WEBVTT - Old Growth Is New Again 0:00:14.240 --> 0:00:18.400 Hello, and welcome to What Goes Up a weekly markets podcast. 0:00:18.720 --> 0:00:21.240 My name is Mike Reagan, and I'm a senior editor 0:00:21.239 --> 0:00:24.320 at Bloomberg. And this week on the show, well, it 0:00:24.400 --> 0:00:26.560 kind of feels like someone pulled the rug out from 0:00:26.640 --> 0:00:29.960 under the reopening and reflation trade that so many investors 0:00:29.960 --> 0:00:34.479 were gung ho about. Treasury yields are sinking, banks, energy 0:00:34.479 --> 0:00:37.159 and travel companies have vanished from the leaderboards of the 0:00:37.159 --> 0:00:40.680 stock market, and those old usual suspects, the tech and 0:00:40.720 --> 0:00:43.920 internet mega cap stocks are back in the driver's seat. 0:00:44.720 --> 0:00:46.559 What should we make of it all? Well, we'll get 0:00:46.600 --> 0:00:49.360 into it with the chief investment officer for the America's 0:00:49.400 --> 0:00:53.600 at a major asset management firm. But first, apologies to 0:00:53.720 --> 0:00:56.360 Charlie Pellet fans, but this week's co host is no 0:00:56.560 --> 0:00:59.760 mystery to our listeners. It's our old friend, Katie Greifeld, 0:00:59.800 --> 0:01:02.240 the cross sass every reporter and co host of Take 0:01:02.320 --> 0:01:05.440 Stock on Bloomberg. Quicktake, Katie. Great to have you back 0:01:05.480 --> 0:01:08.920 on the show. Thanks for inviting me. I'm I was 0:01:09.000 --> 0:01:12.320 excited to get your invite. Oh good and no offense, Katie, 0:01:12.319 --> 0:01:14.560 But I think you might be our least mysterious co 0:01:14.720 --> 0:01:17.480 host when it comes to mystery cost like I can predict. 0:01:17.520 --> 0:01:21.720 I think I could predict your weekend already. Can I try? Yeah, 0:01:21.800 --> 0:01:24.800 go for it. I'm curious. Okay, So Friday we all 0:01:24.800 --> 0:01:27.440 know starts with the famous Friday tweet from you with 0:01:27.440 --> 0:01:29.640 with a cat and the milk bath. Then, of course, 0:01:30.319 --> 0:01:33.680 then something involving animals in the weekend, either a horse 0:01:33.760 --> 0:01:37.520 or turtles, anything like that on top sounds about right 0:01:38.040 --> 0:01:40.679 like most Fridays. I'm going to tweet the cat at 0:01:40.760 --> 0:01:43.400 about four pm, gonna ride out the rest of the day. 0:01:43.520 --> 0:01:46.040 Then I'm going to drive to New Jersey, stay at 0:01:46.040 --> 0:01:50.760 my parents house, and probably go horseback riding. Okay, I promised. 0:01:50.760 --> 0:01:54.080 I have a vibrant social life. I'm married, people love me. 0:01:54.800 --> 0:01:57.520 I just go to New Jersey every weekend. There's there's 0:01:57.560 --> 0:01:59.440 nothing wrong with that. Also, I wanted to ask you 0:01:59.440 --> 0:02:02.600 about you had a a very tremendous outing last week. 0:02:02.800 --> 0:02:06.280 I think it was the Olympic Trials, the Olympic track Trials. 0:02:06.800 --> 0:02:10.520 Tell me about that, did I'm so glad you asked. 0:02:10.560 --> 0:02:13.200 I'm dying to talk about it. I went to Eugene, 0:02:13.280 --> 0:02:16.280 Oregon to catch the Track and Field Olympic Trials. Since 0:02:16.680 --> 0:02:18.639 I don't think I'm going to Japan. I don't think 0:02:18.639 --> 0:02:22.359 I'm gonna make it to Tokyo. I don't think, yeah, no, 0:02:22.520 --> 0:02:24.919 I'll get stopped at the door. So, I mean, I'm 0:02:24.960 --> 0:02:28.440 a huge track fan. Obviously, track has been in the 0:02:28.440 --> 0:02:31.959 news quite a bit the past week with Shackery Richardson. 0:02:32.960 --> 0:02:35.720 But I did get to see her run before that, 0:02:35.880 --> 0:02:38.360 so right, and so you didn't know one knew one 0:02:38.400 --> 0:02:40.560 so afterwards that she was going to be suspended and 0:02:40.880 --> 0:02:43.160 not able to compete, right, she she did the trials, 0:02:43.200 --> 0:02:45.799 so you got to see her run. That's interesting. What's 0:02:45.800 --> 0:02:49.480 your take on all that? So I think the failed 0:02:49.520 --> 0:02:53.880 drug tests she tested positive for marijuana was on June, 0:02:54.240 --> 0:02:57.760 so it's a one month suspension. It's not a like 0:02:57.800 --> 0:03:01.320 a hefty band or anything. But because of the date 0:03:01.400 --> 0:03:04.760 that had happened, it disqualified her results from the trials. 