end should continue to work if you're of

47
00:02:23,240 --> 00:02:25,600
Speaker 1: the belief that the FETs going to keep kind of

48
00:02:25,639 --> 00:02:28,079
Speaker 1: pushing things forward in terms of raising rates. And I

49
00:02:28,120 --> 00:02:30,239
Speaker 1: guess we'll get a clearer picture of that, you know,

50
00:02:30,240 --> 00:02:32,519
Speaker 1: at the end of this week with with Powell's comments,

51
00:02:34,720 --> 00:02:37,400
Speaker 1: what could he say which would really move the dog.

52
00:02:37,520 --> 00:02:39,959
Speaker 1: He's not going to say exactly how much they would

53
00:02:40,000 --> 00:02:43,480
Speaker 1: raise rates in the September meeting, but and perhaps dial

54
00:02:43,560 --> 00:02:46,960
Speaker 1: it a little bit back, even what are your thoughts. Well,

55
00:02:47,000 --> 00:02:49,600
Speaker 1: we've heard from you know, a number of FETE officials

56
00:02:49,639 --> 00:02:52,600
Speaker 1: here recently about the fact that the Fed's not done,

57
00:02:52,720 --> 00:02:54,919
Speaker 1: We've got more work to do, but none of them

58
00:02:54,919 --> 00:02:57,800
Speaker 1: are the Chairman of the Federal Reserve. So so I

59
00:02:57,840 --> 00:02:59,760
Speaker 1: think he's going to kind of reiterate the comments that

60
00:02:59,800 --> 00:03:02,560
Speaker 1: we've from these other FEED officials and trying to push

61
00:03:02,600 --> 00:03:04,959
Speaker 1: back on this notion that the FED is even close

62
00:03:05,000 --> 00:03:09,679
Speaker 1: to being done on raising rates. Walter, you mentioned the

63
00:03:10,040 --> 00:03:14,080
Speaker 1: sort of recession versus slowing growth debate that one continues

64
00:03:14,440 --> 00:03:19,400
Speaker 1: pretty aggressively on which side you use it. Um, we

65
00:03:19,480 --> 00:03:22,120
Speaker 1: do think inflation has peaked, and I think, you know,

66
00:03:22,160 --> 00:03:24,440
Speaker 1: the the yield curve that you just referenced, the inversion

67
00:03:24,480 --> 00:03:27,960
Speaker 1: of the yield curve, which is really significantly inverted twos attends.

68
00:03:28,480 --> 00:03:30,400
Speaker 1: I think it's really kind of shouting at the Fed

69
00:03:30,520 --> 00:03:32,720
Speaker 1: that you don't need to do a whole lot more.

70
00:03:32,800 --> 00:03:35,480
Speaker 1: But I don't think the Feds of that mindset, um,

71
00:03:35,520 --> 00:03:37,600
Speaker 1: And I think they're going to continue to kind of

72
00:03:37,640 --> 00:03:40,320
Speaker 1: push the push the envelope on raising rates. So I

73
00:03:40,320 --> 00:03:42,600
Speaker 1: think that's gonna lead to, you know, slower in face

74
00:03:42,760 --> 00:03:46,080
Speaker 1: inflation and slower growth. Unfortunately, as we moved through the

75
00:03:46,080 --> 00:03:50,440
Speaker 1: rest of this year, and well it's often the case

76
00:03:50,480 --> 00:03:52,480
Speaker 1: here as well, we see a bit of a divergence

77
00:03:52,520 --> 00:03:56,080
Speaker 1: taking place between equities and bonds. Give us a sense

78
00:03:56,160 --> 00:04:00,480
Speaker 1: of them being at odds and what they respectively. Having

79
00:04:00,520 --> 00:04:05,640
Speaker 1: that mind's eye, yeah, um, well thanks for that. Um. So, Yeah,

80
00:04:05,680 --> 00:04:07,680
Speaker 1: if you look at the structure of the bond market

81
00:04:07,760 --> 00:04:09,560
Speaker 1: right now, is we alluded to in the last segment,

82
00:04:09,600 --> 00:04:13,160
Speaker 1: You've got short rates two year really pressing higher and

83
00:04:13,160 --> 00:04:15,240
Speaker 1: indicating that the FED is going to continue to raise

84
00:04:15,360 --> 00:04:17,920
Speaker 1: rates At the same time, equities of rallied on this

85
00:04:18,040 --> 00:04:20,520
Speaker 1: notion that the FED is close to being done and

86
00:04:20,680 --> 00:04:22,919
Speaker 1: is about the pivot and potentially cut rates at some

