WEBVTT - Citi Sizes Up the Markets 0:00:13.360 --> 0:00:16.840 Hello, and welcomes to What Goes Up a weekly markets podcast. 0:00:16.920 --> 0:00:19.040 My name is Mike Reagan. I'm a senior editor at 0:00:19.079 --> 0:00:23.200 Bloomberg and Donna Higher across Acid reporter with Bloomberg. And 0:00:23.320 --> 0:00:26.320 this week on the show, well, the stock market hasn't 0:00:26.320 --> 0:00:29.200 said a new load in about five weeks, and oil 0:00:29.280 --> 0:00:31.880 is down more than twenty bucks below its peak this year. 0:00:32.520 --> 0:00:35.800 So is the bear market over along with all those 0:00:35.800 --> 0:00:38.519 concerns about out of control inflation and what the FED 0:00:38.560 --> 0:00:40.800 will do about it. We'll get into it with the 0:00:40.840 --> 0:00:43.800 head of investment strategy at the wealth management unit of 0:00:43.840 --> 0:00:47.479 a big bank. But first I have to say I've 0:00:47.479 --> 0:00:49.920 been worried about you. I'm gonna say I've been worried 0:00:49.920 --> 0:00:51.320 about it because I know you live in the seen 0:00:51.440 --> 0:00:53.200 of you. By the way, do you have air conditioning? 0:00:53.680 --> 0:00:57.640 I have? Yeah, I have air conditioners, like in my window. Okay, 0:00:57.640 --> 0:00:59.760 all right, are you asking because it's so hot? Because 0:00:59.800 --> 0:01:02.080 it's hot. Now, I'm not as as worried about you. 0:01:02.240 --> 0:01:05.600 I feel like you city slickers don't have the all 0:01:05.600 --> 0:01:09.000 the appliances you need to live. Sometimes we don't, like 0:01:09.280 --> 0:01:13.200 everybody probably needs a blender or like a vacuum, you know, 0:01:13.440 --> 0:01:18.120 I'm thinking of the big ticket and whatever people hipster's 0:01:18.360 --> 0:01:21.440 is okay to call you a hipster city city slickers 0:01:22.520 --> 0:01:27.320 here that out the suburbs, I have central air, a 0:01:27.400 --> 0:01:31.440 washer dry. Don't tell me about the wash dishwasher. You're like, 0:01:31.520 --> 0:01:33.920 what are you some kind of billionaire with Yeah, with 0:01:33.959 --> 0:01:37.320 a washer dry, like the air conditioning, yes, everybody needs 0:01:37.319 --> 0:01:39.040 it right now. At least you have an air conditioner, 0:01:39.120 --> 0:01:42.400 right the washer dryer? That killed that? I would I mean, 0:01:42.880 --> 0:01:45.280 I would like a billionaire out there in the suburbs. 0:01:45.480 --> 0:01:48.680 You're so rich. Oh my god, dishwasher as well? Yeah, 0:01:48.720 --> 0:01:53.160 I bet our guess has a dishwashing and a washer dry. 0:01:53.280 --> 0:01:55.680 But I do want to I want to introduce Sean Snyder, 0:01:55.720 --> 0:01:59.360 head of investment strategy at City US Wealth Management. Thanks 0:01:59.360 --> 0:02:02.680 so much for joining, Sean, Thanks for having me. Sean, 0:02:02.760 --> 0:02:05.120 we're all having this debate about whether or not we're 0:02:05.280 --> 0:02:07.480 in a recession. I know you sent us a note 0:02:07.480 --> 0:02:09.600 over that said one side will be wrong, which is 0:02:09.600 --> 0:02:11.840 a very diplomatic way of putting it. So I'm wondering 0:02:11.840 --> 0:02:15.240 what side you're you're falling under. You know, It's it's 0:02:15.280 --> 0:02:19.920 really fascinating because you have the potential for two negative 0:02:20.080 --> 0:02:22.760 really real GDP prints in a row. We had a 0:02:22.800 --> 0:02:25.799 negative print in the first quarter. Atlanta said is actually 0:02:25.800 --> 0:02:28.040 tracking at minus one and a half percent for the 0:02:28.080 --> 0:02:31.440 second quarter, and most people think that that fits the 0:02:31.480 --> 0:02:35.760 technical definition of a recession. But that's not necessarily true. Uh. 0:02:35.760 --> 0:02:37.560 And we also have the FED that's in their June 0:02:37.600 --> 0:02:40.760 f on MC meeting minutes that growth appears to be 0:02:40.800 --> 0:02:43.040 rebounding in the second quarter. So that's what I meant 0:02:43.040 --> 0:02:45.919 when I said one side will be wrong. It's interesting 0:02:45.919 --> 0:02:49.680 that if you look at two thousand one, we had 0:02:49.720 --> 0:02:52.639 a recession. We never had two negative prints in a row, 0:02:53.120 --> 0:02:55.120 and yet we were it was still defined as a recession. 