0:03:04.800 --> 0:03:07.920 So even though she's our fastest woman at the one, 0:03:09.200 --> 0:03:12.359 she can't compete, and it's it's I think it's hard 0:03:12.400 --> 0:03:14.280 for Americans. I mean, it's hard for me to wrap 0:03:14.320 --> 0:03:18.120 my mind around it that marijuana is considered a performance 0:03:18.200 --> 0:03:22.200 enhancing drug and that she can't compete in the Olympics, 0:03:22.680 --> 0:03:24.839 because I mean, it's legal in so many states here, 0:03:24.880 --> 0:03:28.440 but we're talking about international rules here, so STANDI too different. 0:03:29.160 --> 0:03:32.519 My joke, of course, was that you know, marijuana makes 0:03:32.520 --> 0:03:35.440 you slow and lazy, so if you're caught, we're not 0:03:35.480 --> 0:03:37.400 going to let you go win medals at the Olympics. 0:03:37.720 --> 0:03:40.720 That that's the thing. It's like, Okay, her time is 0:03:40.840 --> 0:03:44.480 arguably more impressive knowing that you know she was smoking 0:03:44.520 --> 0:03:48.320 marijuana having it in some form beforehand, Like that's those 0:03:48.360 --> 0:03:51.480 are fast twitched muscles you need. Doesn't go hand in 0:03:51.520 --> 0:03:54.680 hand with cannabis. Now you must be you must be 0:03:54.840 --> 0:03:57.360 tempted to put strap on the track shoes and get 0:03:57.480 --> 0:03:59.800 get there and fill that spot. You know if my country, 0:04:00.040 --> 0:04:03.560 it's me all right, well we need to hear on 0:04:03.560 --> 0:04:06.920 the podcast and uh now we're going to introduce the guests. 0:04:06.920 --> 0:04:10.480 Really excited to have this guest. He is, as I said, 0:04:10.520 --> 0:04:14.760 the chief Investment officer for the America's at DWS. His 0:04:14.880 --> 0:04:18.400 name is David Bianco. David, welcome to the show. Hello, Mike, 0:04:18.600 --> 0:04:21.640 thanks for having me. Great that. Now, David, I want 0:04:21.640 --> 0:04:24.000 to talk about sort of what we uh flicked at 0:04:24.040 --> 0:04:26.720 in the introduction there, and it seems to me that 0:04:26.800 --> 0:04:30.400 this week, um and maybe the last two weeks there's 0:04:30.480 --> 0:04:32.640 kind of kind of been sort of a repricing in 0:04:32.680 --> 0:04:35.960 the market of what to expect from the economy. Maybe 0:04:36.000 --> 0:04:40.400 people are a little less gung ho as they formerly 0:04:40.440 --> 0:04:43.960 were about how strong and how long this this boom 0:04:44.000 --> 0:04:47.040 from the economic reopening will be. I'm curious what your 0:04:47.040 --> 0:04:49.400 take on that is. How are you you know, has 0:04:49.480 --> 0:04:53.279 anything changed materially for for the economic outlook? Is this 0:04:53.400 --> 0:04:55.640 kind of a just a growth scare we're going through. 0:04:55.640 --> 0:04:59.320 What's your what's your opinion? Well, Mike, I think the 0:04:59.320 --> 0:05:02.760 weather is changing, but not the climate. And what I 0:05:02.800 --> 0:05:06.080 mean by that is that this reflation of view and 0:05:06.160 --> 0:05:08.880 trade that people have been playing since the start of 0:05:08.880 --> 0:05:12.599 the year and about the reopening of the economy, the 0:05:12.680 --> 0:05:16.800 ref the reflation trade and the big inflation fears are 0:05:16.920 --> 0:05:20.880 blowing over, but the recovery is still with us. We 0:05:20.920 --> 0:05:25.440 still very much believe in a recovery, continued economic growth, 0:05:25.560 --> 0:05:28.400 even at an accelerated pace for the next couple of years. 