Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along
Speaker 1: with Jonathan Ferrell and Lisa brown Witz Jailey. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance, an Apple podcast, SoundCloud, Bloomberg
Speaker 1: dot Com, and of course on the Bloomberg Terminal. Kyle
Speaker 1: Wineberg with us now my frequency can almoys chief Economists
Speaker 1: and Managing Director. Kyle. As the week progresses, will be
Speaker 1: knee deep in CPI reachs, house sounds. I think this
Speaker 1: morning's time has come to have a little bit more
Speaker 1: of a deeper think about what's happening. You've compared crisis
Speaker 1: to recession, from crisis to recession and rat us distinction
Speaker 1: between the two. Can just walk me through that right now? Sure,
Speaker 1: Good morning, John, and good morning Time, Good morning Lisa,
Speaker 1: Thanks for having me on. A crisis is a downturn
Speaker 1: or an adverse situation where you don't have a policy response.
Speaker 1: And that's where we were a year ago. All right,
Speaker 1: we had a pandemic. We had no solution for it
Speaker 1: other than to shut everything down. That wasn't a good solution.
Speaker 1: So with no good policy response, you have a crisis,
Speaker 1: that's my definition. And but we're in right now. What
Speaker 1: the crisis did was it created a recession, and in
Speaker 1: a recession, we know what we have to do, alright.
Speaker 1: The problem with this recession, which is different in so
Speaker 1: many ways from all the recessions before it, is that
Speaker 1: most of our policy tools already exhausted. So going into
Speaker 1: a period where we normally would expect to see policy
Speaker 1: supporting reemployment, re engagement of people in the workforce, growth
Speaker 1: of the economy, and so forth, policy is pretty much
Speaker 1: hamstrung and is already doing all that it can do. Carl,
Speaker 1: you are a legendary across the time of Lehman Brothers
Speaker 1: into World Crisis two and three, four decades ago, of
Speaker 1: watching gloom turn into not optimism but a good workout.
Speaker 1: Are we just impatient right now? Are we just impatient
Speaker 1: worried about fixing things in three months that may take
Speaker 1: three years to fix? Yeah, three years would be a
Speaker 1: conservative estimate of history as any guide. You know, some
Speaker 1: of the people in the market at least these days
Speaker 1: were also in the market in two thousand and two
Speaker 1: thousand and nine, And people forget that. Even though GDP
Speaker 1: got back to where it was prior to the global
Speaker 1: financial crisis in just two years. The unemployment rate didn't
Speaker 1: regain two thousand and eight levels until a decade later.
Speaker 1: And that kind of delay and employment is actually normal.
Speaker 1: It's why we have recessions. Right, Recessions are a purge
Speaker 1: of excesses, so firms hire too many workers, right, it's
Speaker 1: easier there that uh, we we purge. We find we
Speaker 1: can do just as much with fewer workers in a recession,
Speaker 1: and then it's very, very slow to bring those workers
Speaker 1: back on forward. Firms are reluctant to bring them back.
Speaker 1: So I think that we are overly optimistic and expecting
Speaker 1: that everything's going to get back to the way where
Speaker 1: it was by the end of this year, and especially
Speaker 1: in the labor market. And if the abor market is
Speaker 1: now our criteria for changing monetary policy, than recovery or
Speaker 1: changes or renormalization of monetary policy is going to be
Speaker 1: further out than most people expect. Carl, are you saying
Speaker 1: when you say policy is hamstrung, that the Federal Reserve
Speaker 1: is out of tools to fight another recession. Well, I
Speaker 1: think that they've extended about as much as they can
Speaker 1: go in terms of q E. I mean technically they
Speaker 1: could go further than that, but practically will they do that?
Speaker 1: Will they take the heat if there were another downturn,
Speaker 1: if there was another shock right now, what would the
Speaker 1: FIT do? What could the FIT plausibly do without unsettling
Speaker 1: financial markets? And on the fiscal side, it's clear that
Speaker 1: there's not a lot of appetite anywhere in the world
Speaker 1: for more deficit spending, yet that is what would be required. Remember,
Speaker 1: with fiscal policy, it doesn't increase growth unless you get
Speaker 1: more of it each year. So running bigger deficits than
Speaker 1: we saw last year next year, I think as a nonstarter.