0:02:55.200 --> 0:02:57.640 Or if you look at the global financial crisis, you 0:02:57.800 --> 0:03:00.680 actually had the recession called in December for two thousand 0:03:00.639 --> 0:03:03.519 and seven, but it wasn't until the fourth quarter two 0:03:03.520 --> 0:03:06.720 thousand and eight that you actually had two consecutive quarters. 0:03:06.720 --> 0:03:09.920 So this notion that two consecutive quarders negative growth always 0:03:09.919 --> 0:03:13.760 definition this isn't exactly right. Uh. It's actually kind of 0:03:13.840 --> 0:03:17.200 winds us better with payrolls, and we've actually seen payrolls 0:03:17.280 --> 0:03:19.960 coming in, you know, really strong through first half this year, 0:03:20.400 --> 0:03:23.080 average of four and fifty seven thousand jobs add in 0:03:23.080 --> 0:03:25.400 the first half, and that doesn't line up with this 0:03:25.480 --> 0:03:28.959 nourse number session right, And we've been hearing a lot 0:03:28.960 --> 0:03:33.000 about the technical definition of a recession. We've talked on 0:03:33.080 --> 0:03:37.360 the podcast recently about what might constitute a recession by 0:03:37.480 --> 0:03:41.640 the nb ER and by their standards. But so do 0:03:41.680 --> 0:03:44.360 you think that we should be rethinking our definition of 0:03:44.480 --> 0:03:46.480 a recession? And if we do, what does it mean 0:03:46.520 --> 0:03:50.960 for how investors should be thinking about this? Well, I 0:03:51.080 --> 0:03:54.160 ultimately is at the end up to the n b R, right, 0:03:54.240 --> 0:03:57.320 you have I think belief eight economists you know associated 0:03:57.360 --> 0:03:59.080 with it that makes the call, and it often tends 0:03:59.160 --> 0:04:02.080 to the actual recession by about a year. So I'm 0:04:02.080 --> 0:04:04.520 not sure we can actually you know, change who the 0:04:04.600 --> 0:04:07.240 arbitr of that is. What does it mean for investors? 0:04:07.360 --> 0:04:09.760 I think in general it means this notion that we're 0:04:09.760 --> 0:04:14.440 seeing capitulation already, you know, might be wrong. We have 0:04:14.560 --> 0:04:17.520 seen the market react very fast to the notion of 0:04:17.560 --> 0:04:20.760 recession simply because the FED is essentially telling us what 0:04:20.839 --> 0:04:23.120 it's going to do, right. It wants to destroy demands 0:04:23.160 --> 0:04:26.080 so that it can bring down inflation. So markets have 0:04:26.160 --> 0:04:29.880 reacted extremely quickly to the potential for a recession um 0:04:29.920 --> 0:04:32.000 and now they're kind of just waiting to confirm whether 0:04:32.080 --> 0:04:35.600 or not we will have one or will not have one. Uh. Traditionally, 0:04:35.600 --> 0:04:38.240 if you don't have a recession, uh, you know, these 0:04:38.240 --> 0:04:41.560 bare markets tend to bottom out so on between, which 0:04:41.560 --> 0:04:43.600 is kind of where we are. And if we do 0:04:43.640 --> 0:04:46.280 have our session, there's usually another leg down and that's 0:04:46.320 --> 0:04:50.839 maybe another five percent. Further defending, sure, I'm kind of 0:04:50.880 --> 0:04:53.680 more fascinated with this rebound we've seen off the low. 0:04:53.760 --> 0:04:55.040 You know, like I said in the intro, it's been 0:04:55.120 --> 0:04:57.440 I think five weeks now. The middle of June was 0:04:57.480 --> 0:05:01.839 the last low we're recording here. On Wednesday, July twenty, 0:05:02.080 --> 0:05:05.640 were something like eight percent above that low. Now, at 0:05:05.720 --> 0:05:08.440 what point, you know, do you go for saying, oh, 0:05:08.440 --> 0:05:10.640 this is just a dead cat bounce or a bear 0:05:10.720 --> 0:05:15.560 market rallies actually being a believer. You know, you mentioned capitulation. 