0:05:29.000 --> 0:05:31.600 And what we think is happening is simply a return 0:05:32.279 --> 0:05:35.560 to the leadership of the digital and growth stock businesses 0:05:36.000 --> 0:05:39.359 in the equity market. So, whether it's changing but not 0:05:39.440 --> 0:05:42.240 the climate, it maybe a return to the normal situation 0:05:42.880 --> 0:05:45.840 of what we had within an economy and investment leadership 0:05:45.920 --> 0:05:49.200 prior to the pandemic, and so before we you know, 0:05:49.279 --> 0:05:53.040 really dig into you know, digital businesses and how you 0:05:53.080 --> 0:05:55.920 invest around that view. I want to talk a little 0:05:55.920 --> 0:06:00.000 bit more about this week because it's felt very um 0:06:00.279 --> 0:06:03.159 just very dramatic, and I'm curious, you know, when you 0:06:03.200 --> 0:06:06.040 look at what's happening with the bond market, with treasury yields, 0:06:06.040 --> 0:06:09.560 how that's bleeding through into equities. I mean, what is 0:06:09.600 --> 0:06:13.800 the trigger people really really concerned about the delta variant, 0:06:13.880 --> 0:06:17.120 for example, or is is this more positioning sort of 0:06:17.160 --> 0:06:20.760 wash out going on. It's a few things, and I 0:06:20.800 --> 0:06:24.800 guess they're each worth pointing out. What we've seen happen 0:06:25.279 --> 0:06:30.480 is a surprising decline uh in in long term treasury yields, 0:06:30.520 --> 0:06:33.600 as you said, from the about one point seven five 0:06:33.720 --> 0:06:38.720 percent back in March to one point three percent right now, 0:06:38.760 --> 0:06:41.440 even one and a quarter percent on an intra day basis. 0:06:41.839 --> 0:06:44.400 And this all occurred over the past several months. As 0:06:44.560 --> 0:06:48.160 most investors, including us, we're expecting interest rates to continue 0:06:48.160 --> 0:06:51.520 working their way upward. So why did interest rates um 0:06:52.240 --> 0:06:54.320 they collapse of the dramatic word, But why do they 0:06:54.400 --> 0:06:58.280 fall so much and so quickly when everybody was expecting 0:06:58.320 --> 0:07:03.479 the opposite. So yes, it may be people on winding 0:07:03.520 --> 0:07:06.680 a crowded bit of expecting interest rates to rise, but 0:07:06.720 --> 0:07:09.600 there's some good reasons for why this has happened at 0:07:09.640 --> 0:07:13.680 this moment, and that includes that. First, if you go 0:07:13.760 --> 0:07:17.720 back to the June fo MC meeting and and share 0:07:17.760 --> 0:07:21.240 Powell's press conference, he did a very good job of 0:07:21.360 --> 0:07:25.240 using his communication skills and communication tools. What he did 0:07:25.280 --> 0:07:29.800 was he acknowledged that inflation is uh running a bit hot, 0:07:30.400 --> 0:07:32.960 and he discussed that when the time comes, they will 0:07:33.000 --> 0:07:38.400 take their other tools to contain inflation, and and that 0:07:38.400 --> 0:07:42.600 that made the currency market a lot more comfortable that 0:07:42.680 --> 0:07:45.640 when the time comes, the FED will defend the dollar 0:07:46.120 --> 0:07:49.680 and keep inflation anchored close to its two two and 0:07:49.720 --> 0:07:53.040 a half percent expectation. So one, it started off with 0:07:53.640 --> 0:07:57.320 reassurances from the Fed that when the time comes, they'll 0:07:57.360 --> 0:07:59.800 take action and they've got the tools to take action, 0:08:00.200 --> 0:08:02.480 and we saw the dollar fine support and that was 0:08:02.920 --> 0:08:08.440 the first um trigger to bringing bond investors back with 0:08:08.520 --> 0:08:14.080 some confidence. Secondly, there's been these delays in new fiscal 0:08:14.120 --> 0:08:18.440 stimulus legislation many people figured there'd be an infrastructure package 0:08:18.480 --> 0:08:21.760 passed by the fourth of July, and then that has 0:08:21.800 --> 0:08:24.200 not happened, and there's fears that there may not be 0:08:24.280 --> 0:08:28.240 any legislation before the August recess. So we we still 0:08:28.280 --> 0:08:32.120 expect some stimulus packages, but probably a little bit later 0:08:32.520 --> 0:08:35.000 and a little bit more moderate and size than had 0:08:35.040 --> 0:08:39.560 been previously discussed UH back during the UH the elections, 0:08:39.600 --> 0:08:42.840 and and and afterward. And then third, yes, the delta 0:08:42.960 --> 0:08:46.319 variant this is this is with us, and it is 0:08:46.360 --> 0:08:48.920 a real threat to those in the world and those 0:08:48.920 --> 0:08:52.720 