Speaker 1: Hello, and welcomes to What Goes Up a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at
Speaker 1: Bloomberg and Donna Higher across Acid reporter with Bloomberg. And
Speaker 1: this week on the show, well, the stock market hasn't
Speaker 1: said a new load in about five weeks, and oil
Speaker 1: is down more than twenty bucks below its peak this year.
Speaker 1: So is the bear market over along with all those
Speaker 1: concerns about out of control inflation and what the FED
Speaker 1: will do about it. We'll get into it with the
Speaker 1: head of investment strategy at the wealth management unit of
Speaker 1: a big bank. But first I have to say I've
Speaker 1: been worried about you. I'm gonna say I've been worried
Speaker 1: about it because I know you live in the seen
Speaker 1: of you. By the way, do you have air conditioning?
Speaker 1: I have? Yeah, I have air conditioners, like in my window. Okay,
Speaker 1: all right, are you asking because it's so hot? Because
Speaker 1: it's hot. Now, I'm not as as worried about you.
Speaker 1: I feel like you city slickers don't have the all
Speaker 1: the appliances you need to live. Sometimes we don't, like
Speaker 1: everybody probably needs a blender or like a vacuum, you know,
Speaker 1: I'm thinking of the big ticket and whatever people hipster's
Speaker 1: is okay to call you a hipster city city slickers
Speaker 1: here that out the suburbs, I have central air, a
Speaker 1: washer dry. Don't tell me about the wash dishwasher. You're like,
Speaker 1: what are you some kind of billionaire with Yeah, with
Speaker 1: a washer dry, like the air conditioning, yes, everybody needs
Speaker 1: it right now. At least you have an air conditioner,
Speaker 1: right the washer dryer? That killed that? I would I mean,
Speaker 1: I would like a billionaire out there in the suburbs.
Speaker 1: You're so rich. Oh my god, dishwasher as well? Yeah,
Speaker 1: I bet our guess has a dishwashing and a washer dry.
Speaker 1: But I do want to I want to introduce Sean Snyder,
Speaker 1: head of investment strategy at City US Wealth Management. Thanks
Speaker 1: so much for joining, Sean, Thanks for having me. Sean,
Speaker 1: we're all having this debate about whether or not we're
Speaker 1: in a recession. I know you sent us a note
Speaker 1: over that said one side will be wrong, which is
Speaker 1: a very diplomatic way of putting it. So I'm wondering
Speaker 1: what side you're you're falling under. You know, It's it's
Speaker 1: really fascinating because you have the potential for two negative
Speaker 1: really real GDP prints in a row. We had a
Speaker 1: negative print in the first quarter. Atlanta said is actually
Speaker 1: tracking at minus one and a half percent for the
Speaker 1: second quarter, and most people think that that fits the
Speaker 1: technical definition of a recession. But that's not necessarily true. Uh.
Speaker 1: And we also have the FED that's in their June
Speaker 1: f on MC meeting minutes that growth appears to be
Speaker 1: rebounding in the second quarter. So that's what I meant
Speaker 1: when I said one side will be wrong. It's interesting
Speaker 1: that if you look at two thousand one, we had
Speaker 1: a recession. We never had two negative prints in a row,
Speaker 1: and yet we were it was still defined as a recession.
Speaker 1: Or if you look at the global financial crisis, you
Speaker 1: actually had the recession called in December for two thousand
Speaker 1: and seven, but it wasn't until the fourth quarter two
Speaker 1: thousand and eight that you actually had two consecutive quarters.
Speaker 1: So this notion that two consecutive quarders negative growth always
Speaker 1: definition this isn't exactly right. Uh. It's actually kind of
Speaker 1: winds us better with payrolls, and we've actually seen payrolls
Speaker 1: coming in, you know, really strong through first half this year,
Speaker 1: average of four and fifty seven thousand jobs add in
Speaker 1: the first half, and that doesn't line up with this
Speaker 1: nourse number session right, And we've been hearing a lot
Speaker 1: about the technical definition of a recession. We've talked on
Speaker 1: the podcast recently about what might constitute a recession by
Speaker 1: the nb ER and by their standards. But so do
Speaker 1: you think that we should be rethinking our definition of
Speaker 1: a recession? And if we do, what does it mean
Speaker 1: for how investors should be thinking about this? Well, I
Speaker 1: ultimately is at the end up to the n b R, right,
Speaker 1: you have I think belief eight economists you know associated
Speaker 1: with it that makes the call, and it often tends
Speaker 1: to the actual recession by about a year. So I'm
Speaker 1: not sure we can actually you know, change who the
Speaker 1: arbitr of that is. What does it mean for investors?