Speaker 1: Even in the most dire circle stances, it's gonna catchhop
Speaker 1: Has so wise to get your input on this show
Speaker 1: ahead of a big week for this market. Gun, it's
Speaker 1: the Fed next week, cal wand back that high frequency
Speaker 1: can always chief economist and managing direct d Okay, we're
Speaker 1: gonna stop the show. This is what we do. We
Speaker 1: talked to smart smart people Imperial College in London, Johns Hopkins.
Speaker 1: We've done a lot of at work with Thank you
Speaker 1: Mr Bloomberg for that. I think of University Washington Microbiology.
Speaker 1: Joshua Scharstein from Johns Hopkins with us today and we're
Speaker 1: just gonna flat out stop, Joshua after I'm teen months
Speaker 1: and brilliant people like you trying to extricate a seal
Speaker 1: from this pandemic. To celebrate that one million kids will
Speaker 1: go back to school in New York City today, I mean,
Speaker 1: it's just a huge deal in New York City back
Speaker 1: to school. Let's cut to the chase. Is it gonna
Speaker 1: be safe? How do you go back to school and
Speaker 1: be safe if you're not vaccinated under twelve years old? Well,
Speaker 1: I think it's gonna be uh, pretty safe because New
Speaker 1: York is taking as many precautions as it possibly can take.
Speaker 1: It's really important for kids to be back in school.
Speaker 1: So you're right, it is a really great thing that
Speaker 1: they're doing it, but it's going to require, you know,
Speaker 1: a vigilance and it's going to require these different mitigation steps, masking,
Speaker 1: um testing, other kinds of things until we really get
Speaker 1: a handle on what the delta virus does in schools,
Speaker 1: particularly for younger kids. Link your knowledge of the unvaccinated,
Speaker 1: including the runner up at the US Open I believe
Speaker 1: is unvaccinated on the male side, Djokovic. Link the unvaccinated
Speaker 1: across this nation with kids and teachers and staff going
Speaker 1: back to school. Well, one thing that's been clear is
Speaker 1: that UM states with more people who are unvaccinated are
Speaker 1: also seeing many more sick kids, particularly young sick kids.
Speaker 1: And that's probably because adults who are unvaccinated who gets
Speaker 1: sick can really infect kids effectively, and adults who are
Speaker 1: vaccinated are it's much harder for them to infect kids.
Speaker 1: And so I think that one of the ways we
Speaker 1: can protect kids is to have adults generally vaccinated. A
Speaker 1: second way is to have adults in schools vaccinated. And
Speaker 1: so I'm very supportive of policies that that that require
Speaker 1: adults in schools to be vaccinated. It's absolutely for the
Speaker 1: safety of the kids. Dr. Scharfsine almost every parent out
Speaker 1: there is going to get a dreaded email one morning
Speaker 1: and the next couple of weeks saying somebody and your
Speaker 1: kids school was diagnosed with COVID. Don't worry or worry
Speaker 1: you have to quarantine or not quarantine. What is the
Speaker 1: correct protocol if someone is in contact or within six
Speaker 1: feet for say, ten straight minutes, even if they are
Speaker 1: masked in a school. So UM, what I would say
Speaker 1: is it's really important for them to be good communication
Speaker 1: about this and to explain to parents as much as
Speaker 1: possible exactly how this will be handled, and then follow
Speaker 1: through on that rather in surprise everyone the first time
Speaker 1: there's a positive test, it is going to be expected
Speaker 1: that that that may happen. Here's how we're going to
Speaker 1: deal with it. UM, and I think that in general UM,
Speaker 1: it is certainly for UM for kids who have vaccinated.
Speaker 1: Older kids who are vaccinated, they do not necessarily, according
Speaker 1: to the CDC, I think, need to be quarantined. Some
Speaker 1: schools may want to do that out of an abundance
Speaker 1: of caution. Others may want to try to use tests,
Speaker 1: for example, to keep kids in school. They're going to
Speaker 1: be a few different practices. I think the most important
Speaker 1: thing is that they're explained clearly to parents and that
Speaker 1: the school is monitoring whether their particular approach works and
Speaker 1: it's flexible to changing UM if necessary based on what
Speaker 1: they see. Early in the school year, Dr Scharfson, the
Speaker 1: start of the New York City school year really highlights
Speaker 1: how people are trying to get back to some semblance
Speaker 1: of normal. People are saying, get back to the office.
