WEBVTT - Stock Meltdown, Berkshire's Selling Strategy 0:00:02.920 --> 0:00:07.240 Bloomberg Audio Studios, Podcasts, radio news. 0:00:08.520 --> 0:00:12.880 This is Bloomberg Business Wait inside from the reporters and 0:00:13.080 --> 0:00:16.640 editors who bring you America's most trusted business magazine, plus 0:00:16.720 --> 0:00:20.599 gloom wal Business finance and tech news. The Bloomberg Business 0:00:20.600 --> 0:00:25.800 Week podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:00:26.680 --> 0:00:27.320 She has been. 0:00:27.200 --> 0:00:30.400 Consistently reminding us that we are seeing earnings growth with 0:00:30.520 --> 0:00:33.480 analyst raising estimates and growth outside of the Magnificent seven, 0:00:33.560 --> 0:00:37.000 including growth and financials. She is out with Research today 0:00:37.040 --> 0:00:39.400 saying stop blaming earnings for S and P struggles. It's 0:00:39.400 --> 0:00:41.960 mostly about tech. Back with us as Gina Martin Adams, 0:00:41.960 --> 0:00:44.560 who is Bloomberg Intelligence, Director of Equity Strategy and Chief 0:00:44.600 --> 0:00:47.440 Equity Strategist. She too has had quite a week or so. 0:00:47.640 --> 0:00:50.159 She's back here in our Bloomberg Interactive Brokers Studio. I 0:00:50.240 --> 0:00:52.600 keep leaning on you. We keep leaning on you because 0:00:52.760 --> 0:00:55.639 I feel like I want to keep understanding fundamentally how 0:00:55.680 --> 0:00:56.560 companies are doing. 0:00:56.800 --> 0:00:59.040 Yeah, and I think that's fair, thank you very much. 0:00:59.080 --> 0:01:00.840 I don't know that that mays or that interested in 0:01:00.840 --> 0:01:05.240 the fundamentals right now, so rare though nonetheless, I do 0:01:05.319 --> 0:01:06.920 think that most of this if you go back to 0:01:06.959 --> 0:01:10.080 when this really started. It really started with tech valuations 0:01:10.080 --> 0:01:13.480 at extreme levels. Earning season coming all the tech stocks 0:01:13.680 --> 0:01:15.600 for the most part, with the exception of a few 0:01:15.720 --> 0:01:21.880 key like Intel. You know, they generally beat expectations, but 0:01:21.920 --> 0:01:25.399 there were nuances and did they beat on their cloud component? 0:01:25.640 --> 0:01:28.360 You know, that's the Microsoft story. On the Amazon story. 0:01:28.360 --> 0:01:31.200 We nitpicked into little details in the earning statement, and 0:01:31.200 --> 0:01:33.399 that's just a symptom I think of a market that 0:01:33.480 --> 0:01:37.640 got too irrationally exuberant about this space. The companies are 0:01:37.640 --> 0:01:41.720 still doing fine, fundamentals are still pretty solid. They're guiding 0:01:41.800 --> 0:01:45.080 us to expect a little bit less margin growth going forward, 0:01:45.560 --> 0:01:47.720 and that's left us with this kind of dearth of 0:01:47.760 --> 0:01:51.680 where do we go next. We are seeing some emergence 0:01:51.680 --> 0:01:54.840 of positivity in the rest of sectors, but I think 0:01:54.880 --> 0:01:57.440 we're at a point in time where we're not terribly 0:01:57.480 --> 0:01:59.840 confident that that's going to last, and at least in 0:02:00.040 --> 0:02:03.600 terms of market psychology, that's creating a lot of weakness 0:02:03.760 --> 0:02:07.240 and some degree of panic inequities. As the big stocks turnover, 0:02:07.800 --> 0:02:11.480 where do investors go. They're not really looking at buying 0:02:11.520 --> 0:02:13.760 a whole lot of these risky stocks that have lagged 0:02:13.760 --> 0:02:14.560 in this cycle, Joe. 0:02:14.480 --> 0:02:16.720 Well, when you say risky, are you talking about the 0:02:16.760 --> 0:02:19.000 S and P four ninety three? Are the other four 0:02:19.040 --> 0:02:21.920 hundred ninety three stocks little risky companies compared to the 0:02:21.919 --> 0:02:23.560 big It is amazing. 