Speaker 1: I think in general it means this notion that we're
Speaker 1: seeing capitulation already, you know, might be wrong. We have
Speaker 1: seen the market react very fast to the notion of
Speaker 1: recession simply because the FED is essentially telling us what
Speaker 1: it's going to do, right. It wants to destroy demands
Speaker 1: so that it can bring down inflation. So markets have
Speaker 1: reacted extremely quickly to the potential for a recession um
Speaker 1: and now they're kind of just waiting to confirm whether
Speaker 1: or not we will have one or will not have one. Uh. Traditionally,
Speaker 1: if you don't have a recession, uh, you know, these
Speaker 1: bare markets tend to bottom out so on between, which
Speaker 1: is kind of where we are. And if we do
Speaker 1: have our session, there's usually another leg down and that's
Speaker 1: maybe another five percent. Further defending, sure, I'm kind of
Speaker 1: more fascinated with this rebound we've seen off the low.
Speaker 1: You know, like I said in the intro, it's been
Speaker 1: I think five weeks now. The middle of June was
Speaker 1: the last low we're recording here. On Wednesday, July twenty,
Speaker 1: were something like eight percent above that low. Now, at
Speaker 1: what point, you know, do you go for saying, oh,
Speaker 1: this is just a dead cat bounce or a bear
Speaker 1: market rallies actually being a believer. You know, you mentioned capitulation.
Speaker 1: Back of America's fund manager survey was out this week.
Speaker 1: They said, you know, they think that this is it.
Speaker 1: They've seen, uh, fund manager capitulation. How do you sort
Speaker 1: of try to suss out whether or not that bottom
Speaker 1: is the real deal or whether it's a sort of
Speaker 1: a false bottom and we'll be back there again, or
Speaker 1: we're lower in the near future. Well, let's say I
Speaker 1: think it's interesting because the NASACK is up, you know,
Speaker 1: about ten percent since mid June and leave June just
Speaker 1: about eight percent since mid June. It's kind of interesting
Speaker 1: that it really coincides with these five consecutive weeks of
Speaker 1: gasoline prices to clining. So you know, I think maybe
Speaker 1: they're kind of sniffing out that maybe inflation has finally peaked.
Speaker 1: And you know, I feel sometimes like I'm the boy
Speaker 1: who cried Wolf, because I keep saying inflation peak. There's
Speaker 1: you know, we're near peak, and it just keeps going
Speaker 1: higher and higher. And you look at Europe um, you know,
Speaker 1: it's what's going on there with this heat wave, and
Speaker 1: then you have potentially even higher food prices and higher
Speaker 1: energy and more difficult times ahead for them in particular.
Speaker 1: But I do think there are some signs that maybe
Speaker 1: inflation hats peeking, and I think there's expectations. Um. We
Speaker 1: saw the University of Michigan's consumer inflation expectations for five
Speaker 1: years four to calm down. Last month it was revised
Speaker 1: from three up to three point three, then back down
Speaker 1: to two point eight. Um. I was just in the
Speaker 1: midwestern Wisconsin and people they're constantly mentioned to me that
Speaker 1: gas has come back down, and it seems to be
Speaker 1: a little bit more happy about it. Um. So I
Speaker 1: think maybe the markets, you know, sniffing that out. And
Speaker 1: then again, the earnings this season have been, you know,
Speaker 1: pretty good. I do you want to ask you more
Speaker 1: about earnings, but first I want to ask you how
Speaker 1: difficult it's been to make a call on anything right now,
Speaker 1: considering that the economic signals are a little bit all
Speaker 1: over the place. So I'm just thinking about, you know,
Speaker 1: if we were to have a recession, We've never had
Speaker 1: one where the labor market has been tight, right, That's right,
Speaker 1: you know, so when it comes to making calls in
Speaker 1: this type of market, and you know, I think the
Speaker 1: first half of this year was extremely difficult for almost
Speaker 1: anyone because you know, bonds weren't performing in your portfolio,
Speaker 1: activities weren't performing in your portfolio, and there was a
Speaker 1: pretty historic decline in both. Um. The potential upside of
Speaker 1: the environment now is that fixed income looks more attractive. Uh.