Speaker 1: City workers have to be back in person, and yet
Speaker 1: it is pock marked by all these notices and by
Speaker 1: the ongoing spread of the virus. When do we get
Speaker 1: to some sort of equilibrium or we're heading into a
Speaker 1: really perilous fall where people are trying to act like
Speaker 1: everything is normal when it is anything. But I think
Speaker 1: that we're headed right now into a bit of a
Speaker 1: new normal. You know, we can go to work, but
Speaker 1: we may need to wear a mask in the workplace
Speaker 1: or make sure everybody is vaccinated. UM, and the people
Speaker 1: need to be a little bit more vigilant. I think
Speaker 1: we're going to be in that period for a while
Speaker 1: at least until cases really go down. UM, and we
Speaker 1: you know, get a little bit more of a distance
Speaker 1: between us and the virus. That obviously depends on where
Speaker 1: you are in the country in this situation. But for example,
Speaker 1: at our school, you know, we're we have kids back
Speaker 1: in class. Um, we have a little bit more distance
Speaker 1: than usual, fewer people in the classroom, but they can
Speaker 1: sit you know, three ft away with a mask on
Speaker 1: and um, and everybody is vaccinated. So you know, we
Speaker 1: have a new normal. But we're excited to be in
Speaker 1: the classroom and teaching. And I've been doing some of that.
Speaker 1: I think it's fantasy, like so you and many others
Speaker 1: anticipating a bit of a problem this fold into WINSA Well.
Speaker 1: I mean, I'll tell you my kids actually went back
Speaker 1: back to school a little bit early because they go
Speaker 1: to a charter school. And I will just tell you
Speaker 1: that they actually have already had to stay home for
Speaker 1: a week as a result, John, of this idea that
Speaker 1: they have been quarantined and basically somebody was exposed to
Speaker 1: scot started Lisa. I'm telling you it was the second week.
Speaker 1: So I just wonder what kind of provisions do people
Speaker 1: make to potentially have childcare when they have to go
Speaker 1: back to the office. Your experience, Leasa, the experience of
Speaker 1: so many right now, so keen across this country. Yeah,
Speaker 1: it is. And you know, I think what's so important here, John,
Speaker 1: is the idea of how it linkson Joe Biden stridency.
Speaker 1: The President has made clear this is strident, but he
Speaker 1: talked enough about the schools within that stridency. Joshua going
Speaker 1: to leave it. They're gonna catch up. Joshua shafting there,
Speaker 1: Johns Hopkins Blinbo School of Public Health, Weinstein, do we
Speaker 1: get to Francisco the international standard out of London, Francisco
Speaker 1: blage Bank America ahead of global commodatives and too rivets
Speaker 1: of research got to catch up. Francisco. Let's just start
Speaker 1: with what's going on with aluminum aluminium three K. What's
Speaker 1: happening is this old supply scarcity. UH. In the Jonathan
Speaker 1: there's a there's supply scarcity on a couple of different fronts.
Speaker 1: We've had, of course, UH a coo of tieing Guinea,
Speaker 1: which is created some anxiety around book side supplies. Book
Speaker 1: Side is the ingredient into alumina, which in turn as
Speaker 1: the key ingredients into aluminum or aluminium um so um so.
Speaker 1: We we've had shortages there because of cool and but
Speaker 1: then more importantly, China has been curving aluminum supplies now
Speaker 1: for most of the most of the year because um
Speaker 1: they're trying to rain in power generation become cleaner. And
Speaker 1: remember it's been a low rainfall year in China. It's
Speaker 1: one of the reasons they've been trying to crack down
Speaker 1: on bitcoin too. So third generation is very strong, but
Speaker 1: it's mostly again filling the gap for that lack of
Speaker 1: hydro power. So so if you look at the liminum
Speaker 1: production year to date in China's kind of flat as
Speaker 1: a pancake. Demand's kept growing. We hold this liquar in
Speaker 1: the system and and that's what's pushing prices higher. Francisco,
Speaker 1: I saw the London Medals index of Bloomberg indexes as well,
Speaker 1: show Medals as a group doing better. We know the
Speaker 1: Bloomberg Commodity index has done better as well. Does it
Speaker 1: signal the commodities breakout? Can you call a bullmarket in commodities? Um? Well,
Speaker 1: I mean we you know, uh, Tom, we we've had
Speaker 1: a bit of a bull market already for a while,
Speaker 1: uh since since we hit the lowest back in April
Speaker 1: last year. So um, we remained constructive here. We we
Speaker 1: think prices of Marty's most commodities will keep going higher.