0:02:23.240 --> 0:02:26.960 Right, That's basically how it's played out is the seven 0:02:27.040 --> 0:02:30.000 have become so big and so dominant and have gathered 0:02:30.040 --> 0:02:34.200 so much mind share, market share, investor dollars that they 0:02:34.240 --> 0:02:35.520 are their own segment, and. 0:02:35.440 --> 0:02:37.919 They've represented all of the earnings growth. 0:02:37.720 --> 0:02:40.359 Absolutely all of the earnings growth for the next six quarters. 0:02:40.440 --> 0:02:42.799 I think that's so important and so key is when 0:02:42.800 --> 0:02:44.760 you look at the earnings growth trends, you've had this 0:02:44.960 --> 0:02:47.960 mass divergence between the seven and the rest. And sure 0:02:48.000 --> 0:02:50.800 there's some of the rest that have done fine, but 0:02:50.919 --> 0:02:54.840 the seven have so thoroughly dominated earnings growth that that's 0:02:54.880 --> 0:02:57.840 where we've been focused. All of our attention has been focused. Now, 0:02:57.880 --> 0:03:01.079 the four ninety three are emergent, this is the great news. 0:03:01.280 --> 0:03:03.440 I think we still need to gather confidence that that 0:03:03.520 --> 0:03:07.119 emergence can endure over the next several quarters. And that, 0:03:07.200 --> 0:03:09.240 to me is what last week was about, is the 0:03:09.240 --> 0:03:11.560 tech stacks were already melting down. We were starting to 0:03:11.560 --> 0:03:13.560 get a little confidence that the four ninety three might 0:03:13.560 --> 0:03:16.120 make up for some of that tech loss when suddenly 0:03:16.160 --> 0:03:19.000 you got some pretty nasty macro data and everyone said, 0:03:19.040 --> 0:03:21.440 oh no, the four ninety three can't possibly survive that 0:03:21.520 --> 0:03:22.000 kind of macro. 0:03:22.120 --> 0:03:22.840 Are you not so. 0:03:22.680 --> 0:03:23.560 Sure going forward? 0:03:23.760 --> 0:03:26.120 Because we've talked a lot about that. Beyond the big 0:03:26.240 --> 0:03:29.000 tech that we have seen earning's growth elsewhere, and that 0:03:29.080 --> 0:03:31.200 anamals we're ratcheting up or moving up. 0:03:31.240 --> 0:03:33.839 Estimates, right, and that gave us that opt we're still 0:03:33.880 --> 0:03:36.080 seeing that. We're still seeing it in guidance. Our guidance 0:03:36.120 --> 0:03:39.520 momentum score for third quarter actually continues to improve. So 0:03:39.520 --> 0:03:42.240 we're not seeing any evidence that would suggest the macro 0:03:43.080 --> 0:03:47.440 is yet overwhelming even the four ninety three's individual company 0:03:47.600 --> 0:03:52.960 performance or improvement or general trend growth into twenty twenty five. 0:03:53.440 --> 0:03:55.680 I am worried that maybe we will see that if 0:03:55.680 --> 0:03:58.240 we get bigger deterioration in the job market, what does 0:03:58.280 --> 0:04:00.680 that do to filter through? But we're not it yet. 0:04:01.360 --> 0:04:03.520 And you know, I've learned a long time ago that 0:04:03.800 --> 0:04:06.800 my forecast is worth about as much as you knows mine. 0:04:08.160 --> 0:04:10.800 So I will be happy to just take the guidance 0:04:10.840 --> 0:04:13.800 from the internal dynamics of the market itself. If the 0:04:13.840 --> 0:04:16.560 broader four ninety three starts to turn over, then we 0:04:16.640 --> 0:04:17.880 have to generally change ourselves. 0:04:17.880 --> 0:04:19.240 By the way, there used to be a great function 0:04:19.320 --> 0:04:22.240 on the terminal loss go, so I could pull off 0:04:22.279 --> 0:04:24.360 like Google and I could type loss go and it 0:04:24.360 --> 0:04:25.520 would show me a stock chart. 0:04:25.520 --> 0:04:26.920 And then when they fired people. 0:04:26.880 --> 0:04:30.599 Yeah, do you And I'm asking this because you know 0:04:30.839 --> 0:04:33.800 the the unemployment number rows to four ero point three percent, 0:04:33.920 --> 0:04:38.520 But in listening to Powell or in talking to Mike McKee, 0:04:38.839 --> 0:04:40.359 I know that a lot of that is because the 0:04:40.440 --> 0:04:42.960 labor market has grown, the supply of workers have grown. 