countries that don't have the vaccine. So it through as 0:08:52.720 --> 0:08:56.240 a wrinkle in the reopening story, certainly for the world 0:08:56.960 --> 0:08:59.520 as we're still struggling after all this time to fully 0:08:59.559 --> 0:09:03.480 return to normal UH in this in this pandemic UH. 0:09:03.520 --> 0:09:05.640 And then the idea that there would be tons of 0:09:05.679 --> 0:09:09.000 fiscal stimulus UH coming, we might have to wait longer, 0:09:09.200 --> 0:09:11.600 a little bit more moderate in size, And the FED 0:09:11.640 --> 0:09:13.439 has made it clear they're not going to let inflation 0:09:13.520 --> 0:09:16.640 run out of control in the coming years. For those reasons, 0:09:16.960 --> 0:09:21.600 tenure yields dropped UM because I think it's surprised everybody's expectations. 0:09:22.040 --> 0:09:25.160 But we do think that interest rates will grind upward 0:09:25.240 --> 0:09:27.920 over time, and our view here at THEWS as as 0:09:27.960 --> 0:09:30.520 a tenure yield, whether it be a year from now 0:09:30.880 --> 0:09:32.880 or not much longer than that, we do think the 0:09:32.920 --> 0:09:38.160 tenure yield will get back to above. It's interesting, you know, 0:09:38.760 --> 0:09:40.920 every time the bond market moves, it always seems like 0:09:41.000 --> 0:09:43.839 the stock market looks at the bond market as sort 0:09:43.840 --> 0:09:47.400 of the wiser older brother sister who knows something that 0:09:47.440 --> 0:09:50.439 you don't, and and stock market, you know, it takes 0:09:50.440 --> 0:10:03.160 its cues from that. David. Obviously, we're approaching sort of 0:10:03.200 --> 0:10:07.400 the beginning of earning season for the second quarter. Um, 0:10:07.480 --> 0:10:10.640 we're gonna get a fire hose of new information, uh, 0:10:10.679 --> 0:10:13.280 you know, not only reported results, but outlooks for the 0:10:13.320 --> 0:10:16.440 rest of the year. I guess the one kind of 0:10:16.520 --> 0:10:20.760 top of mind question I have is is there any 0:10:20.800 --> 0:10:25.520 concern about all these supply bottlenecks uh and and supply 0:10:25.920 --> 0:10:30.160 issues that that we're hearing about. Is that set the 0:10:30.200 --> 0:10:33.840 stage for possibly some some downward surprises and earnings in 0:10:33.920 --> 0:10:35.880 certain sectors? In your mind, I mean, are there some 0:10:35.920 --> 0:10:39.360 companies who because of these issues are not really able 0:10:39.440 --> 0:10:43.320 to participate in this booming rebound like they would otherwise 0:10:43.480 --> 0:10:49.240 if the supply chain was was functioning normally. Yes, there's 0:10:49.360 --> 0:10:53.920 challenges and meeting demand, and there's there's uh uh there 0:10:53.960 --> 0:10:57.120 there there's higher cost to many cases to to meeting demand, 0:10:57.160 --> 0:10:59.920 and part of that is because of a more lots 0:11:00.000 --> 0:11:03.400 sided nature of the demand. Everybody kind of ran to 0:11:03.480 --> 0:11:06.720 one side of the ship and wanted goods rather than 0:11:06.760 --> 0:11:09.480 the normal services that they would consume. During this pandemic, 0:11:09.960 --> 0:11:12.640 they went from their urban lifestyle to more of a 0:11:12.640 --> 0:11:16.479 suburban lifestyle, and they've turned their homes into their offices 0:11:16.559 --> 0:11:19.840 and their schools into their So the point is, yes, 0:11:19.880 --> 0:11:24.200 there's been demand ships, and there's been challenges in in 0:11:24.400 --> 0:11:27.200 responding to that demand. This is part of the reason 0:11:27.200 --> 0:11:31.160 why there there there are some signs of of inflation 0:11:31.200 --> 0:11:34.120 running hot right now. Um, And we'll talk more about 0:11:34.160 --> 0:11:37.760 inflation in a moment. But I think during earning season 0:11:38.520 --> 0:11:41.800 you will come across companies that point to not being 0:11:41.840 --> 0:11:45.680 able to achieve both the sales that they could have 0:11:45.720 --> 0:11:49.840 achieved owing to inventories being too light or their supply 0:11:49.920 --> 0:11:53.680 chains being bottlenecked. Um. But I actually think you're