Speaker 1: You know, I think bonds will like the peak in
Speaker 1: two And I think if you were to see your recession, well,
Speaker 1: then the fixed income side of your portfolio at least
Speaker 1: provides you some sort of buffer. You also have higher
Speaker 1: yields now, so there are some you know, attractive opportunities
Speaker 1: their USB disciples, um, other areas like that. So I
Speaker 1: think it's a little bit easier here. Um, it might
Speaker 1: get a little bit more difficult going forward though, And
Speaker 1: I think energy is a particularly interesting sector. Has been
Speaker 1: one of the you know, few sectors that has you know,
Speaker 1: worked uniformly throughout the majority of this But if you
Speaker 1: do see a recession, when you're gonna see energy prices
Speaker 1: come down. If you look at the past four recession,
Speaker 1: crude oil prices spelled by about uh and that's gonna
Speaker 1: mean lower IPS estimates three. That means the energy sector
Speaker 1: may not work as well um as it has, so
Speaker 1: that there's gonna be some difficult things if we do
Speaker 1: have a recession. Yeah, let's talk about that earnings outlook, Sean,
Speaker 1: I know, you know, for this year, I think the
Speaker 1: estimates are still something like ten percent a little bit lower. Fore,
Speaker 1: everybody we talked to seems convinced that you can't believe
Speaker 1: these estimates. They're gonna have to come down whether it
Speaker 1: be you know, to your point, the energy sector, uh,
Speaker 1: and that fabulous growth and earnings they're showing comes back
Speaker 1: to earth or recession knocks just pretty much, you know,
Speaker 1: everything out of order. But I also can't help but think,
Speaker 1: you know, companies tend to beat these estimates, right, you know,
Speaker 1: so if we're looking at say eight nine percent growth
Speaker 1: for next year, even if they come down to I
Speaker 1: don't know five percent or less, sake call two percent,
Speaker 1: and that the market tends to beat those estimate it's
Speaker 1: by five How bad of a of a sort of
Speaker 1: rerating and earnings expectations are we talking about to justify
Speaker 1: what we've seen in this market? It just seems like
Speaker 1: people have gotten a little carried away? To me, do
Speaker 1: you think do you think that's possible? I think what
Speaker 1: you're describing as a somewhat optimistic scenario, and it's not
Speaker 1: necessarily because I'm extremely negative, but I think if you
Speaker 1: did have an ever session in the back half, then
Speaker 1: that would bring down those estimates, and the current EPs
Speaker 1: expectations of eight point three would calm down. And even
Speaker 1: now if you actually strip out the energy sector, which
Speaker 1: is doing phenomenal, we're not seeing tem percent EPs growth
Speaker 1: on on a broad swath, we're seeing that when you
Speaker 1: include the energy sector, you strip out the energy sector
Speaker 1: in the second quarter here you're actually see negative earnings
Speaker 1: per share. But you know, companies thus far and a
Speaker 1: kind of maybe ten percent that have reported the speive
Speaker 1: hundred so far this earning season have actually shown they've
Speaker 1: been able to weather it fairly well. They've been able
Speaker 1: to kind of handle inflation. The profit margins are do okay.
Speaker 1: But again that that's not the most difficult scenario. That's
Speaker 1: not a scenario where unemployment is rising, which is what
Speaker 1: you would see in so you know, we're not there yet.
Speaker 1: Can you actually talk more about what you've noticed so
Speaker 1: far this earning season. I wanted to ask you if
Speaker 1: it's the case that maybe the worst case or most
Speaker 1: feared scenarios aren't actually playing out. And maybe the Netflix
Speaker 1: report is a good example of this. But you know,
Speaker 1: potentially there had been a lot of fear, but we
Speaker 1: were what we were going to be seeing from companies,
Speaker 1: and so far it's not playing out. I think that's right,
Speaker 1: and I think what it's reflecting is the macro backdrop,
Speaker 1: and I think it's actually seeing this play out in
Speaker 1: real time of whether we're currently in a recession or
Speaker 1: we're not in a recession. And I think earnings are
Speaker 1: telling us that we're probably not in a recession yet.
Speaker 1: So I think that's why they're coming across is a
Speaker 1: bit more optimistic. But we kind of knew that we
Speaker 1: may not be in a recession just yet. The consumer has,
Speaker 1: you know, really strong balance sheets, monetary policy operates with
Speaker 1: the lag you know, actually as much as a year
Speaker 1: or even longer. So I think this is telling us that, yes,
Speaker 1: they're holding up fine right now. But what happens is
Speaker 1: the SEC continues to tighten, tighten Titan, Well, then it's
Speaker 1: a different story in three. And to me, the Federal
Speaker 1: Reserve kind reminds the Esop's tail about the tortoise in
Speaker 1: the hair. Right they're reacting like the hair right now,
Speaker 1: and they're trying to act very very quickly because they
Speaker 1: felt like they're behind the curve. But eventually they're gonna
Speaker 1: turn to me to turn into the tortoise and slow
Speaker 1: things down if they really want to avoid tripping and
Speaker 1: having it's hard landing. And so far they haven't shown
Speaker 1: any signs that's turning from a hair to a tortoise,
Speaker 1: but I think the market is hoping that that will happen.
Speaker 1: It's inflation does in deep peak and comes down, you know, Sean,
Speaker 1: It's I tend to think of the say, the last
Speaker 1: decade in three parts. I'm sure everyone does. You know,
Speaker 1: we had the pre pandemic era, you know, the old
Speaker 1: normal where you had growth in tech was you know,
Speaker 1: outperforming pretty consistently. Then you had the pandemic where you know,
Speaker 1: certain segments of growth in tech just went went bananas,
Speaker 1: went through the roof. Now we have this after well
Speaker 1: maybe the pandemics not over yet, but we have sort
Speaker 1: of the over the hump of it at least, you know,
Speaker 1: the trying to get back to normal phase of life. UM.
Speaker 1: And we have seen value more cyclical UH companies outperform UM.