0:04:43.000 --> 0:04:44.440 It's not because of mass layoffs. 0:04:44.440 --> 0:04:44.960 It's different. 0:04:45.000 --> 0:04:47.440 And you haven't seen that now, and you point that. 0:04:47.440 --> 0:04:50.080 Out, and I think that's yeah. I like to watch 0:04:50.160 --> 0:04:52.719 challenger layoffs and initial claims. Actually, I think you could 0:04:52.720 --> 0:04:54.240 get a lot of really false signals out of the 0:04:54.320 --> 0:04:56.280 unemployment rates. So I tend to view that as a 0:04:56.360 --> 0:04:59.520 lagging indicator and generally ignore it, understanding that the market 0:04:59.520 --> 0:05:01.839 occasional keys in on that as the end all be all, 0:05:01.960 --> 0:05:05.360 as in Friday. But nonetheless, when you look at challenger 0:05:05.440 --> 0:05:08.600 layoffs and initial claims, we've had little bumps up this year, 0:05:09.040 --> 0:05:11.400 but they still fail to surpass the bumps that we 0:05:11.440 --> 0:05:13.840 saw in twenty twenty two or twenty twenty three. So 0:05:14.520 --> 0:05:16.680 it appears that in the broader landscape of things, we're 0:05:16.720 --> 0:05:20.640 going through another sort of mini macro weakness in a 0:05:20.760 --> 0:05:24.200 series of mini macro hills that we've had to sort 0:05:24.240 --> 0:05:26.520 of surmount or surpass over the course of the last 0:05:26.560 --> 0:05:29.640 three years. This has been a very consistent story in 0:05:29.680 --> 0:05:32.359 the market. Is the macro's just week and sometimes it 0:05:32.360 --> 0:05:34.760 gets a little weaker, scares us, and it still stays weak. 0:05:34.839 --> 0:05:36.400 Well, this is what And you keep bringing this up, 0:05:36.440 --> 0:05:38.760 like we've all been around for a little while and 0:05:38.800 --> 0:05:40.960 we've seen a lot of different market cycles. And this 0:05:41.000 --> 0:05:44.000 doesn't feel like great financial crisis. This doesn't feel like, 0:05:44.120 --> 0:05:47.560 you know, a COVID outbreak, a global pandemic shutting everything down. 0:05:47.600 --> 0:05:50.080 And I understand why the markets fall off. It doesn't 0:05:50.240 --> 0:05:53.240 feel that nervous. However, things can when they start to 0:05:53.240 --> 0:05:55.640 go bad, Yeah, can move badly quickly. 0:05:55.720 --> 0:05:56.160 They can. 0:05:56.400 --> 0:05:58.760 And the interesting thing about this cycle that I think 0:05:58.800 --> 0:06:01.480 has been so hard for how many people, myself included, 0:06:01.560 --> 0:06:04.560 is that it does appear to just be this rolling 0:06:04.600 --> 0:06:07.920 weakness followed by many strength rolling in it's this constant 0:06:08.040 --> 0:06:13.719 rolling environment as opposed to a big cyclical sect. That's 0:06:13.720 --> 0:06:17.800 what I feel like, something like a rolling recessionary kind 0:06:17.880 --> 0:06:22.479 of experience, with many bouts of optimism that emerge occasionally, 0:06:22.600 --> 0:06:24.800 And in the S and P five hundred, that optimism 0:06:24.960 --> 0:06:27.800 was really entirely focused on the Max seven. 0:06:29.000 --> 0:06:31.800 Kind of rolling recession. Because you've talked about earnings recession 0:06:31.800 --> 0:06:35.159 already happening. Yeah, can it? Is it a better environment 0:06:35.240 --> 0:06:37.960 for the equity market because it kind of moves around? 0:06:38.920 --> 0:06:41.560 It does appear that, at least so far, it seems 0:06:41.560 --> 0:06:45.200 to be resulting in more corrective processes that refresh the 0:06:45.200 --> 0:06:48.279 bull trend. I mean, we've definitely seen that since the 0:06:48.320 --> 0:06:52.480 twenty twenty lows. We had a pretty big corrective process 0:06:52.480 --> 0:06:55.000 in twenty twenty two, we had another ten percent down 0:06:55.080 --> 0:06:57.200 draft last year. We're in the midst of yet another 0:06:57.240 --> 0:07:00.440 ten percent downdraft this year, and yet we're still trading 0:07:00.440 --> 0:07:02.279 above our two interney moving average on the S and 0:07:02.279 --> 0:07:05.600 P five hundred. So, at least so far, it's tough 0:07:05.640 --> 0:07:08.400 to stomach for a lot of people. Yeah, but that's 0:07:08.440 --> 0:07:10.800 sort of a lack of we just can't seem to 0:07:10.800 --> 0:07:14.280 develop the irrational exuberance for the broad market at large. 