87
00:04:22,960 --> 00:04:25,480
Speaker 1: point early next year. So the bond market is not

88
00:04:25,560 --> 00:04:28,520
Speaker 1: agreeing with that. Now spreads have come in with equity

89
00:04:28,680 --> 00:04:32,400
Speaker 1: equity rally, but the bond rates themselves have continued to

90
00:04:32,400 --> 00:04:35,360
Speaker 1: push higher in anticipation of the FED has more work

91
00:04:35,400 --> 00:04:38,120
Speaker 1: to do, and FED fund futures would also indicate that

92
00:04:38,200 --> 00:04:40,080
Speaker 1: as well. So they are at odds at this point,

93
00:04:40,080 --> 00:04:43,480
Speaker 1: and we'll see what the resolution is, probably later this week.

94
00:04:44,640 --> 00:04:47,000
Speaker 1: So it's probably pretty likely that we see a pause

95
00:04:47,040 --> 00:04:49,440
Speaker 1: here given the huge run up since the June lows.

96
00:04:50,160 --> 00:04:52,160
Speaker 1: But you probably don't want to be out of markets

97
00:04:52,160 --> 00:04:54,800
Speaker 1: altogether because you may get that FED pivot at some point.

98
00:04:54,839 --> 00:04:56,880
Speaker 1: So I wanted to ask you about this about the

99
00:04:56,880 --> 00:05:00,680
Speaker 1: three stages and which would actually get the animal spirits

100
00:05:00,720 --> 00:05:03,040
Speaker 1: going the most. The beginning would just be the slowing

101
00:05:03,040 --> 00:05:06,040
Speaker 1: of the pace of tightening, you know, from to fifty

102
00:05:06,080 --> 00:05:08,560
Speaker 1: to maybe twenty five. The second phase would be a

103
00:05:08,560 --> 00:05:11,400
Speaker 1: pause where you get a meeting where they don't do anything,

104
00:05:11,880 --> 00:05:13,880
Speaker 1: and then you know, towards the end would be the

105
00:05:13,880 --> 00:05:18,039
Speaker 1: mission accomplished. Um, which one of those would would get

106
00:05:18,040 --> 00:05:22,080
Speaker 1: the market out front running the Fed? Well, um, you

107
00:05:22,080 --> 00:05:24,320
Speaker 1: know this market lies together from the table of contests

108
00:05:24,360 --> 00:05:27,200
Speaker 1: to the last page of the book. Um. And so

109
00:05:27,400 --> 00:05:31,320
Speaker 1: uh I think you know any hint that they were

110
00:05:31,360 --> 00:05:33,919
Speaker 1: slowing paces. In fact, you know the minutes last week

111
00:05:34,200 --> 00:05:36,800
Speaker 1: people keyed in on this idea. At some point the

112
00:05:36,880 --> 00:05:40,440
Speaker 1: Fed is gonna have to slow their hiking pace. Well, no, kidden,

113
00:05:40,839 --> 00:05:43,240
Speaker 1: at some point they will. But so the market is

114
00:05:43,320 --> 00:05:45,599
Speaker 1: really keen to kind of jump on any type of

115
00:05:45,720 --> 00:05:49,040
Speaker 1: type of indication or window of opportunity. So I don't

116
00:05:49,120 --> 00:05:51,120
Speaker 1: I think it would be the beginning of that, not

117
00:05:51,279 --> 00:05:53,480
Speaker 1: the end of it. Um, the market would already have

118
00:05:53,520 --> 00:05:59,880
Speaker 1: anticipated that. And how does that play out for buttons? Yes,

119
00:06:00,040 --> 00:06:03,680
Speaker 1: if you look at history, Um, the curve is gonna

120
00:06:03,680 --> 00:06:07,159
Speaker 1: actually start to re steepen. So this inversion will go away.

121
00:06:07,200 --> 00:06:09,760
Speaker 1: As you're in the recession, the front will start to

122
00:06:09,800 --> 00:06:13,040
Speaker 1: come down uh faster than the back end does, and

123
00:06:13,080 --> 00:06:14,839
Speaker 1: the curve will start to steep in, and that will

124
00:06:14,920 --> 00:06:17,280
Speaker 1: kind of kind of lead or force the FED to

125
00:06:17,360 --> 00:06:19,880
Speaker 1: kind of change as it's for as it forced the

126
00:06:19,880 --> 00:06:22,000
Speaker 1: FED on the way up to change. So that's what

127
00:06:22,120 --> 00:06:24,360
Speaker 1: will happen in the bottom market. That will be the clue.