Speaker 1: And I know you guys at the at the moment
Speaker 1: at City Global wealth investors are overweight UM, a very
Speaker 1: sort of defensive bucket of stocks, uh, you know, consumer staples, healthcare,
Speaker 1: dividend growers, commodity hedges like natural resources. You did point
Speaker 1: out though that that NASDAC is outperforming since the low
Speaker 1: in June. Again, it's starting to look you know, maybe
Speaker 1: like that growth trade is going to come back. That
Speaker 1: to me seems very much a risk of a head fake,
Speaker 1: I guess in this environment. But I'm curious how you're
Speaker 1: thinking about that, that resurgence in tech and NASDAC and growth. Um,
Speaker 1: you know, is the new normal gonna look like a
Speaker 1: lot like the old normal once were truly past this
Speaker 1: this pandemic phase of the economy, or is it look
Speaker 1: like something completely different? And how do you sort of
Speaker 1: suss out when to you know, go from one side
Speaker 1: of the boat in defensives or value back into into
Speaker 1: growth and tech. How are you sort of thinking about
Speaker 1: that transition if you are at all? Right, it's difficult
Speaker 1: to call the exact moment where you should switch from
Speaker 1: one thing back into another thing. But you know, when
Speaker 1: I think of technology, and we've really seen a huge
Speaker 1: divergence between the technology companies that you and I use
Speaker 1: on a day to day basis, right. You know, there's
Speaker 1: a handful of names that we probably don't go a
Speaker 1: single day without using. And then there's also kind of
Speaker 1: what we call the nonprofitable tech that have really been
Speaker 1: hit during this downturn. And I think that's that's a
Speaker 1: big difference, And I'm not sure that the nonprofitable tech
Speaker 1: is really going to see the rebound and come back
Speaker 1: to where it was in you know, maybe two thousand
Speaker 1: one or towards the end of two thousand one. I
Speaker 1: think that's going to take some time. And you know,
Speaker 1: there's simply certain things that we may not need as
Speaker 1: much anymore. We may not need to fancy, um, you know,
Speaker 1: bicycle at home to exercise on, because now people are
Speaker 1: going back to the gym, they're going outside, they're going
Speaker 1: back to life. Um, you know, those types of things.
Speaker 1: I don't think you're going to see that same you know,
Speaker 1: surge again. But you know, at the end of the day,
Speaker 1: technology is where growth is. Over the long run, many
Speaker 1: of them are much cheaper than they were before. And
Speaker 1: I think if you have a long enough time horizon,
Speaker 1: I think, you know, this is probably a good opportunity
Speaker 1: to add to those decisions. Um, you know, is it
Speaker 1: going to instantly rebound or you know, to the moon?
Speaker 1: Not necessarily, but if you're gonna hold it for ten years,
Speaker 1: I think you're gonna be rewarded. To the moon, filled
Speaker 1: out a Shawn spent on Reddit. I think we've been
Speaker 1: studying a lot of time on social media I remember
Speaker 1: those meme stock very well. It does seem like a
Speaker 1: really long time ago. Though I still don't know what
Speaker 1: diamond hands means. You'll learn if you spend a lot
Speaker 1: of time on Reddit. Mike likes to say around here,
Speaker 1: the people tune in to this podcast so that they
Speaker 1: can learn about what smart people like you are actually
Speaker 1: favoring in this environment. So I do want to ask
Speaker 1: you to talk a little bit more about those defensive
Speaker 1: equities that you do like. Right, So, we actually made
Speaker 1: a few changes recently at City School of Investment Committee,
Speaker 1: which I'm a voting member. Is one thing we did
Speaker 1: is we brought down are overweight in oil field services
Speaker 1: down to a neutral. Again, we think maybe there's some
Speaker 1: risk there um if we do indeed enter recession in
Speaker 1: three You know, I mentioned that oil prices tend to
Speaker 1: come down when the economy slows down. So we've we've
Speaker 1: turned a little bit there. We still have an overweight
Speaker 1: and natural resources, agriculture, those types of commodities we actually
Speaker 1: think are probably going to continue to hold up for
Speaker 1: the most part. And then we like consumer staples healthcare.
Speaker 1: Those two sectors are sectors that tend to have positive
Speaker 1: earnings growth even if there is a downturn. So they're
Speaker 1: one of those sectors that kind of helps you, um,
Speaker 1: whether it's the storm and act like a bell weather.
Speaker 1: And then dividend growers, Uh, those are you know, what
Speaker 1: I would describe as quality companies, really strong balance sheets,
Speaker 1: consistent dividend growth. Uh. And what they do is they
Speaker 1: tend to outperform the more risky segments of the market.
Speaker 1: Right so, Uh, they're probably down maybe a third of
Speaker 1: what the Nasdaq is down this year, or perhaps even
Speaker 1: a half. I'm not exactly sure. I haven't checked it recently,
Speaker 1: but they tend to perform better in these times of
Speaker 1: kind of difficult backdrop. We do like Chinese equities. We
Speaker 1: actually added a little bit further there. We think their
Speaker 1: economy is in a different position than ours is. We
Speaker 1: think that their economic activity may have bottomed in May
Speaker 1: and actually is potentially start to rebound. So we're just
Speaker 1: looking for pockets of opportunities. You know, it's very desynchronized
Speaker 1: kind of uh paths of the global economy right now.
