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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 2: weekdays at ten am Eastern on Affo, Cardplay and Android

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Speaker 2: Auto with the Bloomberg Business App. Listen on demand wherever

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Speaker 2: you get your podcasts, or watch us live on YouTube.

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Speaker 3: Alex st alongside Paul Sweeney. This is a Bloomberg Intelligence Radio.

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Speaker 3: We are broadcasting to you live my interactive broker studio

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Speaker 3: right here in Midtown Manhattan, Manhattan. Camon Christ Macroman writes

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Speaker 3: at Bloomberg like, if the economy is slowing down, someone

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Speaker 3: may want to tell the consumer, because really retail sales

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Speaker 3: didn't point to that, So I thought that was quite

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Speaker 3: a good point, and you look at equities just flying higher.

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Speaker 3: Here joining us now is Mariy Shore, Senior Equity Analystic Columbia,

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Speaker 3: Thread Needle Investments. Marie, what good news good news for stocks?

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Speaker 3: Is that a fair statement? We get good news by

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Speaker 3: the equity market.

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Speaker 1: Absolutely, yes. I think the results today show us that

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Speaker 1: the consumer is more stable versus what was feared. We

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Speaker 1: had heard more throughout the month of July that there

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Speaker 1: was a slow down happening, but in my view, the

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Speaker 1: consumer backdrop remained stable, and the different results that we

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Speaker 1: see between different retailers just shows you know who's gaining

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Speaker 1: share and who's losing share. But when I looked at

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Speaker 1: the trends today, I think although the high level retail

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Speaker 1: sales number was better than feared, I would say when

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Speaker 1: you dig a little deeper, the trends are still mixed.

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Speaker 1: On the one hand, we see the consumer still choiceful

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Speaker 1: in their spend, spending more on services over goods and

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Speaker 1: needs over ONTs. At the same time, within discretionary we

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Speaker 1: do see some signs of life in categories like apparel

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Speaker 1: and even electronics. So still a very mixed print, but

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Speaker 1: certainly better than feared.

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Speaker 4: Back to school holidays.

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Speaker 5: What are some of the retailers telling me about some

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Speaker 5: of the big events coming up here for the retail

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Speaker 5: sales number?

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Speaker 1: These events are very important because, as we've heard from

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Speaker 1: every retailer for years now, the consumer is shopping very

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Speaker 1: close to need.

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Speaker 4: So you know the.

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Speaker 1: Tone from Walmart in terms of the trends they saw

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Speaker 1: ending the quarter and in August today, we're very positive

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Speaker 1: again they've seen very consistent results. I think the consumer

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Speaker 1: will show up for back to school in the same

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Speaker 1: way that they showed up for holiday, and again I

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Speaker 1: think we're seeing that in some of the data today

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Speaker 1: with the strength and electronics and even in apparel where

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Speaker 1: there are some new trends that are resonating now.

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Speaker 3: So in the equity market, then, is it difficult to

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Speaker 3: pick the winners and losers? Because it does feel like

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Speaker 3: it's hard to get a broad back or read like

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Speaker 3: the data slowing. We know that check, check that Bucks,

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Speaker 3: but in terms of what they're buying, I would have

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Speaker 3: thought the tapestry would have struggled, right, I would say, Okay,

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Speaker 3: at some point the coach passing on price increases was

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Speaker 3: going to max out consumers. It doesn't look like that's

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Speaker 3: actually happening. How hard is it to do your job?

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Speaker 1: It has become more challenging, especially because the markets are

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Speaker 1: so volatile right and head funds and macro funds are

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Speaker 1: just having such a large impact in how the stocks

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Speaker 1: are trading. But we are seeing a very clear difference

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Speaker 1: between shared gainers and losers at this point, and so

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Speaker 1: what we're really trying to do is focus on the

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Speaker 1: companies that are gaining share where we see the potential

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Speaker 1: for positives positive earnings revisions.

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Speaker 4: The problem is a lot of those stocks.

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Speaker 1: Are screening is pretty expensive, you know, names like Walmart

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Speaker 1: and Costco. On the other hand, there are names where

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Speaker 1: even with more modest revenue growth assumptions, there is a

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Speaker 1: real margin in free cash flow growth story there. So

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Speaker 1: that is like the other group of stocks that we

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Speaker 1: are trying to focus on. But to your point, it's

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Speaker 1: very hard to listen to what one company is saying

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Speaker 1: and extrapolate that because it really feels like within a

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Speaker 1: kind of lackluster consumer or retail backdrop, there are still

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Speaker 1: some companies like Walmart is a perfect example, that are

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Speaker 1: able to do very well right now, Hey.

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Speaker 5: Mari, what kind of deals can I get if I

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Speaker 5: go shopping at there? How promotional are retailers out there?

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Speaker 1: You as for me?

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Speaker 6: So sweet?

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Speaker 4: Yeah?

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Speaker 1: I think we talked about this last time. So since

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Speaker 1: the holiday season of twenty three, the retailers inventory levels

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Speaker 1: have been much better positioned, not perfect, but much better positioned.

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Speaker 1: So while the retailers remain aggressive on promotions to drive traffic,

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Speaker 1: you're not going to see the crazy promotions that they

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Speaker 1: had to run when they were heavy on inventory. And

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Speaker 1: we should also see fewer markdowns, which will be very

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Speaker 1: good for margin. But at the same time, everyone recognizes

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Speaker 1: that the consumer is stretched, and I know both like

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Speaker 1: the consumer staples companies and a lot of the retailers

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Speaker 1: and brands are talking about needing to promote to drive

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Speaker 1: volume and traffic.

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Speaker 3: I was reading an article the other day that retailers

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Speaker 3: are already buying their inventory for the holiday, which totally

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Speaker 3: makes sense. I mean, a lot of cargoes were coming

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Speaker 3: into ports, etc. How confident do you think retailers are

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Speaker 3: in their inventory build up for the holiday?

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Speaker 1: They seem pretty confident.

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Speaker 6: You know.

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Speaker 1: What we've seen on the freight side is a recent

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Speaker 1: rise in ocean freight rate, So that's something we've been

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Speaker 1: talking to the retailers about. Right now, a lot of

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Speaker 1: them are locked into their contract rates, so it doesn't

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Speaker 1: sound like that as a near term risk to margin,

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Speaker 1: but definitely something we have to monitor for next year.

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Speaker 4: There's also been some disruption in the Red Sea.

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Speaker 1: We've heard about recent protests in Bangladesh, which could impact

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Speaker 1: companies that are sourcing from there, But so far, in

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Speaker 1: our conversations with retailers, it doesn't really feel like any

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Speaker 1: of those things are going to result in any real

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Speaker 1: near term disruption to the business, and it sounds like,

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Speaker 1: you know, the outlook for a holiday in terms of

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Speaker 1: getting the inventory that they want and need is pretty

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Speaker 1: consistent and stable.

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Speaker 5: And Mari, when I was looking at the Walmart numbers again,

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Speaker 5: what jumps out of me is it does so many quarters?

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Speaker 5: Is there e commerce up twenty two percent? Yes, boy,

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Speaker 5: they've They're right there with Walmart, aren't they. They don't

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Speaker 5: take it, I mean from with the Amazon. They don't

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Speaker 5: take a step back from Amazon at all, do they?

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Speaker 7: Right?

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Speaker 4: No, absolutely not.

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Speaker 1: I mean, remember, Amazon is still clearly the dominant player

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Speaker 1: in this category. I mean, overall e commerce is about

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Speaker 1: thirty percent of total retail sales, and Amazon is almost

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Speaker 1: half of that. So Amazon is obviously operating off a

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Speaker 1: much larger base. Having said that, Walmart is now growing

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Speaker 1: faster than Amazon. I think the only other company I

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Speaker 1: follow that is growing at a similar rate is actually Costo.