going 0:11:53.760 --> 0:11:57.080 to find more of those challenges at companies that are 0:11:57.120 --> 0:11:59.800 related to the reopening that are related to UH to 0:12:00.040 --> 0:12:03.520 goods demand. The funny thing is the digital side of 0:12:03.559 --> 0:12:09.120 the economy isn't having any trouble responding to demand. UM. 0:12:09.160 --> 0:12:12.600 Their growth is occurring and and they're keeping up with 0:12:12.600 --> 0:12:17.880 the demand very well with very low sometimes no incremental costs. Yeah, 0:12:18.360 --> 0:12:22.040 turn on another server in the cloud somewhere and it's 0:12:22.040 --> 0:12:26.680 aneviable business. I was trying to find the stat but 0:12:27.160 --> 0:12:30.880 Bank of America had a great statu last earning seasons 0:12:30.880 --> 0:12:33.160 that if you look at the number of mentions of 0:12:33.200 --> 0:12:36.520 inflation on earnings called it had gone up something like. 0:12:37.720 --> 0:12:40.640 That's not an exact number, so don't quote me, but 0:12:40.880 --> 0:12:43.040 I'm curious, David, I do want to hear about your 0:12:43.080 --> 0:12:47.760 expectations for this coming earnn's earning season. And also something 0:12:47.800 --> 0:12:50.240 I think about, uh, you know, every three months, is 0:12:50.280 --> 0:12:55.000 how much do earnings really matters? That really, uh, the 0:12:55.040 --> 0:12:58.200 most important signal for the stock market. It's supposed to be, 0:12:58.320 --> 0:13:01.760 but is it actually short answer, it is certainly one 0:13:01.800 --> 0:13:05.200 of the very most important aspects UH earnings, not just 0:13:05.280 --> 0:13:08.800 earnings today, but the earnings outlook of course, but earnings 0:13:08.800 --> 0:13:12.320 and interest rates, and then on certainty around earnings and 0:13:12.360 --> 0:13:15.640 interest rates, thus the risk premium, your discount rate. Those 0:13:15.679 --> 0:13:18.240 are the three things that drive the equity market. UM. 0:13:18.800 --> 0:13:21.840 So any insights we get on an important driver like 0:13:21.960 --> 0:13:25.360 earnings now and and for the outlook, yes, it's very important. 0:13:25.600 --> 0:13:30.520 And second quarter earning season is upon us. UM. We 0:13:30.559 --> 0:13:34.280 are going to go through this ritual of we all 0:13:34.320 --> 0:13:37.359 know that the companies are going to beat the analyst expectations. 0:13:37.679 --> 0:13:41.760 It happens every single quarter, other than when there's economic 0:13:41.800 --> 0:13:44.760 shocks that come on suddenly and then the earnings missed 0:13:44.760 --> 0:13:48.480 and it's part of a recession beginning UH. Other times, 0:13:49.160 --> 0:13:53.600 the aggregate earnings beat is usually about three percent, and 0:13:53.760 --> 0:13:58.560 usually two thirds of companies UH beat on the earnings estimates. 0:13:59.160 --> 0:14:02.040 What's happened in the recent quarters, including the first quarter, 0:14:04.040 --> 0:14:07.480 more than the companies beat the estimates. And in the 0:14:07.520 --> 0:14:12.120 first quarter the beat was and aggregate it was tremendous. 0:14:13.000 --> 0:14:15.440 We went into the first quarter earning season saying the 0:14:15.520 --> 0:14:17.400 numbers are too low, they're going to be beaten by 0:14:17.440 --> 0:14:20.480 at least ten percent, and we're saying the same thing 0:14:20.520 --> 0:14:23.400 for the second quarter right now. The analyst bottom up 0:14:23.480 --> 0:14:27.640 number for the SMP five aggregate earnings just forty five 0:14:27.680 --> 0:14:31.160 dollars per share. We expect that to be beaten by 0:14:31.200 --> 0:14:34.320 at least ten percent. That if we're gonna get fifty 0:14:34.440 --> 0:14:37.960 or higher of earnings in Q two, what I would 0:14:37.960 --> 0:14:40.520 tell you is what's ahead is a whole bunch of 0:14:40.520 --> 0:14:44.440 you know, beat reports from companies, But it is entirely 0:14:44.520 --> 0:14:47.320 expected from the equity market that if we don't have 0:14:47.400 --> 0:14:49.720 at least a ten percent, at least a double digit 0:14:50.080 --> 0:14:54.600 type of beat, that will be a disappointment. UM