0:05:16.360 --> 0:05:18.960 Back of America's fund manager survey was out this week. 0:05:19.000 --> 0:05:22.120 They said, you know, they think that this is it. 0:05:22.240 --> 0:05:26.040 They've seen, uh, fund manager capitulation. How do you sort 0:05:26.080 --> 0:05:28.599 of try to suss out whether or not that bottom 0:05:28.640 --> 0:05:30.719 is the real deal or whether it's a sort of 0:05:30.720 --> 0:05:32.720 a false bottom and we'll be back there again, or 0:05:32.839 --> 0:05:35.880 we're lower in the near future. Well, let's say I 0:05:35.920 --> 0:05:38.080 think it's interesting because the NASACK is up, you know, 0:05:38.080 --> 0:05:42.720 about ten percent since mid June and leave June just 0:05:42.760 --> 0:05:46.200 about eight percent since mid June. It's kind of interesting 0:05:46.240 --> 0:05:49.200 that it really coincides with these five consecutive weeks of 0:05:49.279 --> 0:05:52.320 gasoline prices to clining. So you know, I think maybe 0:05:52.360 --> 0:05:55.760 they're kind of sniffing out that maybe inflation has finally peaked. 0:05:55.800 --> 0:05:58.000 And you know, I feel sometimes like I'm the boy 0:05:58.000 --> 0:06:00.760 who cried Wolf, because I keep saying inflation peak. There's 0:06:00.800 --> 0:06:03.000 you know, we're near peak, and it just keeps going 0:06:03.080 --> 0:06:05.560 higher and higher. And you look at Europe um, you know, 0:06:05.600 --> 0:06:07.240 it's what's going on there with this heat wave, and 0:06:07.240 --> 0:06:09.880 then you have potentially even higher food prices and higher 0:06:09.960 --> 0:06:13.479 energy and more difficult times ahead for them in particular. 0:06:13.560 --> 0:06:16.479 But I do think there are some signs that maybe 0:06:16.480 --> 0:06:19.880 inflation hats peeking, and I think there's expectations. Um. We 0:06:19.920 --> 0:06:24.040 saw the University of Michigan's consumer inflation expectations for five 0:06:24.080 --> 0:06:26.919 years four to calm down. Last month it was revised 0:06:26.920 --> 0:06:29.360 from three up to three point three, then back down 0:06:29.360 --> 0:06:31.320 to two point eight. Um. I was just in the 0:06:31.320 --> 0:06:34.440 midwestern Wisconsin and people they're constantly mentioned to me that 0:06:34.480 --> 0:06:36.440 gas has come back down, and it seems to be 0:06:36.440 --> 0:06:38.440 a little bit more happy about it. Um. So I 0:06:38.440 --> 0:06:40.200 think maybe the markets, you know, sniffing that out. And 0:06:40.200 --> 0:06:42.120 then again, the earnings this season have been, you know, 0:06:42.240 --> 0:06:44.280 pretty good. I do you want to ask you more 0:06:44.320 --> 0:06:46.320 about earnings, but first I want to ask you how 0:06:46.360 --> 0:06:49.000 difficult it's been to make a call on anything right now, 0:06:49.160 --> 0:06:52.440 considering that the economic signals are a little bit all 0:06:52.440 --> 0:06:54.760 over the place. So I'm just thinking about, you know, 0:06:54.880 --> 0:06:57.520 if we were to have a recession, We've never had 0:06:57.560 --> 0:07:02.200 one where the labor market has been tight, right, That's right, 0:07:02.440 --> 0:07:04.520 you know, so when it comes to making calls in 0:07:04.600 --> 0:07:06.240 this type of market, and you know, I think the 0:07:06.279 --> 0:07:10.080 first half of this year was extremely difficult for almost 0:07:10.120 --> 0:07:13.120 anyone because you know, bonds weren't performing in your portfolio, 0:07:13.200 --> 0:07:16.120 activities weren't performing in your portfolio, and there was a 0:07:16.120 --> 0:07:20.880 pretty historic decline in both. Um. The potential upside of 0:07:20.960 --> 0:07:24.640 the environment now is that fixed income looks more attractive. Uh. 0:07:24.680 --> 0:07:26.840 You know, I think bonds will like the peak in 0:07:26.880 --> 0:07:30.040 two And I think if you were to see your recession, well, 0:07:30.120 --> 0:07:32.320 then the fixed income side of your portfolio at least 0:07:32.360 --> 0:07:35.000 provides you some sort of buffer. You also have higher 0:07:35.080 --> 0:07:37.720 yields now, so there are some you know, attractive opportunities 0:07:37.720 --> 0:07:40.520 their USB disciples, um, other areas like that. So I 0:07:40.520 --> 0:07:43.240 think it's a little bit easier here. Um, it might 0:07:43.240 --> 0:07:45.120 get a little