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Speaker 1: And I think what's happening specifically in the case of

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Speaker 1: Walmart is a lot of their new initiatives, building out

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Speaker 1: their marketplace, building out fulfillment, building out their membership model,

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Speaker 1: building out advertising. All of those initiatives are finally coming

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Speaker 1: together and really driving their e commerce business and So

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Speaker 1: the thing that's so impressive about Walmart as we look

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Speaker 1: at their results is it is very clear that they

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Speaker 1: are gaining share across channel, across category, across income demographic,

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Speaker 1: and that broad based strength I think will drive strengthen

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Speaker 1: their results for the foreseeable future.

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Speaker 3: All right, make we appreciate that. Thank you so much.

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Speaker 3: Mario Shore, Senior equity analyst over at Columbia Thread Needle Investments,

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Speaker 3: joining us from Boston, Massachusetts. And again, now I'm addicted

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Speaker 3: to this altd go scream and I'm looking at sort

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Speaker 3: of the estimated sales we're looking at here, and they're

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Speaker 3: still beating competitors.

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Speaker 6: I know.

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Speaker 3: Anyway, altd Go really cool function on the termin You

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Speaker 3: should definitely check it out.

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Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 2: weekdays at ten am Eastern on applecar Play and Android

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Speaker 2: Auto with the Bloomberg Business at You can also listen

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Speaker 2: live on Amazon Alexa from our flagship New York station.

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Speaker 2: Just say Alexa play Bloomberg eleven thirty.

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Speaker 5: Let's get back to the story of the retail. Is

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Speaker 5: today's the story about the consumer. We had retail sales

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Speaker 5: coming a little bit better than expected. We had Walmart

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Speaker 5: reports some numbers at the street like this SoC is up.

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Speaker 5: So Jen Bartasha's storyin so she's bloomerg Intelligence retail analyst

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Speaker 5: covering all the retail space, including Walmart. Hey, Jen, what

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Speaker 5: did you take away from these Walmart numbers? The streets

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Speaker 5: certainly like them?

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Speaker 8: Yeah, Actually, Walmart had a great quarter. I think most

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Speaker 8: people expected it because they do tend to do well

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Speaker 8: when the consumer's under stress. But some of the things

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Speaker 8: that were interesting takeaways were things like the amount of

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Speaker 8: generative AI that they're using in their business to close

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Speaker 8: the competitive gap to peers like Amazon, especially in e commerce,

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Speaker 8: the idea that their growth is being led by volume,

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Speaker 8: which is a very different story than we're hearing from

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Speaker 8: most retailers. And finally, one of the other remarkable things

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Speaker 8: is that they sort of issued a little bit of

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Speaker 8: a warning shot to package food companies about still wanting

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Speaker 8: to try to pass through price increases and that Walmart

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Speaker 8: is really focused on bringing prices down instead.

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Speaker 3: So does that bode well? So here's what I'm trying

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Speaker 3: to understand what the volume side. Does this mean that

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Speaker 3: this is good news for like a costco or Target?

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Speaker 3: Or is Walmart taking share from the likes of Target.

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Speaker 8: Well, I would say I would argue that Walmart is

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Speaker 8: probably taking some share and that they're translated that into

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Speaker 8: volume gains because they're very focused on offering value, whether

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Speaker 8: it's from a price perspective or from a convenience perspective,

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Speaker 8: and that seems to really be resonating with consumers. Right now.

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Speaker 5: Are people coming down who maybe we're not Walmart shoppers,

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Speaker 5: but now they're coming to Walmart. Is Walmart seeing that

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Speaker 5: they are.

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Speaker 8: They talked last quarter about bringing in hiringcome households, and

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Speaker 8: that trend seems to be continuing. You know, in the

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Speaker 8: last year and a half or so, Walmart has invested

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Speaker 8: in improving and renovating their stores, which is particularly important

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Speaker 8: for hiringcome households, because when you walk into a store

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Speaker 8: and it's kind of dingy or grungy, it doesn't make

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Speaker 8: for the best shopping experience. And so part of that

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Speaker 8: investment is resonating with those hiring consumers. But also people

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Speaker 8: are becoming more practical about where they're seeking value. And

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Speaker 8: I think I've used this example before, but if you

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Speaker 8: can buy a box of cereal, which is a standard

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Speaker 8: box for you know, fifteen or twenty percent less at

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Speaker 8: Walmart than you can at your grocery store. Even that

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Speaker 8: speaks to hiringcome households that are looking to save a

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Speaker 8: little bit here and there as well.

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Speaker 3: Also just in comparison of just how expensive regular and

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Speaker 3: grocery stores have gotten to just in terms of that. Also,

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Speaker 3: what about their e commerce because basically another perk for

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Speaker 3: Walmart is there just basically like a giant warehouse.

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Speaker 8: Also, yeah, I mean their e commerce operations are continuing

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Speaker 8: to grow. I think one of the things that that

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Speaker 8: investors are finding very encouraging is that the losses associated

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Speaker 8: with e commerce aren't narrowing. Originally, Walmart said that they

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Speaker 8: actually thought that it would generally be profitable in the

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Speaker 8: next year to year and a half. Now today Doug

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Speaker 8: McMillan kind of backed off and said, you know, don't

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Speaker 8: focus so much on just one metric, but that those

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Speaker 8: losses are easing and that really is a good indicator

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Speaker 8: for Walmart as well with regards to its overall profit

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Speaker 8: profile and where it's developing as a company.

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Speaker 5: We're it just wrote thirty seconds, where does growth come

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Speaker 5: from Walmart? Is it just a GDP top line story?

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Speaker 8: It is in part Paul. But at the same time,

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Speaker 8: they really are pulling more people into it. They're kind

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Speaker 8: of with their their overall ecosphere, and so it's also

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Speaker 8: through variety. So it's not just the store, it's you know,

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Speaker 8: an increasing marketplace where they're becoming more competitive with the

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Speaker 8: likes of Amazon. But it's also things like financial services

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Speaker 8: or vet services or things that they're exploring that help

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Speaker 8: bring people in for more than just shopping.

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Speaker 5: All right, that's I tell everybody My next gig is

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Speaker 5: I'm going to be a greeter at Walmart. I'm not kidding.

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Speaker 5: Jen Bartash, just thanks so much for joining.

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Speaker 3: That would be entertaining or weird.

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Speaker 5: That would be you would loved and you walked in

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Speaker 5: to see me. Wouldn't that be great?

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Speaker 3: I don't know how people were dressing walking into the

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Speaker 3: I'm really trying to absorb what this would look like.

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Speaker 5: I We're gonna have more coming up. That was Jen

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Speaker 5: Bartash's given us the latest on Walmart.

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Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 2: weekdays at ten am Eastern on Affo, Cardplay and then

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Speaker 2: broud Otto with the Bloomberg Business app. Listen on demand

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Speaker 2: wherever you get your podcasts, or watch us live on YouTube.

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Speaker 3: Alex Steel here alongside Paul Sweeney. This is Bloomberg Intelligence Radio,

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Speaker 3: where you bring you all the top news in business

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Speaker 3: and economics and finance through our lens of our Bloomberg

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Speaker 3: Intelligence folks, because they cover two thousand companies and one

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Speaker 3: hundred and thirty industries worldwide. So back to that retail

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Speaker 3: sales data. Good news, good news. I guess you look

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Speaker 3: at the two year though bonds yields are up by

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Speaker 3: about twelve basis points, which is a head scratcher for

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Speaker 3: me because the news is good. So good news is

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Speaker 3: good news. That's at least what the equity market is saying.