0:07:14.360 --> 0:07:17.000 I mean, certainly, even if you go back a month ago, 0:07:17.200 --> 0:07:19.200 you wouldn't hear everybody say I got to own the 0:07:19.320 --> 0:07:21.400 S and P five hundred. They just had to own 0:07:21.400 --> 0:07:23.840 the mag seven. So there was a pocket of optimism. 0:07:23.840 --> 0:07:26.040 But did it overwhelm the equity market at large, which 0:07:26.120 --> 0:07:28.800 usually characterizes tops. I would say no, All right. 0:07:28.720 --> 0:07:30.320 Kind of leave it on that note. 0:07:30.560 --> 0:07:31.040 Thank you. 0:07:31.640 --> 0:07:34.240 Gina Martin Adams, Boomberg Intelligence, Director of Equity Strategy and 0:07:34.280 --> 0:07:37.520 Chief Equity Strategist, joining us right here. Let's get to 0:07:37.720 --> 0:07:40.000 what I feel like is the bell of the market ball, 0:07:40.040 --> 0:07:41.440 and that is the rate environment. 0:07:41.760 --> 0:07:42.040 Yeah. 0:07:42.040 --> 0:07:45.760 Absolutely, I mean to me, it was made very clear 0:07:45.800 --> 0:07:48.920 this morning that we were watching and unwinding of the 0:07:49.000 --> 0:07:52.560 yen carry trade, and I wish there was a way 0:07:52.880 --> 0:07:55.240 maybe I just don't know, and there is to gauge 0:07:55.280 --> 0:07:58.280 how big that trade is and to watch it over time. 0:07:58.320 --> 0:08:00.360 I mean, you could look at the balance eat for 0:08:00.400 --> 0:08:02.680 the Bank of Japan, for example, but I don't know. 0:08:02.720 --> 0:08:03.760 Only we had someone to ask. 0:08:03.840 --> 0:08:05.520 We do have two people to ask. Let's get to 0:08:05.560 --> 0:08:08.280 it with us. As Bloomberg Economics Chief economist Tom or 0:08:08.440 --> 0:08:10.520 Like In our DC Bureau and Bloomberg News rates reporter 0:08:10.600 --> 0:08:15.080 Michael Mackenzie here in our Bloomberg Interactive Broker studio. Michael, 0:08:15.120 --> 0:08:16.720 Good to have you back. Tom Good to have you 0:08:16.800 --> 0:08:19.120 back as well. I do want to ask and feel 0:08:19.120 --> 0:08:21.400 free to like bring in what match just to ask, 0:08:21.480 --> 0:08:23.960 But I am curious about the rates trade today and 0:08:24.000 --> 0:08:26.440 how significant was and does it tell you that the 0:08:26.480 --> 0:08:28.040 Fed made a mistake last week? 0:08:28.520 --> 0:08:30.160 Well, the right straight to day has certainly wild. 0:08:30.240 --> 0:08:32.920 You've seen another thirty day, a thirty basis point range 0:08:32.920 --> 0:08:35.240 in the two year, which kind of is just extraordinary 0:08:35.760 --> 0:08:39.120 of volatility, and the two years now a little bit higher, 0:08:39.120 --> 0:08:41.440 and yield on this session ten years a little bit lower. 0:08:41.880 --> 0:08:45.240 We were briefly positive between the two year ten year curve. 0:08:45.320 --> 0:08:47.360 We now come back to me about minus ten eleven 0:08:47.440 --> 0:08:49.240 basis points. So you could sort of look at it 0:08:49.240 --> 0:08:51.760 and go, oh, nothing's really changed, But actually under the 0:08:51.800 --> 0:08:53.640 surface a lot has changed. And I think it's coming 0:08:53.679 --> 0:08:56.680 really from as Matt said, Japan, when we've seen the 0:08:56.760 --> 0:08:59.680 carry trade unwind. And I say this is experience because 0:08:59.720 --> 0:09:01.160 I was on a trading floor in nineteen ninety eight 0:09:01.160 --> 0:09:04.480 in Tokyo when LTCM blew up and I watched Salomon 0:09:04.520 --> 0:09:07.559 Smith Barney unwind a huge amount. 0:09:07.320 --> 0:09:08.280 Of carry trades. 