bit more difficult going forward though, And 0:07:45.120 --> 0:07:48.480 I think energy is a particularly interesting sector. Has been 0:07:48.520 --> 0:07:50.720 one of the you know, few sectors that has you know, 0:07:50.760 --> 0:07:54.800 worked uniformly throughout the majority of this But if you 0:07:54.840 --> 0:07:56.720 do see a recession, when you're gonna see energy prices 0:07:56.760 --> 0:07:58.680 come down. If you look at the past four recession, 0:07:59.520 --> 0:08:03.559 crude oil prices spelled by about uh and that's gonna 0:08:03.560 --> 0:08:07.040 mean lower IPS estimates three. That means the energy sector 0:08:07.080 --> 0:08:09.480 may not work as well um as it has, so 0:08:09.520 --> 0:08:12.160 that there's gonna be some difficult things if we do 0:08:12.240 --> 0:08:16.280 have a recession. Yeah, let's talk about that earnings outlook, Sean, 0:08:16.360 --> 0:08:18.400 I know, you know, for this year, I think the 0:08:18.480 --> 0:08:23.040 estimates are still something like ten percent a little bit lower. Fore, 0:08:23.680 --> 0:08:27.560 everybody we talked to seems convinced that you can't believe 0:08:27.880 --> 0:08:30.000 these estimates. They're gonna have to come down whether it 0:08:30.080 --> 0:08:32.960 be you know, to your point, the energy sector, uh, 0:08:33.000 --> 0:08:36.320 and that fabulous growth and earnings they're showing comes back 0:08:36.360 --> 0:08:39.880 to earth or recession knocks just pretty much, you know, 0:08:39.960 --> 0:08:43.520 everything out of order. But I also can't help but think, 0:08:43.800 --> 0:08:47.200 you know, companies tend to beat these estimates, right, you know, 0:08:47.400 --> 0:08:50.200 so if we're looking at say eight nine percent growth 0:08:50.240 --> 0:08:53.480 for next year, even if they come down to I 0:08:53.480 --> 0:08:57.320 don't know five percent or less, sake call two percent, 0:08:57.360 --> 0:09:00.280 and that the market tends to beat those estimate it's 0:09:00.360 --> 0:09:05.240 by five How bad of a of a sort of 0:09:05.280 --> 0:09:08.760 rerating and earnings expectations are we talking about to justify 0:09:08.840 --> 0:09:10.839 what we've seen in this market? It just seems like 0:09:11.200 --> 0:09:12.880 people have gotten a little carried away? To me, do 0:09:12.920 --> 0:09:15.840 you think do you think that's possible? I think what 0:09:15.880 --> 0:09:19.120 you're describing as a somewhat optimistic scenario, and it's not 0:09:19.160 --> 0:09:22.640 necessarily because I'm extremely negative, but I think if you 0:09:22.679 --> 0:09:26.120 did have an ever session in the back half, then 0:09:26.160 --> 0:09:28.840 that would bring down those estimates, and the current EPs 0:09:28.880 --> 0:09:32.839 expectations of eight point three would calm down. And even 0:09:32.920 --> 0:09:35.160 now if you actually strip out the energy sector, which 0:09:35.160 --> 0:09:38.400 is doing phenomenal, we're not seeing tem percent EPs growth 0:09:38.400 --> 0:09:40.240 on on a broad swath, we're seeing that when you 0:09:40.280 --> 0:09:43.080 include the energy sector, you strip out the energy sector 0:09:43.120 --> 0:09:45.960 in the second quarter here you're actually see negative earnings 0:09:45.960 --> 0:09:49.000 per share. But you know, companies thus far and a 0:09:49.080 --> 0:09:51.600 kind of maybe ten percent that have reported the speive 0:09:51.640 --> 0:09:55.439 hundred so far this earning season have actually shown they've 0:09:55.440 --> 0:09:57.320 been able to weather it fairly well. They've been able 0:09:57.360 --> 0:10:00.600 to kind of handle inflation. The profit margins are do okay. 0:10:01.400 --> 0:10:04.000 But again that that's not the most difficult scenario. That's 0:10:04.000 --> 0:10:08.000 not a scenario where unemployment is rising, which is what 0:10:08.040 --> 0:10:11.800 you would see in so you know, we're not there yet. 0:10:12.880 --> 0:10:15.720 Can you actually talk more about what you've noticed so 0:10:15.840 --> 0:10:18.360 far this earning season. I wanted to ask you if 0:10:18.800 --> 0:10:20.960 it's the case that maybe the worst