Speaker 1: But again, independs on where you look at. I remember
Speaker 1: iron ore has been coming down very hard since Valley
Speaker 1: started exporting more volumes. But then oil, on the other hand,
Speaker 1: it's kind of sitting. It's a bit of a boiling
Speaker 1: frog waiting for the winter. And natural gas, of course
Speaker 1: is ripped around the world and also dragging up us
Speaker 1: mad gats with it. So it depends where you look at.
Speaker 1: But in world terms, commorities are very strong because we
Speaker 1: have a little liquid in the system. We are growing,
Speaker 1: we have supply constraints, we have low inventories. It's kind
Speaker 1: of a perfect cocktail for commorities to keep breaking higher.
Speaker 1: And when you talk about oil and the cold winter,
Speaker 1: there was a note that I believe your team put
Speaker 1: out that you do see the potential for a hundred
Speaker 1: dollar barrel oil in the United States and elsewhere based
Speaker 1: on what supplies are doing. Just want to bring you
Speaker 1: these headlines. OPEC see stronger demand for its crew this
Speaker 1: year and next at the same time, non opeque output
Speaker 1: is supposed to be down. And this really directly speaks
Speaker 1: to the shale patch. What's the tipping point at which
Speaker 1: point we start to see UH supplies go up to
Speaker 1: meet the demand and regulate well. So so I think
Speaker 1: I think right now we have a very short window
Speaker 1: into the winter. We're all still UH wearing flip flow
Speaker 1: ups and shorts in the northern hemisphere, but that's not
Speaker 1: changed very quickly. Within a month or two, get cold,
Speaker 1: you can get very cold. I think natural gas is
Speaker 1: gonna be very strong and if if it breaks out,
Speaker 1: and remember we're already trading over twenty dosp mb tu,
Speaker 1: which is a hundred and twenty barrel foil equivalent in
Speaker 1: oil um and we go another ten bucks higher on
Speaker 1: then for mbtu, which would put US at a hundred
Speaker 1: and eighty dollars per prepared barrel foil equivalent. I think
Speaker 1: that would drug up the entire oil sector because people
Speaker 1: will look for cheaper sources of of of of bt
Speaker 1: us of calorific value for for heating and for power generation.
Speaker 1: We see a very strong bunker fuel marketing Singapore already
Speaker 1: because of that recent So I'm a little concerned that, um,
Speaker 1: the winter gets cold, we're gonna see, uh, the entire
Speaker 1: energy complex ripping higher. Francisco, what does the move in
Speaker 1: these commodities say about the resurgence of the Pacific rim Um? Well,
Speaker 1: I mean, I think the Pacific rim is is definitely
Speaker 1: coming back. Now. The one thing I would notice that
Speaker 1: China is a little softer. And remember one thing we've
Speaker 1: we've been tracking with with a lot of interest this
Speaker 1: what's going on in the property sector in China with
Speaker 1: ever grands bonds coming down very hard, Chinese new lawn
Speaker 1: issues also slowing down materially over the last few months.
Speaker 1: UM and that's one thing that you know, we we
Speaker 1: keep a close eye on. But but generally the the
Speaker 1: Asia Pacific ram, the back ram as reported, it's definitely
Speaker 1: coming back with force. And remember over the next six
Speaker 1: months we're gonna have a huge search in vaccinations which
Speaker 1: will restart air travel. So we think a hundred oil
Speaker 1: is more likely next summer when we all start flying
Speaker 1: internationally much more um in in in a much much
Speaker 1: greater way. Otherwise it may happen sooner if the winter
Speaker 1: turn is very cold. But the pack rim is definitely
Speaker 1: coming back. But it's a triple digit crew price the
Speaker 1: base case for you, Francisco, it's not your base case. Now.