Speaker 1: China seems to be coming out of a slowdown, we
Speaker 1: may be entering further injury slowdown. Uh. And then Europe
Speaker 1: is you know, anyone's guests. But it doesn't seem great
Speaker 1: right right, especially heading into the fall and winner, I
Speaker 1: guess with you know, so many questions about the guests
Speaker 1: supply us. I wanted to unpack you're thinking on China
Speaker 1: a little bit, Sean, because I do feel like that's
Speaker 1: a bit of a contrarian call right now to be uh,
Speaker 1: you know, sort of bullish on China. How are you
Speaker 1: thinking about um, sort of the regulatory risks um. It
Speaker 1: almost seems like possibly that the pendulum has has swung
Speaker 1: in China where you know, last year they were cracking
Speaker 1: down on tech companies and education stocks and it really
Speaker 1: spooked a lot of money out of the market. Does
Speaker 1: it seem like, you know, uh Jimping has learned his
Speaker 1: lesson and and is not gonna keep that heavy handed
Speaker 1: approach for regulation going. And is that it all part
Speaker 1: of your your thinking on on way to be bullish China?
Speaker 1: You know, I'll be honest, I don't have particularly great
Speaker 1: insights into the politics there, and I think that is
Speaker 1: probably the risk you take when you do invest in
Speaker 1: in those equities. But our call is more simply based
Speaker 1: on the macro backdrop, and that we think that their
Speaker 1: economy is kind of turning the corner, and that we've
Speaker 1: seen extremely cheap valuations there, and it's really you know,
Speaker 1: if you talk to clients and that reason, it really
Speaker 1: feels like that moment of capitulation where uh, you know,
Speaker 1: you feel that frustration and no one wants to come
Speaker 1: anywhere near it. So I think that kind of sets
Speaker 1: up for the contrarian call. Is there that idiosyncratic risk
Speaker 1: of you know, political issues or maybe things that are
Speaker 1: kind of opaque to outside investors. Yes, but I think
Speaker 1: for the right person still makes sense. What's behind your
Speaker 1: call that their economy is potentially making a turn for
Speaker 1: the better. Is it the COVID zero potentially going away
Speaker 1: or abating or lessening, or however you want to describe it,
Speaker 1: or is there something more fundamental at play? I think
Speaker 1: it's at the expectations that the credit impulse and the
Speaker 1: reason will pick up. So when you see the credit
Speaker 1: impulse pick up and stimulus kind of take cold and
Speaker 1: generally economy response to that. So, you know, we think
Speaker 1: that their economy is going to continue to pick up
Speaker 1: steam here. Maybe they don't hit the five and a
Speaker 1: half percent growth targets that they want, but we think
Speaker 1: that uh, economic you know activity, particularly GDP is on
Speaker 1: the uptrend there, So that's that's really it. Yeah, Sean,
Speaker 1: So much of the story this year has been the
Speaker 1: treasury market. Um this really eye popping surge in yields
Speaker 1: earlier in the year. Uh, it seems like knock on
Speaker 1: wood up. I'm probably gonna jinx it, but it it
Speaker 1: seems like that volatility in in treasuries is you know,
Speaker 1: fingers crossed, Calm down a little bit, got the ten
Speaker 1: years settling in right around three um our bonds attractive
Speaker 1: at this level, even though we haven't quite seen that
Speaker 1: inflation come back to earth. Yet, Is it Is it
Speaker 1: worth sort of making the gamble that these will be
Speaker 1: positive yields if you buy further out on the curve
Speaker 1: right now. I think that's the case. We We've done
Speaker 1: actually a few kind of experiments or look at historical examples,
Speaker 1: per se uh, and when you saw both stocks and
Speaker 1: bonds sell off by over four and a half percent
Speaker 1: and during the same period, it's tends to set up
Speaker 1: for a rebound in fixed income. And we've only found
Speaker 1: five other examples in the past where we had, uh,
Speaker 1: this first half of the period of six months, we're
Speaker 1: both sold off uniformly end together. And what happened in
Speaker 1: the following six months is that fixed income returns work
Speaker 1: significantly better, and they were positive in all the cases,
Speaker 1: whereas UH stocks with three out of five cases or less.
Speaker 1: So so our conviction is stronger on the fixed income side.