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Speaker 3: But then the bond market, what is that telling me? Luckily,

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Speaker 3: we're going to talk to Vanir buan Shalli. He's founder

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Speaker 3: and chief investment officer of long Tail Alpha. Hey, Vanier,

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Speaker 3: are we looking at the bond and equity market telling

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Speaker 3: us the same thing about retail sales right now?

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Speaker 6: I think they're slightly different. I think this has been

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Speaker 6: a problem, not just this year, but for a couple

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Speaker 6: of years now. I think the equity markets are being

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Speaker 6: driven by a lot of cources externals, buybacks from large

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Speaker 6: corporations retail buying a lot of stock. The bond market

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Speaker 6: is not that convinced. I think the inverted youth curves,

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Speaker 6: certainly we can talk about it, is telling you a

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Speaker 6: very different story. I think long term meals are too

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Speaker 6: low here, which is part of the reason why retail

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Speaker 6: sales and the economy is strong and keeps getting stronger.

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Speaker 5: What do you make of a week ago Friday that

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Speaker 5: was a real shock to the marketplace and we see

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Speaker 5: it saw dislocations. I mean, we had the VIX, which

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Speaker 5: is now below fifteen was above sixty five. What do

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Speaker 5: you make of that training activity we saw a week

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Speaker 5: ago Friday even here?

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Speaker 6: Yeah, so you know I wrote about this last week.

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Speaker 6: What we've observed over the last few years is that

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Speaker 6: the intensity at which markets are selling off and the

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Speaker 6: big spikes is getting bigger and bigger. It happens over

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Speaker 6: a very short period of time. And you know, going

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Speaker 6: back town two thousand and eight, where he used to

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Speaker 6: take a months and quarters, now it's just taking weeks

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Speaker 6: and days and maybe hours. And last Monday was again

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Speaker 6: you couldn't have done anything except if you did something

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Speaker 6: in the pre market. You know, Nick was down twelve

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Speaker 6: percent we were up that night all night, and you know,

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Speaker 6: again it was just an air gap. There was absolutely

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Speaker 6: no liquidity. And I think that's just one of those

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Speaker 6: warning shots that tells you how lever the system is

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Speaker 6: and how ill liquid the system is. And I don't

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Speaker 6: think that was the end of it. I think even today,

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Speaker 6: the massive valley we're seeing is happening on extremely in

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Speaker 6: ill liquid conditions.

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Speaker 3: I thought positioning, though, if we just stick with the

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Speaker 3: mom market Verzayonna, I thought positioning was all cleaned out

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Speaker 3: now that after the turmoil last couple of weeks, now

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Speaker 3: you have a cleaner read. Is that not the case?

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Speaker 6: I don't think so. I think what happened was people

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Speaker 6: try to get out. I mean it's like a very

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Speaker 6: big elephant trying to get through, you know, the eye

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Speaker 6: of a needle. I think some people got out, maybe

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Speaker 6: in Tannic on Monday and Tuesday, and then a lot

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Speaker 6: of systematic strategies started to reverse as BIS dropped, Like

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Speaker 6: Paul just mentioned, from sixty five pre market to about

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Speaker 6: you know twenty, many systematic strategies that are index to

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Speaker 6: the volatility market have to re lever, and I think

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Speaker 6: that's what you're seeing today. Very ill liquid billions and

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Speaker 6: billions coming back into the market, and there's really very

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Speaker 6: little liquidity for them to buy the risk assets back.

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Speaker 5: Vinyar, What do you think our Federal Reserve is going

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Speaker 5: to do next month?

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Speaker 6: Well, I think they have to ease now that they've

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Speaker 6: conditioned the market, they have to ease, and I think,

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Speaker 6: you know, that could be a twenty five. I don't

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Speaker 6: think they're going to do fifty will be too aggressive.

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Speaker 6: My senses, they're going to do a hawkish ease. They'll

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Speaker 6: do twenty five, and like the ECB, they'll say we'll

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Speaker 6: wait and see what happens, which is exactly what they

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Speaker 6: should do at this stage. And I think, you know,

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Speaker 6: that could set the stage for the next round of

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Speaker 6: the carry trade unwined. I mean, it's trillions out there,

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Speaker 6: trillions that have been accumulated over yeah, I don't know,

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Speaker 6: two decades or so. Because US rates going down, Japanese

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Speaker 6: rates going up compresses the yield spread, meaning a stronger again,

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Speaker 6: which could generate the next round.

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Speaker 3: So you think that we'll see a hawkish ease in September.

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Speaker 3: But a hawk ish use doesn't seem to me. A

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Speaker 3: carry trade unwined, it would be more than more dubish

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Speaker 3: they are.

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Speaker 6: No, yeah, possibly, it depends on again the carry trade online.

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Speaker 2: Right.

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Speaker 6: The currency markets is driven by the short trade differential. Right,

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Speaker 6: So US rates come down twenty five basis points unless

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Speaker 6: the Japan has to raise another twenty five basis spin

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Speaker 6: that fifty basis points have a very significant magnifier effect

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Speaker 6: on things like the cost of carry and so on,

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Speaker 6: And I think that's what's going to drive things in

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Speaker 6: the short run. So when I say hawkish ease, I

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Speaker 6: mean they're going to ease, but then they're going to

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Speaker 6: try to manage expectations for rates, call it two years

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Speaker 6: out or five years out, that this is not the

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Speaker 6: beginning of ten ease cycle, which is typically what you know,

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Speaker 6: what happened, and most of the markets are going to try

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Speaker 6: to build in right away.

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Speaker 5: If you're in a fixed income space, where do you

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Speaker 5: see value here? Do you should I just stick with

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Speaker 5: my two year treasury north of four percent?

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Speaker 4: Here?

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Speaker 5: Should I take some credit risk?

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Speaker 8: No?

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Speaker 6: I like the two year note. I think, Paul, the

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Speaker 6: two year note and T bills. You know, just a

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Speaker 6: month ago the auction cleared at close to five percent.

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Speaker 6: So I think if you can get a four percent

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Speaker 6: yield on two year notes or five five uarter percent

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Speaker 6: on T bills without taking any risk, duration risk or

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Speaker 6: credit risk. I think that's a great place to be.

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Speaker 6: And I'm talking about credit. Yes, it could tighten, but

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Speaker 6: I mean it's trading at basically all time tights right now.

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Speaker 6: I mean investment great credit and highield credit. You really

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Speaker 6: have to bet that there is nothing on the horizon

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Speaker 6: that could upset the Apple card and I believe there's

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Speaker 6: a lot out there, so you have to be careful

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Speaker 6: right now.

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Speaker 3: Well, yeah, that was an interesting That's an interesting point

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Speaker 3: because when we saw the VIC spike, we didn't see

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Speaker 3: the blowout and credit spreads in a way that one

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Speaker 3: might have thought. Why do you think that was?

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Speaker 6: Yeah, I think the market was waiting, right. So we

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Speaker 6: were here early in the morning, you know, and we

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Speaker 6: were watching the VIX at sixty five and the futures.

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Speaker 6: The VIX future is only getting up to about thirty something,

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Speaker 6: and the credit market waits and sees right because the

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Speaker 6: credit you can think of it as a long term

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Speaker 6: put on the equity market, and the fact that the

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Speaker 6: vics came down was a breath of relief or the

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Speaker 6: credit markets. President did white out, and CD Express did

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Speaker 6: widen out about fifty seven or actually mid sixties from

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Speaker 6: fifty to fifty three the week prior. But then as

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Speaker 6: the VIX came down, people basically said, Okay, this vigpike

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Speaker 6: is not translating into long term equity volatility rise because

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Speaker 6: the VIC curve was inverted and so on, and credit

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Speaker 6: markets watched that pretty carefully, and basically that was the

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Speaker 6: reason for the credit markets to kind of settle down again.