case or most 0:10:21.040 --> 0:10:24.720 feared scenarios aren't actually playing out. And maybe the Netflix 0:10:24.760 --> 0:10:27.240 report is a good example of this. But you know, 0:10:27.280 --> 0:10:29.160 potentially there had been a lot of fear, but we 0:10:29.160 --> 0:10:31.120 were what we were going to be seeing from companies, 0:10:31.160 --> 0:10:34.960 and so far it's not playing out. I think that's right, 0:10:35.000 --> 0:10:37.720 and I think what it's reflecting is the macro backdrop, 0:10:37.760 --> 0:10:39.680 and I think it's actually seeing this play out in 0:10:39.720 --> 0:10:42.319 real time of whether we're currently in a recession or 0:10:42.320 --> 0:10:44.280 we're not in a recession. And I think earnings are 0:10:44.280 --> 0:10:46.880 telling us that we're probably not in a recession yet. 0:10:47.559 --> 0:10:49.560 So I think that's why they're coming across is a 0:10:49.559 --> 0:10:52.360 bit more optimistic. But we kind of knew that we 0:10:52.400 --> 0:10:54.840 may not be in a recession just yet. The consumer has, 0:10:55.120 --> 0:10:59.000 you know, really strong balance sheets, monetary policy operates with 0:10:59.040 --> 0:11:01.040 the lag you know, actually as much as a year 0:11:01.120 --> 0:11:03.959 or even longer. So I think this is telling us that, yes, 0:11:04.000 --> 0:11:06.640 they're holding up fine right now. But what happens is 0:11:06.679 --> 0:11:09.920 the SEC continues to tighten, tighten Titan, Well, then it's 0:11:09.960 --> 0:11:12.800 a different story in three. And to me, the Federal 0:11:12.840 --> 0:11:16.280 Reserve kind reminds the Esop's tail about the tortoise in 0:11:16.320 --> 0:11:18.640 the hair. Right they're reacting like the hair right now, 0:11:19.000 --> 0:11:21.560 and they're trying to act very very quickly because they 0:11:21.559 --> 0:11:24.400 felt like they're behind the curve. But eventually they're gonna 0:11:24.480 --> 0:11:27.240 turn to me to turn into the tortoise and slow 0:11:27.320 --> 0:11:29.520 things down if they really want to avoid tripping and 0:11:29.559 --> 0:11:32.480 having it's hard landing. And so far they haven't shown 0:11:32.480 --> 0:11:34.840 any signs that's turning from a hair to a tortoise, 0:11:35.320 --> 0:11:37.480 but I think the market is hoping that that will happen. 0:11:38.120 --> 0:11:41.760 It's inflation does in deep peak and comes down, you know, Sean, 0:11:41.840 --> 0:11:44.280 It's I tend to think of the say, the last 0:11:44.280 --> 0:11:47.200 decade in three parts. I'm sure everyone does. You know, 0:11:47.240 --> 0:11:49.840 we had the pre pandemic era, you know, the old 0:11:49.880 --> 0:11:53.960 normal where you had growth in tech was you know, 0:11:53.960 --> 0:11:58.120 outperforming pretty consistently. Then you had the pandemic where you know, 0:11:58.200 --> 0:12:00.960 certain segments of growth in tech just went went bananas, 0:12:01.000 --> 0:12:04.160 went through the roof. Now we have this after well 0:12:04.200 --> 0:12:06.760 maybe the pandemics not over yet, but we have sort 0:12:06.760 --> 0:12:08.400 of the over the hump of it at least, you know, 0:12:08.480 --> 0:12:12.400 the trying to get back to normal phase of life. UM. 0:12:12.440 --> 0:12:18.000 And we have seen value more cyclical UH companies outperform UM. 0:12:18.040 --> 0:12:19.800 And I know you guys at the at the moment 0:12:19.800 --> 0:12:23.800 at City Global wealth investors are overweight UM, a very 0:12:23.840 --> 0:12:28.320 sort of defensive bucket of stocks, uh, you know, consumer staples, healthcare, 0:12:28.440 --> 0:12:34.680 dividend growers, commodity hedges like natural resources. You did point 0:12:34.679 --> 0:12:37.600 out though that that NASDAC is outperforming since the low 0:12:37.640 --> 0:12:40.600 in June. Again, it's starting to look you know, maybe 0:12:40.640 --> 0:12:43.600 like that growth trade is going to come back. That 0:12:43.679 --> 0:12:47.240 to me seems very much a risk of a head fake, 0:12:47.280 --> 0:12:49.720 I guess in this environment. But I'm curious how you're 0:12:49.720 --> 0:12:55.840 thinking about that, that