Speaker 1: And we actually think that you're getting to this point
Speaker 1: now where if you do enter recession again, maybe not
Speaker 1: quite the base case, but it looks like increasingly likely
Speaker 1: in three Lenn bonds will add, you know, some diverstication
Speaker 1: your portfolio, and tarsuy yields probably will come down. I'm wondering, Sean,
Speaker 1: if you think there does come a point where bonds
Speaker 1: might be more attractive than stocks even listen for a
Speaker 1: long term investor, I don't think that's the case. You know,
Speaker 1: that may be the case where the next year or so,
Speaker 1: but I mean, ultimately, you know, long run stock market
Speaker 1: returns are improving right now. So and I think we
Speaker 1: have to remember that even during these really tough periods,
Speaker 1: that bear markets are almost always followed by really lengthy
Speaker 1: and substantial bowl markets. So after a typical bear market,
Speaker 1: what you tend to see is that the stock market
Speaker 1: posts about a hundred and six return um over the
Speaker 1: next period after that bear market, and it sends to
Speaker 1: last about six hundred or so trading days. So when
Speaker 1: you think of launch from investing, you really have to
Speaker 1: keep that in focus and realize that these bear markets
Speaker 1: are part of investing and that they're followed off and
Speaker 1: followed by bowl markets. So to say that stocks are
Speaker 1: not going to be as a tractive fixed income and
Speaker 1: I think it is probably wrong. Maybe they might not
Speaker 1: be the place you want to, like, you know, sink
Speaker 1: everything into right now. Maybe there's another leg down, but
Speaker 1: I think over the long run, stocks are still a
Speaker 1: better investments and fix income. Yeah, Sean, we're going to
Speaker 1: get the uh, the next Federal Reserve decision next week, Um,
Speaker 1: what is the What do your your sort of expectations
Speaker 1: for that? I mean, I think everyone's kind of, you know,
Speaker 1: expecting a seventy five basis point, like, uh, you know,
Speaker 1: it doesn't seem like a hundred is necessarily on the
Speaker 1: table as much as it was maybe a few weeks ago,
Speaker 1: when commodities and everything we're still hide. Do you think
Speaker 1: they'll be able to react to this sort of correction
Speaker 1: in commodities to the downside and and get a little
Speaker 1: more dubbish for they just going to be peddled with
Speaker 1: the metal still, at least in their guidance and in
Speaker 1: their you know what pal has to say in the
Speaker 1: press conference, I think they've they mentioned the fact that
Speaker 1: energy prices have come off a this. You know, if
Speaker 1: gasoline prices stay where they are currently UH holds through
Speaker 1: the end of July, then maybe you can shave off
Speaker 1: the air point three percentage points off of the CPI
Speaker 1: UH in July. But again, we do have prices firming
Speaker 1: on the services side, Shelter prices continued to rise. UH.
Speaker 1: Those are things that operate with the lag. So the
Speaker 1: way the CPI where the shelter component tends to lag
Speaker 1: the national case Shiller housing indext by about a year.
Speaker 1: So that means you're going to continue to see that
Speaker 1: firming and shelter prices. So I don't think they're gonna
Speaker 1: feel confident enough to back off. I personally would like
Speaker 1: to see them react less to these individual data points.
Speaker 1: I think that creates kind of unnecessary market volatility. You know,
Speaker 1: anytime a CPI inflation print comes out, it's like, okay,
Speaker 1: now it's a jumble rate hike or no it's not.
Speaker 1: Or you could look at the University of Michigan Consumer
Speaker 1: Inflation Expectation Index. It jumped up, that reacted to it
Speaker 1: raised their basis point rate from seventy five. Then it
Speaker 1: got revised down to a lower print. So you know,
Speaker 1: I would I'd like to see them kind of be
Speaker 1: sort of stable here. Hopefully that's what they do. Mike,
Speaker 1: do you want to know a fun fact of Yes,
Speaker 1: I like fun facts. My birthday is next Wednesday day.
Speaker 1: It's going to be awful. That's a good day to
Speaker 1: take off a right that should have taken off. Um.
Speaker 1: But Sean, can you also talk about what a FED
Speaker 1: induced recession might mean for unemployment? I know in the
Speaker 1: notes you had sent over you said it could mean employment, right,
Speaker 1: unemployment rising to around six point five percent, and that
Speaker 1: could mean that stocks could fall another ten percent or so.
Speaker 1: Can you talk more about that. Sure, that's not an
Speaker 1: official forecast. But what I did is I looked at
Speaker 1: past recessions, and what you see is that the unemployment
Speaker 1: rate doesn't tend to just pick up by a few ticks, right,
Speaker 1: So we saw or heard fetch your Powell in the
Speaker 1: past mentioned that they may need to continue tightening until
Speaker 1: they see the unemployment and it rise by a few ticks,
Speaker 1: but that doesn't tend to happen. So on average, the
Speaker 1: unemployment rate when you have a recession tends to rise
Speaker 1: by about three So, you know, right now we're at
Speaker 1: three point six percent. You know, I think there is
Speaker 1: some rim between that and what that considers full employment.
Speaker 1: You know, I think that they're comfortable with the unemployment
Speaker 1: rate rising. Typically, you know, the natural rate of unemployment
Speaker 1: is considered to be somewhere around five five and a
Speaker 1: half percent. That's considered to be full employment. So I
Speaker 1: think they can accept the unemployment rate rising to some extent.
Speaker 1: But you know, you're kind of treading into dangerous territory
Speaker 1: thinking that you can swerve just at the right moment,
Speaker 1: so you don't, you know, as to avoid unnecessarily job loss,
Speaker 1: and at some point it's does do that, then they
Speaker 1: have to focus on their other mandate. Right So, right
Speaker 1: now they can ignore the mandate a full employment because
Speaker 1: there's such a tight neighbor market and they can focus
Speaker 1: on price stability. But what happens when unemployment starts to ride?