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Speaker 6: If you believe like I do, that that was only

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Speaker 6: the first round, I do think you have to be

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Speaker 6: careful because the next time around, if there's a big

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Speaker 6: shock to the system, great spreads could widen then stay wide,

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Speaker 6: not even widen more.

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Speaker 5: Finear, how do you guys? Do you guys have exposure

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Speaker 5: to alternative investments? Is that part of your outlook?

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Speaker 6: So we're direct investors in the market, so we don't

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Speaker 6: allocate to other funds. Obviously we're creating, you know, all

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Speaker 6: the futures and options and so on for our investors.

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Speaker 6: But yes, we are looking at all the alternatives as

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Speaker 6: signals on what might be happening. So you have to

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Speaker 6: be pretty hooked onto what everybody else is doing.

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Speaker 3: In today's market, What do you think is going to

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Speaker 3: be the trade around the elections? Like, I get the FED,

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Speaker 3: we got to get through that, right, But there's got

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Speaker 3: to be some political and geopolitical risk hedging that we're

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Speaker 3: going to see crop up. How do you think about that,

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Speaker 3: particularly when it doesn't really matter who's going to be

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Speaker 3: in the White House in that it feels like deficits

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Speaker 3: are just gonna be blown out no matter what.

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Speaker 6: Yeah, I think the a lot of it is priced

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Speaker 6: in right. A couple of months ago when I was

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Speaker 6: talking with someone the colleagues at Boomberg, you know, my

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Speaker 6: view was that, you know, mister Trump was probably going

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Speaker 6: to win, was pretty much baked in, and then you know,

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Speaker 6: with everything that's transpired, it's very close raiseds. We know,

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Speaker 6: And one of the big shocks from the twenty sixteen

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Speaker 6: elections was that a the market got who was going

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Speaker 6: to win wrong until the Florida returns were coming in

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Speaker 6: and then second conditional on who won, the direction of

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Speaker 6: the market got completely wrong. You know, it sold off

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Speaker 6: limit down and then limit up. And I think that's

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Speaker 6: the possibility here. So the elections could be extremely volatile.

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Speaker 6: One is we don't really know who's going to win,

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Speaker 6: and secondly, we don't know conditional on who wins what

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Speaker 6: the market does. And I think that's the surprise that

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Speaker 6: you've got to be prepared for. And given that, we

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Speaker 6: believe there's a very good opportunity generally to be long volatility,

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Speaker 6: right because volatility vixes back to below sixteen fifteen almost

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Speaker 6: it's a great time to bet on the unpriced event

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Speaker 6: possibility of something that market is not discounting actually happening.

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Speaker 6: You know, one of them could be Kamala Harris wins

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Speaker 6: and instead of the market selling, oh, there's a massive

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Speaker 6: upside rally in the market because that's really not a

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Speaker 6: priced outcome in the market today.

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Speaker 3: All right, Vaniir, we really appreciate, thank you so much.

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Speaker 3: Really great to get that perspective, very helpful of Viner

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Speaker 3: buon Shali. He's joining us, founder and chief investment officer

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Speaker 3: of long Tail Alpha. Don't you kind of wish if

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Speaker 3: you're a market participant, you could like put in a

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Speaker 3: position and then like go away for eight months and

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Speaker 3: then come back and see if it made money.

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Speaker 4: What's called it?

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Speaker 5: You know, you know, again investing in the S and

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Speaker 5: P five hundred that's why you see those index ETFs. True,

439
00:22:30,400 --> 00:22:33,840
Speaker 5: we're just getting so much fun flows in there because

440
00:22:33,880 --> 00:22:35,280
Speaker 5: a lot of people are saying, you know, for most

441
00:22:35,280 --> 00:22:38,320
Speaker 5: of folks out there, just buy an ETF that mimix

442
00:22:38,440 --> 00:22:40,280
Speaker 5: the market and just go away. I mean, from a

443
00:22:40,320 --> 00:22:45,560
Speaker 5: cost perspective and a return perspective, probably a good strategy.

444
00:22:46,080 --> 00:22:49,960
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

445
00:22:50,040 --> 00:22:53,560
Speaker 2: weekdays at ten am Eastern on applecard Play and Android

446
00:22:53,600 --> 00:22:56,359
Speaker 2: Outo with the Bloomberg Business app. You can also listen

447
00:22:56,480 --> 00:22:59,560
Speaker 2: live on Amazon Alexa from our flagship New York station,

448
00:23:00,119 --> 00:23:02,320
Speaker 2: Say Alexa playing Bloomberg eleven.

449
00:23:04,520 --> 00:23:06,359
Speaker 3: Let's go to Deer So I mentioned it. It's up

450
00:23:06,400 --> 00:23:10,040
Speaker 3: over six percent. It wound up cutting costs, but its

451
00:23:10,080 --> 00:23:12,600
Speaker 3: earning is also kind of less bad than feared. My

452
00:23:12,720 --> 00:23:14,920
Speaker 3: question though, always if you have corn like at four

453
00:23:14,960 --> 00:23:17,800
Speaker 3: dollars a bushel or under which, because conditions are so

454
00:23:17,880 --> 00:23:20,440
Speaker 3: good for corn right now, that's gonna be really tough

455
00:23:20,480 --> 00:23:22,199
Speaker 3: for farmers, and then how do they go buy all

456
00:23:22,200 --> 00:23:23,720
Speaker 3: the fancy equipment And.

457
00:23:23,640 --> 00:23:26,639
Speaker 5: You're right, you're right, I didn't look at corn bushel.

458
00:23:26,720 --> 00:23:28,760
Speaker 3: Yeah, And there was a great piece I forget where

459
00:23:28,800 --> 00:23:30,800
Speaker 3: I read it that talked about how it's actually technology

460
00:23:30,840 --> 00:23:33,679
Speaker 3: and innovation that's allowing American farmers to do so well

461
00:23:33,720 --> 00:23:37,680
Speaker 3: as in have so much crops, but then that hurts

462
00:23:37,680 --> 00:23:40,800
Speaker 3: on the price side. Very cyclical industry there. So Christopher

463
00:23:41,040 --> 00:23:44,240
Speaker 3: Chelino is Bloomberg Intelligence Senior US Machinery analyst, and he

464
00:23:44,400 --> 00:23:47,240
Speaker 3: joins us, now give us your take on deer.

465
00:23:47,040 --> 00:23:52,080
Speaker 9: Earnings, Alex. I mean, the results really weren't as bad

466
00:23:52,080 --> 00:23:55,879
Speaker 9: as many had feared going into the quarter, both from

467
00:23:55,920 --> 00:23:59,200
Speaker 9: a top line perspective, margins, earnings all kind of better

468
00:23:59,240 --> 00:24:01,600
Speaker 9: than what we had to expected in what is a

469
00:24:01,640 --> 00:24:06,720
Speaker 9: pretty challenging environment given the commodity price backdrop. I think

470
00:24:06,760 --> 00:24:08,359
Speaker 9: one thing to take away from the quarter is that,

471
00:24:08,440 --> 00:24:12,520
Speaker 9: you know, pricing really continues to be remarkably resilient. We

472
00:24:12,560 --> 00:24:16,240
Speaker 9: actually saw pricing accelerate here in the quarter in their

473
00:24:16,240 --> 00:24:20,000
Speaker 9: agg businesses, and then really they kept their twenty twenty

474
00:24:20,040 --> 00:24:24,400
Speaker 9: four guidance unchanged for the most part. After all, their

475
00:24:24,400 --> 00:24:27,480
Speaker 9: peers cut during the quarter. So while we're not quite

476
00:24:27,520 --> 00:24:30,320
Speaker 9: out of the woods yet and there's certainly more headwinds

477
00:24:30,359 --> 00:24:34,040
Speaker 9: from a demand perspective moving into twenty twenty five, I

478
00:24:34,080 --> 00:24:36,320
Speaker 9: think this probably just you know, alleviates some of the

479
00:24:36,320 --> 00:24:39,040
Speaker 9: concerns over a more severe down term in the near term.