investors 0:14:54.600 --> 0:14:59.560 are basically valuing the SMP right now on the idea 0:14:59.600 --> 0:15:03.840 that there's at least two hundred dollars of annualized earnings power, 0:15:04.280 --> 0:15:06.520 and we saw very very close to that in the 0:15:06.560 --> 0:15:10.120 first quarter of this year forty nine per Sure, some 0:15:10.200 --> 0:15:13.000 things like lone loss reserve at leases helping to boost 0:15:13.000 --> 0:15:16.080 the earnings, but with the economic growth that we've seen 0:15:16.160 --> 0:15:19.560 during Q two, US real GDP growth should be eight 0:15:21.480 --> 0:15:25.760 uh growth on an annualized basis. That and even just 0:15:25.800 --> 0:15:29.280 the seasonality of second quarter earnings being stronger than first quarter, 0:15:30.280 --> 0:15:32.240 we expect in there and we very much believe there 0:15:32.240 --> 0:15:34.560 will be over fifty dollars of earnings out of out 0:15:34.560 --> 0:15:36.920 of the season. I've said a lot, but what I 0:15:36.920 --> 0:15:38.640 want to tell you, really, what I think would be 0:15:38.720 --> 0:15:43.240 interesting is if, on a sequential basis, the digital stocks, 0:15:43.240 --> 0:15:46.640 the tech communications, and the growth stocks in general, if 0:15:46.680 --> 0:15:50.120 they can keep pace with the same type of growth 0:15:50.240 --> 0:15:54.400 rates sales earnings as the big cyclical reopening place, if 0:15:54.400 --> 0:15:56.960 they have similar growth rates, If this is the moment 0:15:57.040 --> 0:16:00.120 for deep cyclicals to shine, and yet such of the 0:16:00.200 --> 0:16:03.200 growth stocks still have earnings of growth, that's pretty comparable. 0:16:04.440 --> 0:16:08.040 It may be again the reason why that reflation trade 0:16:08.680 --> 0:16:14.000 is whether that's fading away. So David, Uh, can you 0:16:14.040 --> 0:16:16.280 break it down for us, UH as far as kind 0:16:16.280 --> 0:16:18.840 of what what the house view is at THEWS, as 0:16:18.880 --> 0:16:21.960 far as allocation. You know, it sounds like you're pretty 0:16:22.000 --> 0:16:24.680 bullish on sort of the fang type of names that 0:16:24.880 --> 0:16:29.000 the digital uh, you know, heavy internet type of stocks. Uh, 0:16:29.440 --> 0:16:31.040 let me know if that's fair to say. And sort 0:16:31.080 --> 0:16:33.400 of what else, you know, where else in the market 0:16:33.400 --> 0:16:35.760 are you looking for opportunities and what are you kind 0:16:35.800 --> 0:16:40.240 of underweight at the moment. Yes, we are bullsh tech, 0:16:40.440 --> 0:16:44.400 We are bullish growth stocks, UM. But our biggest message 0:16:44.400 --> 0:16:46.680 since the start of this year, late last year was 0:16:47.720 --> 0:16:51.560 stay diversified. It's an uncertain environment. It's still the early 0:16:51.640 --> 0:16:56.840 years of a new expansion, new policies, UM, new investment trends, 0:16:56.880 --> 0:16:59.800 some of the some some of the same trends digitalization 0:17:00.360 --> 0:17:03.120 E s G, but some new ones to UH, what 0:17:03.520 --> 0:17:06.040 exactly we're gonna do if on the clean energy front 0:17:06.080 --> 0:17:08.840 out front faster we're gonna move toward that, UM, what's 0:17:08.880 --> 0:17:11.879 going to happen to the disrupted businesses versus the disruptors? 0:17:12.520 --> 0:17:17.400 Point is, UM, we don't want to uh take any 0:17:17.480 --> 0:17:22.119 oversized UM macro risks. What we are doing is we 0:17:22.160 --> 0:17:30.680 are moderately overweight equities UH, equity allocation versus normally for 0:17:30.720 --> 0:17:34.600 our moderate risk portfolios and ask an allocation were moderately 0:17:34.800 --> 0:17:40.320 overweight equities, moderately underweight fixed income the same about five points. 0:17:40.400 --> 0:17:44.880 And then within equities UH. Right now, since the start 0:17:44.880 --> 0:17:48.240 of the year, we've been overweight foreign equities both Europe 0:17:48.280 --> 0:17:52.120 and and Asia. UH. And then within the United States, 0:17:52.480 --> 0:17:55.400 we started the year overweight small caps. Now we're equal weight. 