0:09:08.880 --> 0:09:12.079 It will it just essentially compels everyone to go and 0:09:12.080 --> 0:09:14.320 buy what is the one thing I can own, and 0:09:14.360 --> 0:09:16.679 its treasuries. And you saw that. You saw the Tokyo 0:09:16.720 --> 0:09:20.360 stock market dropped two percent on Monday after a six 0:09:20.400 --> 0:09:23.360 percent drop on Friday. This is a huge onwine going. 0:09:23.400 --> 0:09:26.320 As someone said about a year ago Jim Grant's Observer 0:09:26.400 --> 0:09:28.679 conference here in New York, he said, Japan is the 0:09:28.720 --> 0:09:31.120 most dangerous peg in the world. And I always remember 0:09:31.160 --> 0:09:32.880 that a year ago because he was sort of setting 0:09:32.880 --> 0:09:35.520 in terrain that when the Bank of Japan finally starts 0:09:35.559 --> 0:09:38.200 to go, it's going to have global consequences. 0:09:38.640 --> 0:09:40.439 And it's having that now for the FED. 0:09:40.800 --> 0:09:44.080 So the Fed, of course, as Austin Goolsby said today, 0:09:44.080 --> 0:09:46.400 they're not going to react to just one number. Payrolls 0:09:46.400 --> 0:09:49.560 has a big one hundred thousand plus or minus discrepancy, 0:09:49.720 --> 0:09:50.920 so they're going to have. 0:09:50.880 --> 0:09:51.760 To wait for the data. 0:09:52.200 --> 0:09:54.200 What I think would worry the FED right now, though, 0:09:54.280 --> 0:09:56.800 is it sort of harkens back to what we saw 0:09:56.800 --> 0:09:59.880 in nineteen ninety eight. When these trades start to unwind, 0:10:00.440 --> 0:10:03.800 someone is left holding the bag. And just how big 0:10:03.800 --> 0:10:06.200 a financial accident is out there, because that's when it 0:10:06.240 --> 0:10:10.120 becomes systemic, that's when markets stopped functioning properly. We've heard 0:10:10.160 --> 0:10:12.040 a lot of people speak on the Bluemberg TV and 0:10:12.120 --> 0:10:15.520 radio today talking about liquidity. As long as liquidity, markets 0:10:15.559 --> 0:10:18.200 is fine and Marcus can function. And again, as Gina 0:10:18.280 --> 0:10:19.600 just said, the S and p' is nowhere near it's 0:10:19.600 --> 0:10:22.040 two on a day moving average. This is a contained 0:10:22.360 --> 0:10:24.800 correction that's working its way through the system. If it 0:10:24.840 --> 0:10:26.880 stays that way, the Fed can keep washing the data 0:10:27.200 --> 0:10:29.440 and then the bomb market will be judged on whether 0:10:29.520 --> 0:10:30.840 or not they've got too far ahead or not. 0:10:31.000 --> 0:10:32.840 Tom morlic I want to come bring you in on 0:10:32.880 --> 0:10:34.920 this in terms of you're listening to Michael McKenzie talk, 0:10:34.960 --> 0:10:37.320 and I am curious also about kind of the global 0:10:37.360 --> 0:10:40.000 economic backdrop and the differences that we're starting to see. 0:10:40.280 --> 0:10:42.360 Come on in on here and what's type of mind 0:10:42.400 --> 0:10:42.679 for you. 0:10:44.679 --> 0:10:47.160 So it's an interesting moment, Carol. 0:10:48.120 --> 0:10:52.240 We had the Fed last week send some pretty dubvish signals. 0:10:52.360 --> 0:10:55.920 Powell was pretty clear that a rate cut was on 0:10:55.960 --> 0:11:00.240 the agenda for September, and then we had the U 0:11:00.880 --> 0:11:04.880 unemployment data come in and that big downside surprise on 0:11:04.920 --> 0:11:10.359 the jobs numbers and upside surprise on how high unemployment 0:11:10.600 --> 0:11:14.480 had headed, and that kind of made the markets believe 0:11:15.320 --> 0:11:18.880 that the FED had made a mistake. Perhaps the FED 0:11:18.960 --> 0:11:22.560 was behind the curve. Perhaps they'd made a mistake by 0:11:22.600 --> 0:11:27.320 not cutting in July. Perhaps they'd need now to be 0:11:27.400 --> 0:11:31.160 more aggressive, delivering maybe a fifty basis point cut in September, 0:11:31.480 --> 0:11:36.360 maybe an intermediate cut even ahead of that September meeting. 