480
00:24:39,600 --> 00:24:42,920
Speaker 5: You know, growing up in my lawnmowing days, I always

481
00:24:42,920 --> 00:24:46,080
Speaker 5: wanted a deer tractor, but my dad would never go

482
00:24:46,119 --> 00:24:48,520
Speaker 5: for it. So I had to push mow our lot

483
00:24:48,520 --> 00:24:50,800
Speaker 5: which is a little over an acre, I mean something

484
00:24:50,880 --> 00:24:53,000
Speaker 5: that was a lot, and I'm like, for three bucks

485
00:24:53,000 --> 00:24:55,879
Speaker 5: by the way, and I'm like, can you kick in

486
00:24:55,960 --> 00:24:58,520
Speaker 5: for a deer tractor? No, what's the thing now? I

487
00:24:58,520 --> 00:25:00,400
Speaker 5: got the vestmuscooter, so that's one of the is off

488
00:25:00,400 --> 00:25:03,040
Speaker 5: my bucket list, but not the deer tracktro I'm still

489
00:25:03,160 --> 00:25:03,760
Speaker 5: working on.

490
00:25:03,960 --> 00:25:05,959
Speaker 3: I feel like, what would you do with that?

491
00:25:06,680 --> 00:25:10,880
Speaker 5: Exactly? I have met it drive around town. So talk

492
00:25:10,920 --> 00:25:13,960
Speaker 5: to US Chris about what deer's saying about the the

493
00:25:14,119 --> 00:25:17,560
Speaker 5: US farmer, because it just feels like that's a deer

494
00:25:17,640 --> 00:25:19,160
Speaker 5: is a real proxy for the US farmer.

495
00:25:20,160 --> 00:25:23,800
Speaker 9: Yeah, and certainly nothing runs like a deer, Paul. Yeah,

496
00:25:23,840 --> 00:25:28,160
Speaker 9: the backdrop isn't really favorable for the farmer, at least

497
00:25:28,240 --> 00:25:31,240
Speaker 9: for the balance of this year and probably into next year.

498
00:25:32,280 --> 00:25:35,160
Speaker 9: You know, Commodity prices continue to be under significant pressure.

499
00:25:35,359 --> 00:25:38,720
Speaker 9: If you look at corn, soy wheat all down, you know,

500
00:25:38,800 --> 00:25:42,080
Speaker 9: fifteen twenty five percent plus year to date, farming come

501
00:25:42,119 --> 00:25:44,560
Speaker 9: is going to be down north of twenty five percent

502
00:25:44,600 --> 00:25:49,160
Speaker 9: this year. New and used inventories are still quite elevated.

503
00:25:50,280 --> 00:25:52,960
Speaker 9: We don't have these big pricing tailwinds that we had

504
00:25:53,000 --> 00:25:56,879
Speaker 9: over the last three years, so it's certainly a challenging market,

505
00:25:56,920 --> 00:26:00,439
Speaker 9: and input costs are relatively elevated, so farmer incomes are

506
00:26:00,480 --> 00:26:03,520
Speaker 9: going to be under pressure. Really, the focus with Deer

507
00:26:03,920 --> 00:26:06,000
Speaker 9: and really all oeams now is really to try to

508
00:26:06,080 --> 00:26:08,960
Speaker 9: kind of right size the inventory in the channel. Inventories

509
00:26:08,960 --> 00:26:11,399
Speaker 9: are too high, so there's gonna be a lot of

510
00:26:11,400 --> 00:26:14,840
Speaker 9: focus in on underproducing retail demand for the balance of

511
00:26:14,880 --> 00:26:17,679
Speaker 9: this year with the hopes of producing in line with

512
00:26:17,800 --> 00:26:21,959
Speaker 9: retail demand and then you know where the retail environment

513
00:26:22,000 --> 00:26:25,040
Speaker 9: shakes out for next year. It's still a little bit

514
00:26:25,080 --> 00:26:27,440
Speaker 9: up in the air, but certainly from a commodity price

515
00:26:27,520 --> 00:26:31,679
Speaker 9: perspective and a farm fundamental perspective, certainly no signs of

516
00:26:31,840 --> 00:26:32,600
Speaker 9: a bottom yet.

517
00:26:33,000 --> 00:26:34,560
Speaker 3: Well also I should point out too, and we say

518
00:26:34,560 --> 00:26:36,679
Speaker 3: like less bad than feared, like North American sales we're

519
00:26:36,680 --> 00:26:39,520
Speaker 3: still down about or lower by fifteen percent, and revenue

520
00:26:39,560 --> 00:26:42,119
Speaker 3: in South America down by fifteen to twenty percent. Do

521
00:26:42,160 --> 00:26:44,040
Speaker 3: we feel like this is definitely the trough though.

522
00:26:45,440 --> 00:26:48,320
Speaker 9: Yeah, I think it's it's a story of the nicest

523
00:26:48,320 --> 00:26:50,680
Speaker 9: house on a bad block, right. I mean, it's still

524
00:26:50,680 --> 00:26:55,280
Speaker 9: a pretty difficult environment and it's still pretty fluid. I

525
00:26:55,320 --> 00:26:58,000
Speaker 9: don't have a ton of sense if we have really

526
00:26:58,040 --> 00:27:00,399
Speaker 9: good visibility on a trough yet. I think that's what

527
00:27:00,640 --> 00:27:04,040
Speaker 9: investors are, you know, starting to co lesson around twenty

528
00:27:04,119 --> 00:27:08,080
Speaker 9: twenty five will be a trough earnings year, but it's

529
00:27:08,119 --> 00:27:10,399
Speaker 9: still kind of a little too early, I think to

530
00:27:10,680 --> 00:27:13,600
Speaker 9: draw any conclusions. I think we'll have a better idea

531
00:27:14,160 --> 00:27:16,240
Speaker 9: probably at the end of next quarter and how we

532
00:27:16,320 --> 00:27:19,240
Speaker 9: exit the year in terms of an inventory perspective, And

533
00:27:19,320 --> 00:27:22,000
Speaker 9: if they're able to kind of get through those inventory

534
00:27:22,040 --> 00:27:24,920
Speaker 9: cuts and we're kind of more aligned with the demand environment,

535
00:27:25,640 --> 00:27:28,320
Speaker 9: then I think it's even possible to see earnings growth

536
00:27:28,359 --> 00:27:31,399
Speaker 9: and margin expansion even if we're looking at a lower

537
00:27:31,480 --> 00:27:33,280
Speaker 9: or slightly lower retail environment.

538
00:27:34,320 --> 00:27:36,720
Speaker 5: Chris we heard from I guess Home Depot says some

539
00:27:36,760 --> 00:27:40,720
Speaker 5: of their customers were deferring big projects waiting for interest

540
00:27:40,760 --> 00:27:43,920
Speaker 5: rates to decline, and as Deer said, anything about that, like,

541
00:27:43,960 --> 00:27:45,679
Speaker 5: if I'm a farmer, do I say, man I'm need

542
00:27:45,680 --> 00:27:47,600
Speaker 5: the tractor this year. Maybe I'll wait next year when

543
00:27:47,600 --> 00:27:49,600
Speaker 5: maybe my financing rate will be a little bit lower.