Speaker 1: Then what do they do? Which mandate becomes the most important,
Speaker 1: and I think eventually it will become, uh, the employment
Speaker 1: mandate and they may have to just accept the higher
Speaker 1: rate of inflation. Yeah. Try and your notes, you mentioned
Speaker 1: the PSALM recession roll or Sam? Is it? Say? H M,
Speaker 1: I'm not sure how you pronounced it, but I believe
Speaker 1: it's some some we'll go with some. It's it's interesting.
Speaker 1: I feel like that's being talked a lot about these days,
Speaker 1: especially because of this debate about well, what if we
Speaker 1: do get two quarters of negative GDP growth? Is that
Speaker 1: really a recession? People are sort of looking for that
Speaker 1: an alternative uh indicator of it. And my understanding it's basically,
Speaker 1: if you take what the moving average of the past
Speaker 1: three months of the unemployment rate, UM, as long as
Speaker 1: it's hasn't risen half a percentage point from the low,
Speaker 1: the recent low in the past year, then uh, no recession.
Speaker 1: Is that something you think the FED keeps a nigh on. Well,
Speaker 1: it was actually created by Claudia Sam who worked at
Speaker 1: the FED, so I would imagine they'd at least be
Speaker 1: aware of it. Yeah, you know, and if based on
Speaker 1: their tone and the things they seem to be saying,
Speaker 1: they don't seem to think that the U. S. Economy
Speaker 1: is in a recession, so it's possible. Um. You know
Speaker 1: what's interesting about some rules is it actually kind of
Speaker 1: lines up with beating economic indicators, so leading I can indicated.
Speaker 1: The other thing. I constantly look at the kind of
Speaker 1: judge whether intercession or not. Typically on a year on
Speaker 1: your basis falls below zero percent before you enter a recession.
Speaker 1: It's been really quite accurate. The yield curve is part
Speaker 1: of that, uh, and right now it's a positives three percent,
Speaker 1: so I think the really it's will be released again,
Speaker 1: I think later this week, and I'm sure it'll come
Speaker 1: down further than you know, cooling rapidly, but it isn't
Speaker 1: signaling a recession, and it tends to lead the samburu
Speaker 1: li about nine months. So if you kind of line
Speaker 1: them up together on a chart, it shows that maybe
Speaker 1: heading into three you'll start to see the unemployment rate
Speaker 1: rise and this constant uh, you know, persistence of job
Speaker 1: gains will potentially turn into job losses, and I think
Speaker 1: that will be a moment where the market kind of
Speaker 1: has to get its head around and the sight as well.
Speaker 1: And I think that's maybe when you see this turning
Speaker 1: point where from the Fed and then maybe even more
Speaker 1: so the markets and Sean. Just to wrap things up here,
Speaker 1: and you sort of alluded to this, but I want
Speaker 1: to ask you about your long term thinking. What you're
Speaker 1: thinking about about this around the stock market for the
Speaker 1: next decade, because I know we had Katie Kotch on
Speaker 1: the podcast a couple of weeks ago from She's from Goldman,
Speaker 1: and she said, the next decade is actually going to
Speaker 1: be really, really tough for for equities. So how are
Speaker 1: you guys thinking about what the next ten years are
Speaker 1: going to look like? Well, I think when you have
Speaker 1: a bear market like this, I think returns and the
Speaker 1: strategic returns over the next ten year period certainly improve. UM.
Speaker 1: You know, I think for long term investor, I don't
Speaker 1: think this matters that much. I think that you will
Speaker 1: see a relatively strong bull market coming out of this UH.
Speaker 1: And you know, I think timing the market doesn't tend
Speaker 1: to work very well. I think when you do that,
Speaker 1: since you simply missed UH, you know the best twenty
Speaker 1: days your average return and you're turning from ten percent
Speaker 1: down a six point three, And you know eight of
Speaker 1: those ten worst days are right next to the ten
Speaker 1: best days, so it's really difficult to market time. So
Speaker 1: I really think it's important to stay focused on long term.
Speaker 1: And you know, if you simply looked at hypothetical performance
Speaker 1: to say a ten thous dollar investment, since it's been
Speaker 1: quite impressive. You know, we've made it through bregit, We've
Speaker 1: made it through the global financial crisis, We've made it
Speaker 1: through the annexation of Premia. In the past, We've made
Speaker 1: it through a lot of difficult times, and I think
Speaker 1: that will absolutely be the case this time around as well.
Speaker 1: So I would be you know, I started at City
Speaker 1: Group during the Global financial crisis. I remember March nine
Speaker 1: when nobody wanted to touch anything, and that was an
Speaker 1: extremely attractive entry point. So I think this will likely
Speaker 1: prove to be that again. Are we at that point
Speaker 1: just yet? Maybe not, but we will get there, all right, Well,
Speaker 1: you know what point we're at. I think it. The
Speaker 1: craziest thing there is Sean's bed on this show before
Speaker 1: he knows the rules. I've got a good one. I
Speaker 1: think I do too, but mine is kind of gross. Alright,
Speaker 1: I like it already. I like it already. Let's hear it. Okay,
Speaker 1: this is about a family dollar in Arkansas a few
Speaker 1: months ago. Oh, I know where you're going. They had
Speaker 1: to fumigate the entire place because there was a huge
Speaker 1: rodent problem. And when they came back, guess how many
Speaker 1: dead rodent carcasses they found? Oh, this is at one
Speaker 1: store or is that a warehouse? It was a warehouse? Alright?