0:11:37.679 --> 0:11:42.360 And then Japan, as Michael was suggesting, kind of compounds 0:11:42.480 --> 0:11:46.559 and accelerates the kind of the dynamic in global markets, 0:11:47.480 --> 0:11:51.760 because the yen carry trade had been a huge driver 0:11:52.440 --> 0:11:56.880 for prices of risk assets through that whole period where 0:11:57.240 --> 0:12:01.040 interest rates in Japan had been pegged at zero and 0:12:01.080 --> 0:12:05.880 the yen have been reliably depreciating, and suddenly, with the 0:12:05.880 --> 0:12:09.600 banker Japan hiking and the FED suggesting it was going 0:12:09.679 --> 0:12:13.120 to move pretty quickly in the other direction, we saw 0:12:13.240 --> 0:12:17.840 yen strength, expectations of higher yen rates, and that yen 0:12:17.880 --> 0:12:22.680 carry trade began a rapid unwind, hitting the nick really 0:12:22.720 --> 0:12:27.120 hard and hitting global risk assets. So that's the environment 0:12:27.600 --> 0:12:31.239 which the FED and which global investors and I confronting 0:12:31.640 --> 0:12:33.320 it's going to be an interesting few weeks ahead. 0:12:33.920 --> 0:12:35.120 Michael walk us through. 0:12:36.400 --> 0:12:39.520 I guess a carry trade is a broad term for 0:12:40.040 --> 0:12:42.480 it could be you could execute that trade in a 0:12:42.559 --> 0:12:45.560 number of different ways, and equally, I'm sure you can 0:12:45.640 --> 0:12:48.280 unwind it in a number of different ways. But is 0:12:48.280 --> 0:12:51.800 there any way to explain to our listeners how it 0:12:51.800 --> 0:12:55.480 gets unwound and how like how long that takes? Because 0:12:55.679 --> 0:12:59.600 this is not just one year of a carry trade. 0:12:59.600 --> 0:13:02.960 This is kind of a generation of traders who have 0:13:03.480 --> 0:13:06.599 become addicted to this pool of cheap money out of 0:13:06.679 --> 0:13:11.200 Japan to buy assets, you know, our yields in higher 0:13:11.280 --> 0:13:12.440 yielding economies. 0:13:13.240 --> 0:13:16.280 It's interesting actually because when we had the Mexican election result, 0:13:16.320 --> 0:13:18.319 the carrier trade got a bit of a wobble in July, 0:13:19.000 --> 0:13:21.880 and then suddenly it came roaring back and got very 0:13:21.880 --> 0:13:24.839 close to the peak just before the Mexican election, and 0:13:24.880 --> 0:13:27.160 then it's just gone down again, and it's gone down hard. 0:13:27.240 --> 0:13:30.800 So you've seen, I mean, clearly you can. One way 0:13:30.840 --> 0:13:32.719 to think about the size of the carry trade is 0:13:32.760 --> 0:13:35.199 look at the move in the Japanese yen. It's moved 0:13:35.440 --> 0:13:37.240 from one hundred and sixty two yen to one for 0:13:37.559 --> 0:13:39.800 two today, it's a huge. 0:13:39.200 --> 0:13:40.440 In like two and a half weeks. 0:13:40.240 --> 0:13:43.680 Yeah, it's just huge. But it's again if you go 0:13:43.679 --> 0:13:45.559 back to LTCM, that happened in a couple of days, 0:13:45.720 --> 0:13:47.840 like a twenty four hour period, so you can see 0:13:47.840 --> 0:13:51.199 the comparison there. I think in terms of the carry trade, 0:13:51.280 --> 0:13:55.200 it's it's essentially Japan. It doesn't cost you any money 0:13:55.240 --> 0:13:57.800 to borrow in yen. It's zero interest rates for years 0:13:58.320 --> 0:14:00.559 until recently when the Bank of Japan began rates, but 0:14:00.600 --> 0:14:02.840 even then it's still very, very low compared to the 0:14:02.840 --> 0:14:05.079 rest of the world. So you can effectively borrow in 0:14:05.160 --> 0:14:08.240 yen and go and buy T bills in America and 0:14:08.280 --> 0:14:11.640 pick up five percent, and as long as the currency 0:14:11.720 --> 0:14:12.839 keeps weakening, you're happy. 0:14:13.040 --> 0:14:14.800 So that's why it should have done that. 0:14:14.880 --> 0:14:18.720 It becomes a self reinforcing mechanism because the end keeps weakening. 