544
00:27:51,280 --> 00:27:54,760
Speaker 9: You know, the large ag, the large professional farmer a

545
00:27:54,760 --> 00:27:58,280
Speaker 9: little less sensitive to the interest rate narrative. It certainly

546
00:27:58,320 --> 00:28:00,800
Speaker 9: has more of an impact on their molag and turf

547
00:28:00,840 --> 00:28:04,240
Speaker 9: business and utility customers. They are much more interest rates sensitive.

548
00:28:04,600 --> 00:28:07,080
Speaker 9: But that market has now been weak for multiple years,

549
00:28:07,080 --> 00:28:09,360
Speaker 9: so I think we're at a trough or coming into

550
00:28:09,359 --> 00:28:12,000
Speaker 9: a trough on that market. And then I think, you know,

551
00:28:12,880 --> 00:28:15,200
Speaker 9: some new information that we got this quarter is that

552
00:28:16,600 --> 00:28:19,560
Speaker 9: particularly on the construction side of the business. Now they

553
00:28:19,600 --> 00:28:21,520
Speaker 9: took down some of their numbers for the year, and

554
00:28:21,800 --> 00:28:24,639
Speaker 9: actually construction was one of the disappointments in the quarter

555
00:28:25,760 --> 00:28:29,520
Speaker 9: as some of the rental fleets and construction equipment customers

556
00:28:30,720 --> 00:28:33,360
Speaker 9: slowed some of their order velocity and they pulled back

557
00:28:33,400 --> 00:28:37,120
Speaker 9: on some of their capital spending. So and the higher

558
00:28:37,160 --> 00:28:40,200
Speaker 9: rates were a contributing factor to that. So I think

559
00:28:40,200 --> 00:28:42,080
Speaker 9: that's where you're seeing more of the impact less so

560
00:28:42,160 --> 00:28:43,680
Speaker 9: on the large professional farmer.

561
00:28:44,280 --> 00:28:47,960
Speaker 5: You know, I hired out of Global data at Bloomberg

562
00:28:48,000 --> 00:28:51,360
Speaker 5: Intelligence twelve thirteen years ago. I didn't know anything. Now

563
00:28:51,400 --> 00:28:53,440
Speaker 5: he's a rock Star, and he talks to people all

564
00:28:53,480 --> 00:28:55,560
Speaker 5: over the globe, talks to these companies. He knows what

565
00:28:55,640 --> 00:28:57,400
Speaker 5: he's talking about. Christ Gielino, one of the good ones

566
00:28:57,400 --> 00:29:00,440
Speaker 5: in Bloomerg Intelligence, covered some of those industrials off along

567
00:29:00,480 --> 00:29:03,960
Speaker 5: with Karen Ubelheart talking about deer some better than expected earnings.

568
00:29:05,440 --> 00:29:09,320
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

569
00:29:09,400 --> 00:29:12,920
Speaker 2: weekdays at ten am Eastern on applecard Play and Android

570
00:29:12,960 --> 00:29:15,760
Speaker 2: Auto with the Bloomberg Business App. You can also listen

571
00:29:15,840 --> 00:29:18,960
Speaker 2: live on Amazon Alexa from our flagship New York station

572
00:29:19,320 --> 00:29:24,280
Speaker 2: Just Say Alexa playing Bloomberg eleven thirty.

573
00:29:24,080 --> 00:29:26,760
Speaker 5: Dalex Steel, Paul Sweeney live here in our Bloomberg Interactive

574
00:29:26,760 --> 00:29:29,640
Speaker 5: Broker Studio, streaming live on YouTube as wells ahead over

575
00:29:29,680 --> 00:29:33,360
Speaker 5: there and just check out Bloomberg Podcast, and that's where

576
00:29:33,400 --> 00:29:35,920
Speaker 5: you find is here. You know, thinking about where we

577
00:29:35,920 --> 00:29:39,440
Speaker 5: were a week ago Monday, the Vicks over sixty, big

578
00:29:39,480 --> 00:29:43,120
Speaker 5: sell off in the markets, it's almost like, please look

579
00:29:43,120 --> 00:29:45,960
Speaker 5: at the markets today. It's almost like it never happened.

580
00:29:46,160 --> 00:29:49,560
Speaker 5: Our earnings. That good is economic data? That good. Let's

581
00:29:49,640 --> 00:29:53,400
Speaker 5: chicken with a professional. David Kodlak, Founder, Chief executive Officer

582
00:29:53,560 --> 00:29:55,920
Speaker 5: and chief investment strategist. He kind of does everything there

583
00:29:55,920 --> 00:30:01,560
Speaker 5: at Mainstay Capital. He joins us from Troy, Michigan via zoom. David,

584
00:30:01,600 --> 00:30:04,360
Speaker 5: what do you make of a week ago Friday, what

585
00:30:04,400 --> 00:30:07,440
Speaker 5: we saw, particularly in the morning, to what we've seen

586
00:30:07,480 --> 00:30:08,040
Speaker 5: since then?

587
00:30:08,400 --> 00:30:10,320
Speaker 7: Right? Yeah, so we you know, we had that growth

588
00:30:10,320 --> 00:30:13,360
Speaker 7: scare because of an ism and poor ism and a

589
00:30:13,400 --> 00:30:17,440
Speaker 7: non farm payrolls number two weeks ago, and that was

590
00:30:17,480 --> 00:30:18,560
Speaker 7: aggravated by.

591
00:30:18,480 --> 00:30:23,640
Speaker 4: The yen carry trade issue. With a week ago.

592
00:30:23,880 --> 00:30:25,960
Speaker 7: With job as claims, we got a little bit of

593
00:30:26,000 --> 00:30:29,360
Speaker 7: help there, and of course the data today with retail sales,

594
00:30:29,760 --> 00:30:32,200
Speaker 7: jobs claims a little better than expected. But I think

595
00:30:33,000 --> 00:30:36,720
Speaker 7: look at the data yesterday or let's say Tuesday through today.

596
00:30:36,760 --> 00:30:42,960
Speaker 7: Tuesday we had PPI coming in well below expectations. Yesterday

597
00:30:43,000 --> 00:30:48,480
Speaker 7: we had CPI coming in slightly below expectations, Headline inflation

598
00:30:48,640 --> 00:30:50,720
Speaker 7: is below three percent for the first time in a

599
00:30:50,760 --> 00:30:54,720
Speaker 7: long while. And now today we have retail sales kind

600
00:30:54,760 --> 00:30:57,600
Speaker 7: of blowout number when we're expecting four tenths and get

601
00:30:57,640 --> 00:31:01,160
Speaker 7: one percent, which says the consumer is still strong. You know,

602
00:31:01,200 --> 00:31:04,240
Speaker 7: if I'm going to loosely borrow a Mark Twain quote,

603
00:31:05,360 --> 00:31:09,320
Speaker 7: reports of the consumer's demise have been greatly exaggerated. We

604
00:31:09,360 --> 00:31:11,640
Speaker 7: need the consumer to stay strong. It's two thirds of

605
00:31:11,680 --> 00:31:15,040
Speaker 7: our economy. They were certainly strong last month.

606
00:31:15,480 --> 00:31:19,760
Speaker 4: So look what we have. We have growth with lowering inflation.

607
00:31:20,520 --> 00:31:23,600
Speaker 7: I don't want to overstate it that it's a Goldilock's

608
00:31:23,640 --> 00:31:26,480
Speaker 7: economy because we do have a real fear of recession.

609
00:31:26,560 --> 00:31:29,040
Speaker 4: We need the FED to get started on.

610
00:31:29,000 --> 00:31:32,040
Speaker 7: Their easing cycle and I think it'll be twenty five

611
00:31:32,080 --> 00:31:35,760
Speaker 7: basis points at not fifty in September that many are predicting.