resurgence in tech and NASDAC and growth. Um, 0:12:55.880 --> 0:12:58.400 you know, is the new normal gonna look like a 0:12:58.400 --> 0:13:01.679 lot like the old normal once were truly past this 0:13:01.720 --> 0:13:06.080 this pandemic phase of the economy, or is it look 0:13:06.120 --> 0:13:08.440 like something completely different? And how do you sort of 0:13:08.559 --> 0:13:10.920 suss out when to you know, go from one side 0:13:10.920 --> 0:13:14.120 of the boat in defensives or value back into into 0:13:14.160 --> 0:13:16.079 growth and tech. How are you sort of thinking about 0:13:16.120 --> 0:13:19.880 that transition if you are at all? Right, it's difficult 0:13:19.880 --> 0:13:22.880 to call the exact moment where you should switch from 0:13:22.920 --> 0:13:25.640 one thing back into another thing. But you know, when 0:13:25.679 --> 0:13:28.360 I think of technology, and we've really seen a huge 0:13:28.400 --> 0:13:32.320 divergence between the technology companies that you and I use 0:13:32.400 --> 0:13:34.200 on a day to day basis, right. You know, there's 0:13:34.200 --> 0:13:36.000 a handful of names that we probably don't go a 0:13:36.000 --> 0:13:39.040 single day without using. And then there's also kind of 0:13:39.080 --> 0:13:42.360 what we call the nonprofitable tech that have really been 0:13:42.679 --> 0:13:45.520 hit during this downturn. And I think that's that's a 0:13:45.520 --> 0:13:48.000 big difference, And I'm not sure that the nonprofitable tech 0:13:48.160 --> 0:13:50.920 is really going to see the rebound and come back 0:13:50.960 --> 0:13:53.400 to where it was in you know, maybe two thousand 0:13:53.480 --> 0:13:55.080 one or towards the end of two thousand one. I 0:13:55.080 --> 0:13:56.920 think that's going to take some time. And you know, 0:13:56.960 --> 0:13:58.960 there's simply certain things that we may not need as 0:13:59.000 --> 0:14:01.800 much anymore. We may not need to fancy, um, you know, 0:14:01.880 --> 0:14:04.400 bicycle at home to exercise on, because now people are 0:14:04.440 --> 0:14:06.320 going back to the gym, they're going outside, they're going 0:14:06.360 --> 0:14:08.480 back to life. Um, you know, those types of things. 0:14:08.520 --> 0:14:10.679 I don't think you're going to see that same you know, 0:14:10.880 --> 0:14:13.719 surge again. But you know, at the end of the day, 0:14:13.800 --> 0:14:16.760 technology is where growth is. Over the long run, many 0:14:16.800 --> 0:14:19.080 of them are much cheaper than they were before. And 0:14:19.120 --> 0:14:20.760 I think if you have a long enough time horizon, 0:14:20.920 --> 0:14:22.800 I think, you know, this is probably a good opportunity 0:14:22.840 --> 0:14:25.760 to add to those decisions. Um, you know, is it 0:14:25.760 --> 0:14:28.720 going to instantly rebound or you know, to the moon? 0:14:29.200 --> 0:14:31.520 Not necessarily, but if you're gonna hold it for ten years, 0:14:31.560 --> 0:14:34.280 I think you're gonna be rewarded. To the moon, filled 0:14:34.280 --> 0:14:36.800 out a Shawn spent on Reddit. I think we've been 0:14:36.840 --> 0:14:39.040 studying a lot of time on social media I remember 0:14:39.040 --> 0:14:41.960 those meme stock very well. It does seem like a 0:14:42.000 --> 0:14:44.200 really long time ago. Though I still don't know what 0:14:44.280 --> 0:14:48.000 diamond hands means. You'll learn if you spend a lot 0:14:48.000 --> 0:14:58.320 of time on Reddit. Mike likes to say around here, 0:14:58.360 --> 0:15:01.240 the people tune in to this podcast so that they 0:15:01.280 --> 0:15:04.440 can learn about what smart people like you are actually 0:15:04.440 --> 0:15:06.400 favoring in this environment. So I do want to ask 0:15:06.400 --> 0:15:09.080 you to talk a little bit more about those defensive 0:15:09.080 --> 0:15:13.720 equities that you do like. Right, So, we actually made 0:15:13.720 --> 0:15:16.720 a few changes recently at City School of Investment Committee, 0:15:17.120 --> 0:15:18.920 which I'm a voting member. Is one thing we did 0:15:19.000 --> 0:15:22.880 is we brought down are overweight in oil field services 