0:17:56.040 --> 0:17:58.439 The rest of our allocation in the United States is 0:17:58.480 --> 0:18:02.800 tilted toward growth, and our our idea was it was 0:18:02.840 --> 0:18:08.080 better to find value opportunities energy industrial materials abroad, such 0:18:08.119 --> 0:18:11.400 as in Europe. UH. And we stuck with the growth stocks, 0:18:11.400 --> 0:18:15.200 but plus banks in the United States, we've been underweight 0:18:15.520 --> 0:18:35.679 US energy industrials and materials companies. And so I'm curious 0:18:35.720 --> 0:18:39.640 to hear your FED expectations UH specifically both in terms 0:18:39.720 --> 0:18:43.240 of you know, when they actually uh move off of zero, 0:18:43.400 --> 0:18:46.879 but also obviously there's been a lot of taper chatter 0:18:47.040 --> 0:18:49.400 in the past few months. We had the talking about 0:18:49.480 --> 0:18:53.960 talking about meeting UH from the FED in June. How 0:18:54.000 --> 0:18:58.160 do you factor taper like the potential of a taper 0:18:58.240 --> 0:19:02.680 into your asset allocation view is right. So our view 0:19:02.760 --> 0:19:05.879 on what monetary policy is likely to be over the 0:19:05.880 --> 0:19:10.800 next few years is that is about using communication tools 0:19:11.520 --> 0:19:15.760 and that's a very powerful tool and share Powell did 0:19:15.760 --> 0:19:18.120 a good job of it at the f OMC media 0:19:18.160 --> 0:19:20.600 in in the press conference in June, as I said, 0:19:21.520 --> 0:19:25.000 but we do not think uh they taper until two. 0:19:25.240 --> 0:19:29.000 They may lay out a plan UH for when they 0:19:29.080 --> 0:19:32.120 do it UH in late one, but we don't believe 0:19:32.160 --> 0:19:35.359 they actually reduced the one billion dollars of purchases a 0:19:35.359 --> 0:19:39.600 month until and then they'll taper over the course of two, 0:19:40.200 --> 0:19:43.560 probably bring it to to zero or close to zero 0:19:43.640 --> 0:19:47.240 over a twelve month period, and then the lift off conversation, 0:19:47.440 --> 0:19:50.960 what will the Fed do with rates? We believe the 0:19:51.000 --> 0:19:56.879 Fed will not high rates until three UM about communications 0:19:56.920 --> 0:20:01.679 two about tapering, about h aiking rates, we don't think 0:20:01.680 --> 0:20:06.480 they hike until but how fast they hike and ultimately 0:20:06.600 --> 0:20:09.520 what rate they hike to is an uncertainty and one 0:20:09.520 --> 0:20:14.879 that ties back to inflation. So we are we would 0:20:14.880 --> 0:20:18.320 say no hikes for now, but there you know, a 0:20:18.400 --> 0:20:21.359 couple of years away, and when they come, we're not 0:20:21.600 --> 0:20:25.919 entirely sure where they plateau. But if fiscal policy is 0:20:26.040 --> 0:20:29.280 right sized, then the Fed probably doesn't need to go 0:20:29.640 --> 0:20:33.040 too far above two in order on the overnight rate 0:20:33.040 --> 0:20:37.679 to keep inflation close too. And David, obviously, one of 0:20:37.680 --> 0:20:41.639 the the sort of Fed watcher events this week was 0:20:41.680 --> 0:20:43.719 there had been a lot of speculation that maybe the 0:20:43.760 --> 0:20:48.680 Fed would start tapering their mortgage backed security purchases before 0:20:48.720 --> 0:20:52.600 before the treasury purchases. That notion seems to have been 0:20:52.640 --> 0:20:56.000 squashed this week by the Minutes and some other communications. UM. 0:20:56.080 --> 0:20:58.159 But to rewind a little bit to what you were 0:20:58.160 --> 0:21:01.240 saying about that hot housing mark, it I gotta say, boy, 0:21:01.280 --> 0:21:05.280 for any of us around back in oh six oh seven, UM, 0:21:05.359 --> 0:21:07.480 in the in the whole boom and bust cycle of 0:21:07.560 --> 0:21:10.679 the housing market. Um, it's hard not to have a 0:21:10.680 --> 0:21:13.399 bit of a flashback. I mean, obviously the structure of 0:21:13.440 --> 0:21:17.760 the you know, structured finance world is not as vulnerable 0:21:17.880 --> 0:21:21.440 I hope anyway, knock on wood as it was back then. UM. 0:21:21.440 --> 0:21:25.200 But still you gotta wonder about this super hot housing 0:21:25.240 --> 0:21:29.600 