612
00:31:36,800 --> 00:31:38,960
Speaker 7: But they need to get going and they have the

613
00:31:39,040 --> 00:31:40,800
Speaker 7: room to do it. We're on a good glide path

614
00:31:40,840 --> 00:31:45,280
Speaker 7: on inflation. And you know, when we have growth with

615
00:31:45,400 --> 00:31:48,280
Speaker 7: inflation inflation slowing.

616
00:31:48,120 --> 00:31:50,440
Speaker 4: That's a pretty good scenario for the economy.

617
00:31:50,960 --> 00:31:54,200
Speaker 3: Why are rates up then right now? In that scenario

618
00:31:54,360 --> 00:31:55,000
Speaker 3: just lined up?

619
00:31:55,960 --> 00:31:59,440
Speaker 7: Yeah, Well, rates are up today because the retail sales

620
00:31:59,520 --> 00:32:03,600
Speaker 7: number came in so strong, right, more than double expectations,

621
00:32:04,120 --> 00:32:06,880
Speaker 7: and you know kind of you know the growth scare

622
00:32:06,880 --> 00:32:07,680
Speaker 7: of two weeks ago.

623
00:32:08,360 --> 00:32:10,880
Speaker 4: It's it's really been a significant change, you.

624
00:32:10,880 --> 00:32:14,560
Speaker 7: Know, the Harrison that Paul was talking about from two

625
00:32:14,600 --> 00:32:19,000
Speaker 7: weeks ago to so alex we've really seen you know,

626
00:32:19,040 --> 00:32:22,840
Speaker 7: a terrific number that tells us the consumer is still

627
00:32:22,840 --> 00:32:25,640
Speaker 7: out there buying, and that's all important, right for the

628
00:32:25,760 --> 00:32:28,800
Speaker 7: US economy, The consumer is all important. It's two thirds

629
00:32:28,800 --> 00:32:30,920
Speaker 7: of consumers, two thirds of our economy, and that was

630
00:32:30,960 --> 00:32:34,280
Speaker 7: a very reassuring data point. But it means the economy

631
00:32:34,320 --> 00:32:37,040
Speaker 7: is a little bit stronger than we thought. Bond yields

632
00:32:37,200 --> 00:32:39,479
Speaker 7: go up five or seven or nine basis points.

633
00:32:41,320 --> 00:32:45,200
Speaker 5: So what type of stocks, what type of sectors work

634
00:32:45,240 --> 00:32:48,120
Speaker 5: in an environment David, where you know the economy is

635
00:32:48,160 --> 00:32:50,479
Speaker 5: hanging in there, maybe slow, but hanging in there, but

636
00:32:50,800 --> 00:32:53,040
Speaker 5: we now have the prospect for lower rates. What kind

637
00:32:53,040 --> 00:32:54,760
Speaker 5: of sectors screen well for you guys.

638
00:32:55,400 --> 00:32:58,920
Speaker 7: Yeah, So, first of all, you know, we we liked

639
00:32:59,040 --> 00:33:03,520
Speaker 7: the secular growth stories like megacap tech for a long time,

640
00:33:03,600 --> 00:33:06,440
Speaker 7: and we still believe in the AI plays, but now

641
00:33:06,480 --> 00:33:09,920
Speaker 7: we can look at cyclical plays. Take financials you know

642
00:33:10,080 --> 00:33:11,440
Speaker 7: that have struggled so much.

643
00:33:11,280 --> 00:33:12,200
Speaker 4: Over the past years.

644
00:33:12,600 --> 00:33:17,240
Speaker 7: Now, you know, we actually had the yield curve uninvert

645
00:33:17,480 --> 00:33:23,040
Speaker 7: briefly last week. We're but we're certainly seeing a steepening

646
00:33:23,080 --> 00:33:25,320
Speaker 7: of the curve, and as the FED starts to cut rates,

647
00:33:26,080 --> 00:33:28,200
Speaker 7: we'll see that steepening of the curve, which will be

648
00:33:28,200 --> 00:33:32,320
Speaker 7: good for financial is because nim nedis interest margin improof,

649
00:33:32,320 --> 00:33:36,400
Speaker 7: so we like financials or an extending bond duration. We

650
00:33:36,440 --> 00:33:40,160
Speaker 7: had for a over a year and probably fifteen months

651
00:33:40,440 --> 00:33:42,720
Speaker 7: had been an ultra short term bonds because we just

652
00:33:42,760 --> 00:33:45,000
Speaker 7: wanted to capture the yield and we didn't want the.

653
00:33:44,960 --> 00:33:46,880
Speaker 4: Interestraight rest and that was a good play.

654
00:33:46,960 --> 00:33:50,920
Speaker 7: But now it's time to be extending duration because we

655
00:33:51,000 --> 00:33:53,719
Speaker 7: know the FED is going to be cutting. Forecasts are

656
00:33:53,800 --> 00:33:56,280
Speaker 7: still about one hundred basis points by the end of

657
00:33:56,320 --> 00:33:59,800
Speaker 7: the year. That's you know, with that easing in place,

658
00:34:00,400 --> 00:34:03,959
Speaker 7: that means we want to lock in rates and extended duration,

659
00:34:05,680 --> 00:34:10,040
Speaker 7: and we also are broadening. It gives us an opportunity

660
00:34:10,040 --> 00:34:14,120
Speaker 7: to broaden portfolios into small caps, value cyclicals, mid caps,

661
00:34:14,400 --> 00:34:16,680
Speaker 7: you know, areas that we had been mostly vuoid in

662
00:34:16,719 --> 00:34:19,759
Speaker 7: favor of large cap and large cab megatach.

663
00:34:20,600 --> 00:34:24,680
Speaker 3: But what about the idea that with small caps the

664
00:34:24,760 --> 00:34:28,680
Speaker 3: pe ratio, so the P part wound up rerating enough

665
00:34:28,719 --> 00:34:30,399
Speaker 3: that okay, maybe you want to buy it, but maybe

666
00:34:30,400 --> 00:34:32,560
Speaker 3: that thesis is out the door of it because small

667
00:34:32,600 --> 00:34:34,799
Speaker 3: caps did have a run before the growth scare, but

668
00:34:34,840 --> 00:34:37,120
Speaker 3: that the E part isn't really holding up. That's what

669
00:34:37,160 --> 00:34:39,480
Speaker 3: I hear a lot about the small caps and these airs.

670
00:34:40,360 --> 00:34:44,560
Speaker 4: Yeah, forty two percent of the small cap stocks in

671
00:34:44,600 --> 00:34:48,640
Speaker 4: the Russell two thousand aren't profitable. You know, it's it's

672
00:34:48,640 --> 00:34:49,240
Speaker 4: a struggle.

673
00:34:49,520 --> 00:34:52,799
Speaker 7: You know, if a small cap stock does well, it

674
00:34:52,800 --> 00:34:56,120
Speaker 7: grows into the MidCap region, it leaves the Russell two thousand.

675
00:34:56,320 --> 00:34:59,320
Speaker 7: So what Here's what needs to happen for small caps,

676
00:34:59,360 --> 00:35:03,279
Speaker 7: is we really ne what's coming. The rate cuts that

677
00:35:03,360 --> 00:35:08,680
Speaker 7: are coming avoid a recession. And the PE multiple of

678
00:35:08,840 --> 00:35:12,920
Speaker 7: small caps is so attractive compared to large caps at

679
00:35:12,920 --> 00:35:14,920
Speaker 7: this point. You know, we were hitting earlier in the

680
00:35:15,000 --> 00:35:20,120
Speaker 7: year historical highs multi year delta of PE of large

681
00:35:20,120 --> 00:35:24,480
Speaker 7: caps versus versus small caps. So the attractiveness is there,

682
00:35:24,719 --> 00:35:27,360
Speaker 7: but we need the right kind of environment data like today.