0:15:22.880 --> 0:15:24.920 down to a neutral. Again, we think maybe there's some 0:15:25.040 --> 0:15:27.920 risk there um if we do indeed enter recession in 0:15:28.760 --> 0:15:31.000 three You know, I mentioned that oil prices tend to 0:15:31.040 --> 0:15:33.880 come down when the economy slows down. So we've we've 0:15:33.880 --> 0:15:36.000 turned a little bit there. We still have an overweight 0:15:36.000 --> 0:15:39.720 and natural resources, agriculture, those types of commodities we actually 0:15:39.720 --> 0:15:42.400 think are probably going to continue to hold up for 0:15:42.440 --> 0:15:44.880 the most part. And then we like consumer staples healthcare. 0:15:45.280 --> 0:15:48.320 Those two sectors are sectors that tend to have positive 0:15:48.360 --> 0:15:51.520 earnings growth even if there is a downturn. So they're 0:15:51.560 --> 0:15:53.840 one of those sectors that kind of helps you, um, 0:15:53.840 --> 0:15:55.600 whether it's the storm and act like a bell weather. 0:15:55.640 --> 0:15:58.800 And then dividend growers, Uh, those are you know, what 0:15:58.880 --> 0:16:02.440 I would describe as quality companies, really strong balance sheets, 0:16:02.440 --> 0:16:05.600 consistent dividend growth. Uh. And what they do is they 0:16:05.600 --> 0:16:08.840 tend to outperform the more risky segments of the market. 0:16:08.920 --> 0:16:11.400 Right so, Uh, they're probably down maybe a third of 0:16:11.440 --> 0:16:14.760 what the Nasdaq is down this year, or perhaps even 0:16:14.800 --> 0:16:17.120 a half. I'm not exactly sure. I haven't checked it recently, 0:16:17.120 --> 0:16:20.160 but they tend to perform better in these times of 0:16:20.280 --> 0:16:24.680 kind of difficult backdrop. We do like Chinese equities. We 0:16:24.680 --> 0:16:26.720 actually added a little bit further there. We think their 0:16:26.720 --> 0:16:29.800 economy is in a different position than ours is. We 0:16:29.880 --> 0:16:32.440 think that their economic activity may have bottomed in May 0:16:32.480 --> 0:16:35.960 and actually is potentially start to rebound. So we're just 0:16:36.040 --> 0:16:39.760 looking for pockets of opportunities. You know, it's very desynchronized 0:16:39.840 --> 0:16:42.800 kind of uh paths of the global economy right now. 0:16:42.960 --> 0:16:45.760 China seems to be coming out of a slowdown, we 0:16:45.880 --> 0:16:49.800 may be entering further injury slowdown. Uh. And then Europe 0:16:49.880 --> 0:16:53.200 is you know, anyone's guests. But it doesn't seem great 0:16:53.800 --> 0:16:56.080 right right, especially heading into the fall and winner, I 0:16:56.080 --> 0:16:59.200 guess with you know, so many questions about the guests 0:16:59.560 --> 0:17:02.320 supply us. I wanted to unpack you're thinking on China 0:17:02.320 --> 0:17:04.840 a little bit, Sean, because I do feel like that's 0:17:04.880 --> 0:17:07.840 a bit of a contrarian call right now to be uh, 0:17:07.880 --> 0:17:10.800 you know, sort of bullish on China. How are you 0:17:10.880 --> 0:17:15.600 thinking about um, sort of the regulatory risks um. It 0:17:15.680 --> 0:17:20.120 almost seems like possibly that the pendulum has has swung 0:17:20.240 --> 0:17:23.560 in China where you know, last year they were cracking 0:17:23.600 --> 0:17:27.480 down on tech companies and education stocks and it really 0:17:27.520 --> 0:17:31.000 spooked a lot of money out of the market. Does 0:17:31.040 --> 0:17:34.040 it seem like, you know, uh Jimping has learned his 0:17:34.119 --> 0:17:37.600 lesson and and is not gonna keep that heavy handed 0:17:37.920 --> 0:17:40.560 approach for regulation going. And is that it all part 0:17:40.560 --> 0:17:42.720 of your your thinking on on way to be bullish China? 