0:14:19.040 --> 0:14:21.040 And then suddenly when you aid a last week said oh, 0:14:21.080 --> 0:14:24.080 actually we're raising raids and we're going to keep going potentially, 0:14:24.440 --> 0:14:27.520 suddenly everyone goes, ooh, this is going to hurt me. 0:14:28.200 --> 0:14:30.600 And the best analogy I can think of is you've 0:14:30.600 --> 0:14:33.280 got to think about markets. It's all about crowds, and 0:14:33.440 --> 0:14:36.560 you know It's sort of imagine a group of people 0:14:36.600 --> 0:14:40.200 sitting around a table eating donuts. Then one person decides, 0:14:40.280 --> 0:14:42.200 you know what, I've eaten a lot of donuts. And 0:14:42.240 --> 0:14:44.880 I'll use the example Warren Buffett owning Apple. He'd eaten 0:14:44.920 --> 0:14:48.080 a lot of donuts and you know, and suddenly, after 0:14:48.120 --> 0:14:50.560 a nine hundred percent gain on his Apple stock, he 0:14:50.600 --> 0:14:54.800 does what any good investor does, They rebalance a portfolio. 0:14:54.800 --> 0:14:56.680 His Apple holding was way too big compared to the 0:14:56.680 --> 0:15:00.480 rest of his portfolio, and so he moves and leaves, 0:15:00.560 --> 0:15:03.200 and then suddenly everyone looking it sits at the said goes, oh, 0:15:03.720 --> 0:15:07.200 I got to leave too, and it's that rush, and 0:15:07.400 --> 0:15:11.360 the carry tray gets really really bad. Because liquidity is 0:15:11.400 --> 0:15:14.320 great when things are nice and calm. When liquidity, when 0:15:14.400 --> 0:15:16.600 volatility starts to get going and people start heading for 0:15:16.640 --> 0:15:21.760 the exit, the price of liquidity imbalance becomes really really expensive. 0:15:22.040 --> 0:15:23.640 And that's what people are discovering now. 0:15:24.240 --> 0:15:27.080 So Tom Orel like because part of what I think 0:15:27.160 --> 0:15:29.200 is smart to have right now is kind of what 0:15:29.360 --> 0:15:33.040 is the economic backdrop globally. Right we've been talking about 0:15:33.040 --> 0:15:35.800 how the US economy is doing really well compared with 0:15:35.840 --> 0:15:37.760 the rest of the world. Maybe we're starting to rethink that. 0:15:37.800 --> 0:15:39.880 We just talked to Earnings with Gina Martin Adams about 0:15:39.880 --> 0:15:42.320 the US earnings picture, and yes, a lot is the 0:15:42.320 --> 0:15:45.000 mag seven, but there's also been some earnings growth in 0:15:45.040 --> 0:15:47.560 the rest of the sector, in other sectors. The question 0:15:47.640 --> 0:15:51.440 is whether that continues when you look at the global economy. 0:15:51.720 --> 0:15:55.440 Is the global economy coming undone? Is the US economy 0:15:55.480 --> 0:15:56.360 coming undone? 0:15:57.680 --> 0:16:03.120 It's interesting, Carol, I think the the macro dynamics look 0:16:03.400 --> 0:16:07.280 very different in Japan to how they look in the 0:16:07.400 --> 0:16:13.200 United States. We think about what's happening in Japan, Well, 0:16:13.600 --> 0:16:17.960 it's kind of a perfect storm for the NICK. You've 0:16:18.000 --> 0:16:24.680 got a yen going from weakening to strengthening, which reduces 0:16:24.800 --> 0:16:27.320 foreign earnings for japan Inc. 0:16:28.320 --> 0:16:29.360 You've got interest. 0:16:29.120 --> 0:16:34.920 Rates going from zero to something above zero, which increases 0:16:34.960 --> 0:16:40.160 the opportunity cost of holding equities. And you've got growing 0:16:40.240 --> 0:16:43.400 concern about weakness in the United States, one of the 0:16:43.440 --> 0:16:47.120 biggest customers for Japanese firms. So pull all of that 0:16:47.200 --> 0:16:50.280 together and it's easy to see why you had a 0:16:50.280 --> 0:16:51.560 pretty outsized. 0:16:51.120 --> 0:16:55.640 Reaction from the nicking. What do you think of you? Sorry, sorry, 0:16:55.640 --> 0:16:56.120 go on, go on. 0:16:57.040 --> 0:17:00.360 For the United States, though, many of those because they're 0:17:00.360 --> 0:17:04.600 actually pointing in the other direction. We've got a weakening dollar, 0:17:05.200 --> 0:17:08.960 we've got falling interest rates, we've got an economy which, 0:17:09.240 --> 0:17:13.639 even on the sort of more pessimistic forecasts, faces something 0:17:13.680 --> 0:17:16.160 which looks a bit more like a kind of bumpy 0:17:16.240 --> 0:17:17.679 landing or mild. 0:17:17.480 --> 0:17:19.480 Recession than a severe recession. 