Speaker 1: We we have are are we have a call for
Speaker 1: a hundred oil for next summer. What we are saying
Speaker 1: is if the winter is called, we would roll We
Speaker 1: could roll that up six months and it may have
Speaker 1: been this winter. Wow. But again, um, you know we're
Speaker 1: gonna type market for for energy and oil is again
Speaker 1: it's still benefiting from OPEC excess capacity. But we don't
Speaker 1: have the the amount of shale available over a shore
Speaker 1: window of time to to meet that call if if
Speaker 1: the weather gets cold, Francisco, just an amazing cool, and
Speaker 1: we want you to come back again soon so we
Speaker 1: can talk about that the prospect that cool comes in
Speaker 1: six months. Francisco Blige their bank for America. Let's get
Speaker 1: straight to the quote of this morning. We've been jokingly
Speaker 1: calling this rally the d Sharon or Dave Matthews rally.
Speaker 1: Essentially it is a rally that nobody likes, and yet
Speaker 1: it continues to go up. The author of that quote,
Speaker 1: and please to say as with us now, I mean
Speaker 1: with Silverman, RBC Capital Markets, Equity derivative strategist Amy, let's
Speaker 1: start right there. Any reason for that to change anytime soon?
Speaker 1: So guys, so far no, you know, I was watching
Speaker 1: the draw down, you know, the past week with great
Speaker 1: interest because the option sentiment has been so glum through
Speaker 1: your end, and you know, once usually you get kind
Speaker 1: of a breather, it kind of comes off, and the
Speaker 1: reality is it hasn't. So you know, we remain glum.
Speaker 1: We remain with demand for downside protection and even despite
Speaker 1: the move down, you know, that has kind of stayed solid,
Speaker 1: which just tells you that sentiment UH is still kind
Speaker 1: of saying this is this is unloved and they're waiting
Speaker 1: for even further of a move amy the week, the weekends,
Speaker 1: the week begins, and we have to focus on acuity
Speaker 1: here away from the lyrics of Ed shere And and
Speaker 1: Dave Matthews. You've created a firestorm out in the street
Speaker 1: with your vicious, mean spirited note. Give us the acuity
Speaker 1: right now of why you can own equities. Yeah. Look,
Speaker 1: I think part of it is because the market is
Speaker 1: well hedged. We are very well positioned to the downside.
Speaker 1: I'll give you guys one step that I think really
Speaker 1: puts this in the context. You know, if you just
Speaker 1: sold one of these temper cent how the money put
Speaker 1: options on the SMP in October, Right now, you can
Speaker 1: buy the equivalent sixty times the upside. Now, just to
Speaker 1: provide some history on that metric, back in July that
Speaker 1: was at fifteen times. So what that's telling you is
Speaker 1: the market is ready for the market going down. Um,
Speaker 1: and oftentimes when that happens that the reverse is not true. Right,
Speaker 1: the market is not ready for the market going up.
Speaker 1: And so you know that brings you to a potential
Speaker 1: path if something good does happen of people climbing having
Speaker 1: to scramble to get that leverage on the upside. Well,
Speaker 1: I can say, Amy's I'm sure you've got a lot
Speaker 1: of push back on the Dave Matthews point, especially based
Speaker 1: on some of the people who read your notes. A
Speaker 1: lot of people like Dave Matthews, and we can discuss
Speaker 1: that in detail. They that's the hard way. Yeah, exactly,
Speaker 1: not a lot of haymail Um. There is a question
Speaker 1: about how people are looking at inflation, how people are
Speaker 1: looking at margin pressures. And one thing that you said
Speaker 1: in your note that I thought was fascinating is the
Speaker 1: options market is not pricing in concern at all for
Speaker 1: a six month period or twelve month period for inflation
Speaker 1: in the consumer staples, however, not really the case in industrials.
Speaker 1: Can you explain, Yeah, you know, I think it's important
Speaker 1: because we kind of talk about inflation in this broad umbrella,
Speaker 1: and the reality is obviously different sectors are going to
Speaker 1: be impacted differently. You know, when you look at consumer
Speaker 1: staples on a two month period, when you look at
Speaker 1: the names in it, like a Kroger for example, where
Speaker 1: you know it is down nine percent last week, you're
Speaker 1: seeing it short term, and yet that disappears over a
Speaker 1: six month period and a twelve month period when you
Speaker 1: look at those relative implied volatilities completely the opposite truest industrials. Now,
Speaker 1: you know, as I mentioned my notes, some of this
Speaker 1: is tax related. But what this tells me is, look,
Speaker 1: if you believe that the cost pressures do remain in
Speaker 1: consumer staples over the longer term, that options market pricing
Speaker 1: has not put that there yet, So that is an
Speaker 1: opportunity to own those puts within that sector specifically. I
Speaker 1: think that's how you have to play inflation concerns right now.