0:17:43.800 --> 0:17:46.080 You know, I'll be honest, I don't have particularly great 0:17:46.160 --> 0:17:48.840 insights into the politics there, and I think that is 0:17:48.880 --> 0:17:51.040 probably the risk you take when you do invest in 0:17:51.040 --> 0:17:53.879 in those equities. But our call is more simply based 0:17:53.920 --> 0:17:56.640 on the macro backdrop, and that we think that their 0:17:56.680 --> 0:17:58.960 economy is kind of turning the corner, and that we've 0:17:58.960 --> 0:18:04.040 seen extremely cheap valuations there, and it's really you know, 0:18:04.240 --> 0:18:06.399 if you talk to clients and that reason, it really 0:18:06.440 --> 0:18:09.720 feels like that moment of capitulation where uh, you know, 0:18:09.800 --> 0:18:12.200 you feel that frustration and no one wants to come 0:18:12.240 --> 0:18:14.760 anywhere near it. So I think that kind of sets 0:18:14.840 --> 0:18:18.200 up for the contrarian call. Is there that idiosyncratic risk 0:18:18.280 --> 0:18:20.800 of you know, political issues or maybe things that are 0:18:20.840 --> 0:18:24.120 kind of opaque to outside investors. Yes, but I think 0:18:24.160 --> 0:18:27.120 for the right person still makes sense. What's behind your 0:18:27.160 --> 0:18:30.359 call that their economy is potentially making a turn for 0:18:30.640 --> 0:18:34.720 the better. Is it the COVID zero potentially going away 0:18:34.800 --> 0:18:38.000 or abating or lessening, or however you want to describe it, 0:18:38.160 --> 0:18:42.600 or is there something more fundamental at play? I think 0:18:42.600 --> 0:18:44.919 it's at the expectations that the credit impulse and the 0:18:44.920 --> 0:18:47.359 reason will pick up. So when you see the credit 0:18:47.359 --> 0:18:49.520 impulse pick up and stimulus kind of take cold and 0:18:49.680 --> 0:18:52.800 generally economy response to that. So, you know, we think 0:18:52.840 --> 0:18:54.879 that their economy is going to continue to pick up 0:18:54.920 --> 0:18:57.159 steam here. Maybe they don't hit the five and a 0:18:57.200 --> 0:18:59.480 half percent growth targets that they want, but we think 0:18:59.520 --> 0:19:03.879 that uh, economic you know activity, particularly GDP is on 0:19:03.920 --> 0:19:07.080 the uptrend there, So that's that's really it. Yeah, Sean, 0:19:07.200 --> 0:19:09.840 So much of the story this year has been the 0:19:09.880 --> 0:19:14.760 treasury market. Um this really eye popping surge in yields 0:19:15.040 --> 0:19:18.679 earlier in the year. Uh, it seems like knock on 0:19:18.720 --> 0:19:20.760 wood up. I'm probably gonna jinx it, but it it 0:19:20.800 --> 0:19:24.320 seems like that volatility in in treasuries is you know, 0:19:24.359 --> 0:19:26.959 fingers crossed, Calm down a little bit, got the ten 0:19:27.040 --> 0:19:32.480 years settling in right around three um our bonds attractive 0:19:32.520 --> 0:19:34.719 at this level, even though we haven't quite seen that 0:19:34.760 --> 0:19:36.639 inflation come back to earth. Yet, Is it Is it 0:19:36.640 --> 0:19:39.480 worth sort of making the gamble that these will be 0:19:39.520 --> 0:19:41.840 positive yields if you buy further out on the curve 0:19:41.960 --> 0:19:45.200 right now. I think that's the case. We We've done 0:19:45.320 --> 0:19:50.280 actually a few kind of experiments or look at historical examples, 0:19:50.280 --> 0:19:54.800 per se uh, and when you saw both stocks and 0:19:54.960 --> 0:19:57.439 bonds sell off by over four and a half percent 0:19:57.520 --> 0:20:00.840 and during the same period, it's tends to set up 0:20:00.880 --> 0:20:04.280 for a rebound in fixed income. And we've only found 0:20:04.320 --> 0:20:06.840 five other examples in the past where we had, uh, 0:20:06.960 --> 0:20:09.000 this first half of the period of six months, we're 0:20:09.040 --> 0:20:13.000 both sold off uniformly end together. And what happened in 0:20:13.040 --> 0:20:15.640 the following six months is that fixed income returns work 0:20:15.720 --> 0:20:20.240 significantly better, and they were positive in all the cases, 0:20:20.280 --> 0:20:24.320 whereas UH stocks with three out of five cases or less. 0:20:24.359 --> 0:20:27.520 So so our conviction is stronger on the fixed income side. 0:20:27.520 --> 0:20:30.359 And we actually think that you're getting to this point 0:20:30.400 --> 0:20:33.119 now where if you do enter recession again, maybe not 0:20:33.200 --> 0:20:36.320 quite the base case, but it looks like increasingly likely 0:20:36.359 --> 0:20:40.520