0:17:20.680 --> 0:17:25.800 So global macro environment, I'd say it was mixed, but 0:17:25.880 --> 0:17:28.320 I certainly wouldn't say that the drop in the nick 0:17:28.359 --> 0:17:29.359 A was a kind. 0:17:29.280 --> 0:17:32.480 Of canary in the coal mine for global macro. 0:17:32.720 --> 0:17:36.360 No, but that's I mean, when Carol talks about the 0:17:36.400 --> 0:17:43.880 nervousness around the Great Financial Crisis or LTCM or COVID, 0:17:44.640 --> 0:17:49.360 that's what last night's nick A drop reminded me of. Still, 0:17:49.480 --> 0:17:53.120 I woke up this morning and thought, that's crazy. I mean, 0:17:53.359 --> 0:17:56.280 we still added jobs on Friday. I know it wasn't 0:17:56.280 --> 0:17:59.960 as many as we thought, but unemployment at four point 0:18:00.080 --> 0:18:05.520 three percent is not awful. Why are so many people 0:18:05.560 --> 0:18:10.040 calling this morning? I watched Jeremy Siegel on CNBC call 0:18:10.119 --> 0:18:13.439 for an emergency rate cut of seventy five BIPs and 0:18:13.480 --> 0:18:16.440 then another seventy five at the regular meeting. 0:18:16.680 --> 0:18:18.280 That's way overblown. 0:18:18.800 --> 0:18:23.160 Is anyone really tom calling for an emergency rate cut 0:18:23.240 --> 0:18:25.920 or are some people saying it may happen, but it's 0:18:26.040 --> 0:18:28.240 a horrible idea. 0:18:28.680 --> 0:18:30.199 So it's interesting. 0:18:30.960 --> 0:18:36.240 Michael mentioned LTCM and the en carry trade, and of 0:18:36.240 --> 0:18:39.320 course the en carry trade also played a cameo role 0:18:39.920 --> 0:18:41.680 in the global financial crisis. 0:18:42.320 --> 0:18:45.240 There was a kind of dynamic back and forth. 0:18:45.000 --> 0:18:51.119 Between deteriorating US credit conditions, unwinding of the en carry trade, 0:18:51.640 --> 0:18:56.480 further deteriorating US credit conditions, and the collapse of the 0:18:56.480 --> 0:19:00.399 subprime mortgage market. So if we look at the last 0:19:01.080 --> 0:19:05.359 twenty twenty thirty years of sort of global economic and 0:19:05.400 --> 0:19:08.119 financial history, and we think about the yen carry trade, 0:19:09.200 --> 0:19:11.679 there is a reason to kind of be paying pretty 0:19:11.680 --> 0:19:13.639 close attention to this right now. 0:19:14.720 --> 0:19:17.439 Now. I should also say that. 0:19:17.760 --> 0:19:23.600 Financial markets are more dynamic and more responsive to sharp 0:19:23.680 --> 0:19:28.240 changes in circumstances than economists are. Right when the market's 0:19:28.280 --> 0:19:32.840 turned down, often that's before the economic forecasts have turned down. 0:19:33.119 --> 0:19:36.160 So when the markets do have these moments, it does 0:19:36.240 --> 0:19:40.440 sort of behoove us to pay pretty close attention. All 0:19:40.480 --> 0:19:45.399 of that said, Matt, I share your assessment. We think 0:19:45.960 --> 0:19:50.200 US unemployment is heading to five percent in twenty twenty five. 0:19:50.760 --> 0:19:55.159 That's a pretty high number. Relative to consensus. But we 0:19:55.200 --> 0:19:58.119 don't think that's a catastrophe, right. We think that's a 0:19:58.200 --> 0:20:02.399 bumpy landing, a mild recession. It's not a catastrophe for 0:20:02.440 --> 0:20:04.960 the US economy, it's not a catastrophe for the world. 0:20:05.160 --> 0:20:07.680 Michael McKenzie is saving you the last forty five seconds. 0:20:07.680 --> 0:20:09.679 Has anything out here in terms of what you're seeing 0:20:09.880 --> 0:20:11.879 seem catastrophic. 0:20:11.760 --> 0:20:12.600 No, not at this point. 0:20:12.600 --> 0:20:15.639 I think it's the market has certainly got itself worked 0:20:15.720 --> 0:20:18.320