Speaker 1: How much is this the way that people are looking
Speaker 1: at the market rather than go along a particular sector,
Speaker 1: They're looking at how margin pressures are being priced in
Speaker 1: specific sectors and trying to get ahead of things that way. Yeah,
Speaker 1: I think, Look, it's gonna go sector by sector, Lisa,
Speaker 1: it's also going to go stock by stock, So you know,
Speaker 1: we're really focused on where we see that change in
Speaker 1: auction sentiment. And you know stop by stop program for example,
Speaker 1: you know that the normalized skew in that name is
Speaker 1: at a two year high, so essentially the demand for
Speaker 1: downside protection. Again, this is even after it's gone down
Speaker 1: nine percent. That's what I think is key for people
Speaker 1: to remember it's you know, after you've had that moved down,
Speaker 1: oftentimes hedges are removed. This is not what is happening
Speaker 1: in names where you continue to see that inflation pressure,
Speaker 1: so people think it will continue to go down. Okay,
Speaker 1: So I mean after this, I'm in love with the
Speaker 1: shape of this market. You know that's great. It's an
Speaker 1: actually go out there, folks and read edge sheering lyrics.
Speaker 1: It's um telling, you know, good jokes that needs to
Speaker 1: be explained, tak. So we're in love with the shape
Speaker 1: of this market. But the reason why the skew is
Speaker 1: the way it is. You know that Shearing taught me
Speaker 1: the Greek letters. The reason that the skews the way
Speaker 1: it is is fear. How do you know when to
Speaker 1: step into fear and go along? Yeah? You know, Look
Speaker 1: you don't. I wish I did. It's always about timing, right,
Speaker 1: you don't. You know. The way I kind of think
Speaker 1: about it is what could possibly drive you know, this
Speaker 1: market to the upside. What Lisa said earlier about just
Speaker 1: the childcare point, I feel deeply personally because I have
Speaker 1: two school aged children. But look, if you get a
Speaker 1: vaccine earlier than expected for the under twelve crowd, right,
Speaker 1: the crowd that actually needs childcare infrastructure. That's something that
Speaker 1: could potentially bring this market up the same with you know,
Speaker 1: better than expected NFP data point. Again, you know, the
Speaker 1: timing is always difficult. The point is just that the
Speaker 1: positioning is really not to be upside at all with it.
Speaker 1: I mean, that's some important let's finish that. Do you
Speaker 1: think that authorization for children could have a similar effect
Speaker 1: on this market in the same way that we saw
Speaker 1: things developed in early November last year? Yeah, you know, look,
Speaker 1: I'm not a medical expert, but I think that that
Speaker 1: this is one of those things where you just kind
Speaker 1: of know personally if you're if you're living through it, right, Like,
Speaker 1: if if this is something that you know that you
Speaker 1: can safely send your children to school and so you're
Speaker 1: not you know, calling a backubsider at the eleventh hour
Speaker 1: because you still have to go to the office and
Speaker 1: you know you can't leave a seven year at home,
Speaker 1: then then sure, of course it helps that that makes
Speaker 1: it so the stability of the return to work is
Speaker 1: is something that can happen. I mean, thank you, thank
Speaker 1: you for catching up with this morning, and we sail
Speaker 1: them in that and obviously, capital markets Postmanian time keen
Speaker 1: are the most important conversation of the day on the
Speaker 1: here and now. Mr Cass is with us this morning.
Speaker 1: Douglas Cass, he reads investment, and his people briefed us
Speaker 1: this morning that we are not talking about the New
Speaker 1: York Yankees, the Boston Red Sax or the Toronto Blue Juice.
Speaker 1: Here nowhere, the Toronto's du Casse Good morning. Market breadth
Speaker 1: represents the total number of stacks that are increasing as
Speaker 1: opposed to the number of stacks that are undergoing a decline.