683
00:35:27,360 --> 00:35:30,920
Speaker 7: We've seen what the Russell two thousand did today in

684
00:35:31,280 --> 00:35:34,520
Speaker 7: early training, up over two percent. And if we get

685
00:35:34,520 --> 00:35:39,400
Speaker 7: the rate cuts, the economy can can be slowing a bit.

686
00:35:39,360 --> 00:35:42,759
Speaker 4: But no recession. That's a that's a good environment for

687
00:35:42,840 --> 00:35:44,680
Speaker 4: small caps, for value, for cyclicals.

688
00:35:46,239 --> 00:35:47,760
Speaker 5: Do you think the FED is going to go twenty

689
00:35:47,760 --> 00:35:50,120
Speaker 5: five or fifty basis points? And do you even care?

690
00:35:52,760 --> 00:35:55,120
Speaker 7: The first of all, that's you know, that's a good way,

691
00:35:55,160 --> 00:35:57,560
Speaker 7: that's a good way to ask that question do we

692
00:35:57,600 --> 00:36:01,600
Speaker 7: even care? The most important thing is is they get started.

693
00:36:01,680 --> 00:36:04,800
Speaker 7: The first cut means they switched from a neutral stance

694
00:36:05,480 --> 00:36:09,560
Speaker 7: to an easing bias, right from neutral to easing. So

695
00:36:09,920 --> 00:36:13,359
Speaker 7: the first cut is symbolic in that regard if we

696
00:36:13,600 --> 00:36:14,320
Speaker 7: I think.

697
00:36:14,120 --> 00:36:16,880
Speaker 4: That they will go twenty five basis points, because.

698
00:36:16,600 --> 00:36:19,360
Speaker 7: If they go fifty, and I know what the case

699
00:36:19,440 --> 00:36:21,840
Speaker 7: is for that, for the case that others are making.

700
00:36:22,239 --> 00:36:25,440
Speaker 4: But then it raises a question, are they are they

701
00:36:25,440 --> 00:36:28,080
Speaker 4: doing fifty because they're behind. I mean, they've still got

702
00:36:28,120 --> 00:36:29,400
Speaker 4: November de Son, They've still.

703
00:36:29,280 --> 00:36:34,680
Speaker 7: Got more meetings to achieve seventy five hundred basis points

704
00:36:34,680 --> 00:36:36,520
Speaker 7: by the end of the year, maybe even do a

705
00:36:36,520 --> 00:36:40,000
Speaker 7: half cut later. I just wouldn't start there again for

706
00:36:40,120 --> 00:36:43,359
Speaker 7: symbolic reason. So I think they do twenty five. But

707
00:36:43,560 --> 00:36:45,440
Speaker 7: you know the part about do we even care? The

708
00:36:45,520 --> 00:36:48,560
Speaker 7: main point is is they get started. Let's get let's

709
00:36:48,640 --> 00:36:51,640
Speaker 7: get going, fad, Let's get the first cut in there

710
00:36:52,000 --> 00:36:54,879
Speaker 7: and established where you have changed your bias to an

711
00:36:55,080 --> 00:36:55,880
Speaker 7: easing cycle.

712
00:36:56,120 --> 00:36:57,919
Speaker 3: But to that point, you know something that I feel

713
00:36:57,960 --> 00:37:00,600
Speaker 3: like is becoming more of the conversation. I think it

714
00:37:00,640 --> 00:37:02,719
Speaker 3: was Bostic that mentioned this when he was speaking to

715
00:37:02,719 --> 00:37:06,319
Speaker 3: the ft is that you had a delayed reaction and

716
00:37:06,360 --> 00:37:09,040
Speaker 3: transmission mechanism of policy on the way up with rate,

717
00:37:09,160 --> 00:37:11,960
Speaker 3: So why not expect that then on the way down,

718
00:37:12,280 --> 00:37:14,480
Speaker 3: which implies that we do need to see sort of

719
00:37:14,520 --> 00:37:17,359
Speaker 3: a little faster, more aggressive cut so it filters through

720
00:37:17,360 --> 00:37:19,319
Speaker 3: the economy a little faster. What do you think about

721
00:37:19,360 --> 00:37:19,800
Speaker 3: that part?

722
00:37:20,920 --> 00:37:24,239
Speaker 4: I think that's actually it's absolutely right.

723
00:37:24,320 --> 00:37:27,360
Speaker 7: I mean, when we talk about FED policy and the

724
00:37:27,400 --> 00:37:30,400
Speaker 7: mistakes they've made, they made the mistake of twenty twenty

725
00:37:30,400 --> 00:37:34,319
Speaker 7: one of staying easy for too long, continuing to buy

726
00:37:34,320 --> 00:37:39,920
Speaker 7: mortgage backed securities, making mortgages so attractive people saw their

727
00:37:39,960 --> 00:37:43,040
Speaker 7: house price one and a half times are double in

728
00:37:43,080 --> 00:37:47,080
Speaker 7: a couple of years, and they created they helped create

729
00:37:47,120 --> 00:37:50,000
Speaker 7: the problem of inflation with the first policy here by

730
00:37:50,040 --> 00:37:53,640
Speaker 7: staying easy for too long. And they probably are going

731
00:37:53,680 --> 00:37:55,680
Speaker 7: and when we look back, they probably will have stayed

732
00:37:56,640 --> 00:37:59,120
Speaker 7: tight for too long. Five and a quarter is a

733
00:37:59,120 --> 00:38:02,799
Speaker 7: restrictive policy. See inflation is on a glide path to

734
00:38:02,880 --> 00:38:05,680
Speaker 7: their target. It's time to get on with cutting rates.

735
00:38:06,000 --> 00:38:06,759
Speaker 7: Probably should have.

736
00:38:06,680 --> 00:38:09,040
Speaker 4: Cut twenty five in hindsight, you know.

737
00:38:08,960 --> 00:38:12,719
Speaker 7: They probably should have cut twenty five in July and

738
00:38:12,760 --> 00:38:15,000
Speaker 7: then they'd be ready for another twenty five in September.

739
00:38:15,040 --> 00:38:17,640
Speaker 7: And that's what might beg the question they need to

740
00:38:17,680 --> 00:38:20,120
Speaker 7: do fifty to get caught up. But yeah, our concern

741
00:38:20,320 --> 00:38:24,439
Speaker 7: is they made the same mistake on easing as they

742
00:38:24,440 --> 00:38:30,440
Speaker 7: did as they did on or easing now as they

743
00:38:30,440 --> 00:38:34,279
Speaker 7: did on. They were easy for too long, went way

744
00:38:34,320 --> 00:38:36,720
Speaker 7: up to it, you know, drove it up to illustracted policy,

745
00:38:36,800 --> 00:38:38,160
Speaker 7: and now they got to get on with it, all right.

746
00:38:38,200 --> 00:38:40,080
Speaker 5: David, thank you so much for joining us. Always appreciate

747
00:38:40,080 --> 00:38:43,160
Speaker 5: getting your views. David Coodley's a founder of mainstay at

748
00:38:43,200 --> 00:38:45,840
Speaker 5: Capital Management, joining us from Tory, Michigan via zoom.

749
00:38:46,239 --> 00:38:50,759
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750
00:38:50,960 --> 00:38:54,160
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751
00:38:54,200 --> 00:38:57,560
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752
00:38:57,680 --> 00:39:01,040
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753
00:39:01,200 --> 00:39:04,200
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754
00:39:04,440 --> 00:39:06,280
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