market and you know what that means going forward? Um, 0:21:30.680 --> 0:21:33.520 it's not a risk, it's sort of an overheating of 0:21:33.560 --> 0:21:35.480 the housing market, or risk in your mind has it 0:21:35.520 --> 0:21:39.240 overheated already? And how do we sort of how should 0:21:39.280 --> 0:21:41.720 we sort of think about housing going forward from here? 0:21:43.080 --> 0:21:45.639 I think the best way to think about housing is 0:21:46.000 --> 0:21:51.119 it is cyclical. Um. It is a long cycle UM. Industry, 0:21:51.280 --> 0:21:55.800 sector of the economy. UM. And sometimes it's something you 0:21:55.840 --> 0:21:58.960 just can't fight too much. And and yes, you know, 0:21:59.040 --> 0:22:03.359 we all have views on and when markets get overheated, UM, 0:22:03.440 --> 0:22:06.679 And sometimes we turn to policy centers to try to 0:22:06.720 --> 0:22:09.120 adjust things. But you know, the FED would quickly make 0:22:09.160 --> 0:22:11.160 the point that their tools are blunt tools and there's 0:22:11.200 --> 0:22:13.760 only so much they can do. And should they really 0:22:14.680 --> 0:22:18.000 change their asset purchase program because some people think the 0:22:18.000 --> 0:22:22.080 housing market is is too hot in terms of price UM. 0:22:22.119 --> 0:22:23.600 So I think it's one thing for them to comment 0:22:23.680 --> 0:22:27.480 about it carefully, um, but probably stay the course on 0:22:27.520 --> 0:22:30.639 their plans, you know, and responding to broader things like 0:22:30.680 --> 0:22:34.600 the labor market and inflation measures broadly before they change 0:22:34.600 --> 0:22:38.159 any of their big policy tools like asset purchases and 0:22:37.840 --> 0:22:40.639 and so forth. And and then you have more to 0:22:40.680 --> 0:22:42.960 your your your your question. Though my view on the 0:22:42.960 --> 0:22:46.840 housing market is, um, it's sending a very valuable price 0:22:46.920 --> 0:22:49.360 signal right now. It is saying we need more housing. 0:22:49.520 --> 0:22:52.560 It is haying that part of the pandemic has been 0:22:52.640 --> 0:22:56.240 that people are using homes as more than a place 0:22:56.240 --> 0:22:59.000 to hang their hat. H It is it is their office, 0:22:59.040 --> 0:23:02.159 that is their school, It is their sanctuary, is their oasis. 0:23:02.240 --> 0:23:04.639 And in these times, I think the pandemic might have 0:23:04.800 --> 0:23:08.120 been one of these life experiences where people say, I'm 0:23:08.119 --> 0:23:10.040 just gonna live for the moment, and if there's this 0:23:10.160 --> 0:23:13.320 car or boat or home I wanted they make, might 0:23:13.320 --> 0:23:16.399 be moving more quickly to do it. Certainly, the interest 0:23:16.480 --> 0:23:19.760 rates are low, and so a lot has come together 0:23:19.960 --> 0:23:23.160 to make a special moment for housing, and that doesn't 0:23:23.160 --> 0:23:26.320 mean it will last forever. I have argued that things 0:23:26.320 --> 0:23:30.399 like home prices, car prices commodity prices. These are the 0:23:30.480 --> 0:23:32.240 kind of things where I think we should be pretty 0:23:32.240 --> 0:23:35.199 comfortable with. The idea may take some Timeally, in the 0:23:35.200 --> 0:23:38.320 case of housing, that high prices will help fix high prices, 0:23:38.359 --> 0:23:41.439 there will be a supply side response. I don't see 0:23:41.480 --> 0:23:46.359 those things as persistent sources of inflation. UM. So I 0:23:46.359 --> 0:23:47.960 mean to answer your question, I do think the housing 0:23:48.000 --> 0:23:50.960 markets a little overcooked, but not that it's unhealthy. I 0:23:50.960 --> 0:23:53.960 don't expect to collapse in prices. Again, this ties back 0:23:54.000 --> 0:23:57.119 to interest rates. Um. But I do also think there 0:23:57.119 --> 0:23:59.040 will be a supply response. And then it's not as 0:23:59.040 --> 0:24:01.119 easy as it wasn't the US to do it, but 0:24:01.200 --> 0:24:05.000 there will be a supply response. Don't forget it's you know, 0:24:06.040 --> 0:24:08.199 it's easier for workers to be wherever they want to 0:24:08.200 --> 0:24:10.920