128
00:06:24,720 --> 00:06:27,080
Speaker 1: You'll see the front end, particularly two years start to

129
00:06:27,120 --> 00:06:30,920
Speaker 1: come in very aggressively in anticipation of the FED pivoting,

130
00:06:30,920 --> 00:06:33,680
Speaker 1: and that has not happened yet. So it seems like

131
00:06:33,839 --> 00:06:37,200
Speaker 1: you see that investors will see a lot of false dunes.

132
00:06:37,400 --> 00:06:42,000
Speaker 1: Uh So, is that is that because the FED will

133
00:06:42,360 --> 00:06:45,680
Speaker 1: probably want to air on the Hawkeey side and you

134
00:06:45,720 --> 00:06:49,080
Speaker 1: will get some false dones. Yeah, it seems that they're

135
00:06:49,120 --> 00:06:51,800
Speaker 1: really focused on this concept of what happened in the

136
00:06:51,839 --> 00:06:54,520
Speaker 1: seventies and the fact that they kind of paused in

137
00:06:54,560 --> 00:06:57,400
Speaker 1: the seventies and that will out inflation to re accelerate

138
00:06:57,480 --> 00:06:59,880
Speaker 1: rate re accelerate. They don't want to make that same mistake,

139
00:07:00,360 --> 00:07:02,640
Speaker 1: so they seem, you know, intent on you know, airing

140
00:07:02,680 --> 00:07:05,480
Speaker 1: on the side of going too far and instead of

141
00:07:05,560 --> 00:07:10,440
Speaker 1: not enough. Well that citizens and perhaps that's probably wise.

142
00:07:10,480 --> 00:07:13,480
Speaker 1: I mean, they do overshoot perhaps when it comes to tightening,

143
00:07:13,480 --> 00:07:16,280
Speaker 1: and they also at the same time overshooting the way

144
00:07:16,680 --> 00:07:18,960
Speaker 1: in the other direction as well. But it's better to

145
00:07:18,960 --> 00:07:21,560
Speaker 1: be like that, isn't it than actually trying to balance

146
00:07:21,600 --> 00:07:25,280
Speaker 1: everything with on an ife edge. Yeah. Well, listen, I mean,

147
00:07:25,480 --> 00:07:28,240
Speaker 1: you know, they have an impossible job, but they get

148
00:07:28,240 --> 00:07:30,520
Speaker 1: paid well for it, so I don't feel too sorry

149
00:07:30,560 --> 00:07:32,840
Speaker 1: for him. But but yeah, I mean, you're right. I

150
00:07:32,840 --> 00:07:34,520
Speaker 1: mean they made a mistake on the on the way

151
00:07:34,520 --> 00:07:36,320
Speaker 1: out of this thing by staying a low too long,

152
00:07:36,440 --> 00:07:38,000
Speaker 1: and I think, you know, they don't want to make

153
00:07:38,520 --> 00:07:41,280
Speaker 1: getting out too quickly, but they again can go too

154
00:07:41,360 --> 00:07:43,520
Speaker 1: far and push us into a pretty severe slowdown or

155
00:07:43,520 --> 00:07:47,440
Speaker 1: recession as a consequence. Let's swing this around to Asia.

156
00:07:48,000 --> 00:07:51,160
Speaker 1: We've been talking primarily of the FED policy. Anything in

157
00:07:51,240 --> 00:07:56,200
Speaker 1: Asia to interests you at this point given current conditions. Yeah, so,

158
00:07:56,240 --> 00:07:58,280
Speaker 1: I think we've spoken before about the fact that we

159
00:07:58,320 --> 00:08:02,280
Speaker 1: do have allocations to international areas of the market through

160
00:08:02,320 --> 00:08:04,800
Speaker 1: exchange traded funds, and we continue to do that. So

161
00:08:04,840 --> 00:08:07,800
Speaker 1: we do have allocations to develop Asian markets as well

162
00:08:07,800 --> 00:08:11,679
Speaker 1: as emerging markets, including China, which has been very challenging

163
00:08:11,680 --> 00:08:14,440
Speaker 1: as you alluded to earlier. Um, but they are one

164
00:08:14,440 --> 00:08:17,160
Speaker 1: of the only major economies that has an easy monetary

165
00:08:17,200 --> 00:08:20,120
Speaker 1: policy at this point around the world, albeit not not

166
00:08:20,440 --> 00:08:24,280
Speaker 1: terribly easy. All right, Walter, thank you very much. Walter Todd,

167
00:08:24,400 --> 00:08:25,480
Speaker 1: Greenwood Capital