Speaker 1: You are focused, I am focused. I'm fearful about the
Speaker 1: equity market, and I'm basically of the view that investors
Speaker 1: are underpricing risk UM. Investors today are really wildly bullish UM,
Speaker 1: despite a long laundry list of uncertainties and despite um
Speaker 1: a wide range of possible economic outcomes, there's virtually no
Speaker 1: one looking for anything other than a garden variety correction
Speaker 1: at most. And as a measure of that optimism, Bank
Speaker 1: of America conducted a survey of their private wealth clients
Speaker 1: represented over three trillion dollars in assets, and their investors
Speaker 1: are at sixty in stocks and then all time high
Speaker 1: and Today's and you've just been discussing this for the
Speaker 1: past week. Today's strategists offer very precise and sometimes preposterous
Speaker 1: price targets at that reflective optimism that economic growth will
Speaker 1: not be threatened by inflation, by hierocaust, by continued supply
Speaker 1: dis locations, by higher taxes, etcetera. The government's debtload and
Speaker 1: even higher deficits. Um. Yeah, a few strategists have recently
Speaker 1: voiced some short term concern pol Tom, but look at
Speaker 1: the shallowness of their downside targets. There is a unanimity
Speaker 1: that dips it A buy forgetting about draw downs over history,
Speaker 1: and as I said to you last time, Grandma co
Speaker 1: Fax taught me a more balanced way to look at
Speaker 1: the markets. She taught me to always look over my
Speaker 1: shoulder because the Cossacks may be attacking us. So you
Speaker 1: could describe me now as the anti ethel merman who
Speaker 1: I prefer over edge Shearon and Dave Matthews. Everything doesn't
Speaker 1: always come up roses, and I would describe the market
Speaker 1: a little differently. I prefer the lyrics of Jerry see
Speaker 1: You to Dave Matthews from the Grateful Dead song Ripple.
Speaker 1: There is a road but it's no simple highway between
Speaker 1: the dawn and the dark. So I see things differently
Speaker 1: than the bulls. And I would end by saying, among
Speaker 1: other things, when when Pale tells us that inflation is transitory,
Speaker 1: I'm reminded of that great scene and Princess Bride when
Speaker 1: a Nigo Montoyo tells Vessini, I do not think the
Speaker 1: word means what you think it means. Yeah. Yeah. Shoutout
Speaker 1: to Lisianne Sanders, who, like Doug, cast channel the past
Speaker 1: and excellence and mentioned the Stones in Philadelphia in Doug
Speaker 1: Paul's got a bunch of adult questions. Just one quick
Speaker 1: question for you. Is our pontification about equities now shattered
Speaker 1: or changed because of all these media and social media. Well,
Speaker 1: that's a question. That's a great question. I would look.
Speaker 1: I would I have a different take on that. I
Speaker 1: think it's shattered because we rarely discuss the dangers associated
Speaker 1: with the evolution of market structure. Um. You know, in
Speaker 1: the old days when we started talking to each other,
Speaker 1: the dominant investor used to be active investors like mutual
Speaker 1: funds and hedge funds, and today our markets are dominated
Speaker 1: by these passive investors E. T. F and quant strategies UM.
Speaker 1: I reminded of a quote that Warren Buffett said in
Speaker 1: two thousand six when he was talking about derivetives being
Speaker 1: financial weapons of mass destruction that led to the Great
Speaker 1: Financial Crisis. He said, beware of geeks bearing formulas UM.
Speaker 1: So today the geek's account for over sevent the trading
Speaker 1: volume UH, and so Warrant's comments could apply to the
Speaker 1: risk parity voice and the quants today. So I don't
Speaker 1: think there's a I think there's a non trivial danger
Speaker 1: in this transition. As passive investors know everything about price
Speaker 1: but nothing about value. They act and are in herds.
Speaker 1: They feast on price momentum, that's their prey. They don't
Speaker 1: consider reward versus risk. They're not c f as they
Speaker 1: know nothing about discount the dividend models. Um. They never
Speaker 1: looked at a balance sheet or a P and L
Speaker 1: statement and have no emotions because their algales and machines
Speaker 1: to take their strategies. So any inflection point momentum can
Speaker 1: lead to these abrupt and changes and even an avalanche
Speaker 1: of selling. Look what happened on Friday. S and P
Speaker 1: s were up twenty eight handles at nine thirty in
Speaker 1: the morning. They closed sixty handles lower the end the
Speaker 1: day minus thirty four. There was no new news. It
Speaker 1: just happened. It's sort of like when the Yankees won
Speaker 1: thirteen in a row and then went you know, they
Speaker 1: went two for eight in the next ten ten games.
Speaker 1: You know, I'm looking at the Yankee schedule here, and
Speaker 1: I mean they end brutal three games with Toronto. You
Speaker 1: promised me the three games with Tampa. The Yankees are
Speaker 1: the toughest season clothes of any team, I mean Tampa Bay.
Speaker 1: Since when do we fear Tampa today? You have to
Speaker 1: you have to alight? Can I can? I just mentioned
Speaker 1: one thing about stocks. Um You know. I usually come
Speaker 1: on and I have these cautious remarks, um um, you know,
Speaker 1: and I am concerned about the fragility of the economy,
Speaker 1: our market structure, and other reasons like stagflation. But I
Speaker 1: see some really extraordinary long opportunities today in deeper value
Speaker 1: and hated market sectors. The market has been so bifurcated.
Speaker 1: Um Can. I just mentioned very briefly one group that
Speaker 1: I'm buying aggressively. It was a year ago in bank stocks.
Speaker 1: I think that we're in a generational loaf of cannabis stocks.
Speaker 1: And it's not dissimilar to when the SMP was at
Speaker 1: six sixty six on that faithful day in March of
Speaker 1: two thou nine, when I was on the Larry Cudlow
Speaker 1: Show and talking about a generational low in stocks. I
Speaker 1: think that cannabis represents a single best reward versus risk
Speaker 1: on the longside of any sector that I have encountered.
Speaker 1: In the last decade. UM. Most of the major industry
Speaker 1: players are improved their franchises the footprints while the government
Speaker 1: deals with the Safe Banking Act and legalization, both of
Speaker 1: which I see happening during the next couple of months UM.
Speaker 1: But they've been increasingly profitable while legislative debate. Today, most
Speaker 1: institutionals can't even buy the stocks because they're on the
Speaker 1: pitch sheets or trade in candidate. But these are artificial constraints,
Speaker 1: and I'm buying M S O S, which is the
Speaker 1: largest et the pink sheets. Is what the reason folks
Speaker 1: done casses live in large in Florida. You and Tom
Speaker 1: are grizzled veterans down putting it politely there, Um, you
Speaker 1: don't fight the FED is something we all learned a
Speaker 1: long time ago. If the FED is going to be
Speaker 1: more or less our friend, doesn't that support stocks? You know? Um,
Speaker 1: I would say the record high stock prices, the generational
Speaker 1: low and interest rates and the extreme valuations that we
Speaker 1: see today are fertile ground for bogus and new narratives
Speaker 1: and paradigms. It's kind of the polar opposite of the
Speaker 1: dire pessimism. Again in March nine, do you remember a
Speaker 1: famous UH column published in wire by Peter Schwartz and
Speaker 1: Peter Leyden during the dot com boom when they talked
Speaker 1: about a long economic boon. Remember, all right, Well that
Speaker 1: famous It pushed the dot com stocks to new highs.
Speaker 1: And three years after that column there was an eight
Speaker 1: collapse in the nastacs. Seven years later there was a
Speaker 1: great financial crisis. Um. The mantra that sky high valuations
Speaker 1: are now suddenly acceptable as interest rates well to almost
Speaker 1: zero has provided today's rational and popular narrative. But low
Speaker 1: rates provide the roots to historically high value valuations. And
Speaker 1: I would counter the teno argument with the statement that
Speaker 1: there's a fundamental problem with the low rates argument, that
Speaker 1: we may be comparing, oh, one over valued asset class
Speaker 1: to another. You know, you know, a year and a
Speaker 1: half ago, when I like the dividing yield on the SMP,
Speaker 1: sedd that of the tenure. Today the dividing yield on
Speaker 1: the SMP is down to one point to eight. It's
Speaker 1: the lowest in twenty years and not far from the
Speaker 1: record low of one pen in two thousand. I get
Speaker 1: fifteen seconds. Michael from the Pocono's ask should he buy Amazon?
Speaker 1: Buy Amazon and put it away? Yet? There you go,
Speaker 1: There you go, Doug Cass, Thank you so much, greatly
Speaker 1: appreciate it. Next time, Doune Cass on Jay's Rays and Yankees.
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