Speaker 1: How many? Boy? Um? Oh? I think I think it
Speaker 1: was a warehouse? Yeah? How many dead rodents in one?
Speaker 1: Dollar club? Warehouse? Family? Dollar family? Dollar? Sorry? Dollar club?
Speaker 1: What is where do you live? I'm thinking of the
Speaker 1: dollar shave club. What's your guests on how many dead
Speaker 1: rodents were found? Oh? Man, that's tough. I'm going to
Speaker 1: go over. I've gotten they come in both there. That's good.
Speaker 1: It's not a costco. If his costco, I'm gonna go.
Speaker 1: I'm gonna take the under. I'm gonna go to fifty. Well,
Speaker 1: I obviously don't have a good poker face because I
Speaker 1: just did a really shocked face at you. But no,
Speaker 1: one thousand dead rodent carcasses. That's dud to inflation, I think.
Speaker 1: And now the rats, the rats are actually back, so
Speaker 1: all these workers are finding them. I guess the story
Speaker 1: that I had said they found them enrolled up rogs
Speaker 1: and in different items, and the warehouses closed one thousand
Speaker 1: dead rodents. I think I think I saw them play
Speaker 1: at CBGB's in the nineties. I'm not I'm not sure. Yeah,
Speaker 1: I think she wins. That's pretty good. That's that's pretty good.
Speaker 1: All right, Sean. How about you see anything crazy this week? Yeah?
Speaker 1: I was actually going to go with the heat wave,
Speaker 1: and then I actually do think there's maybe some financial
Speaker 1: market implications. So it is beating about the heatwave, particularly
Speaker 1: in Europe. You know, only five percent of European household
Speaker 1: tap air conditioning. Just sounds absolutely miserable. But so they
Speaker 1: ended up having there's something called Durham wheat, which is
Speaker 1: a component used for pasta, and they had to harvest
Speaker 1: it two weeks early and they yielded less than normal.
Speaker 1: So as a result, we might see postive prices go up.
Speaker 1: Oh no, it's a very big down five uh and yeah,
Speaker 1: that's really tough. And another interest thinking I think is
Speaker 1: actually air conditioning stocks are up about ten percent in
Speaker 1: the last five bags. I was kind of saying, there
Speaker 1: there's always there is always a bullmarket somewhere. It would
Speaker 1: be good to be a traveling air conditioner salesman in
Speaker 1: uh London, in London these days, for sure. But I've
Speaker 1: read that story about the wheat too, and I gotta say,
Speaker 1: it's this whole food crisis thing. I feel like it's
Speaker 1: going to just become a bigger and bigger issue going
Speaker 1: for it. I'm kind of worried about that. But we'll
Speaker 1: have to keep an eye on that. All right, both
Speaker 1: are very good. I might give you your first win Bildana,
Speaker 1: really my first one ever, that's your first one. I
Speaker 1: don't know, is it's not embarrassing? Yeah, it is for you.
Speaker 1: It's very much for you for um, not so much
Speaker 1: for me. Not for you, ob all right? Have you
Speaker 1: ever purchased a big ticket item without telling your husband? No,
Speaker 1: you can confess on the show. I don't think any
Speaker 1: big purchase, diamonds, a car, nothing, nothing. She was sean
Speaker 1: you ever ever buy a big I don't even know
Speaker 1: if you're in a relationship, so I don't know. But
Speaker 1: if I am indeed marriage, have I ever just went
Speaker 1: out and bought something on my own extremely expensive? I'm
Speaker 1: I'm gonna go with uh. I probably know, like like
Speaker 1: a fang stock perhaps? Um? All right? What if I
Speaker 1: were to tell you there's a woman in Scotland who
Speaker 1: bought a castle without telling her husband, an actual seventeen
Speaker 1: century castle she impulse purchased it. Um not a very
Speaker 1: nice castle, but it is on a lot of land
Speaker 1: about four and a half acres outside of Glasgow. Uh,
Speaker 1: it's from the seventeenth century, was the Bishop of Glasgow's
Speaker 1: residents at one point. And it's a mess. It's very
Speaker 1: very much derelict, as the Daily Mail describes it in
Speaker 1: their story, because you think of a Scottish castle as
Speaker 1: being all stone and just wood floors, but this had
Speaker 1: either drywall or plaster walls at some point that everything's
Speaker 1: fallen apart. It's it's a total mess. Several million pounds
Speaker 1: to to renovate it. But what do you think the
Speaker 1: selling price was for this derelict quote unquote Scottish castle?
Speaker 1: I think these are these things are cheaper than you
Speaker 1: would think. You think castle, you think like princes and princesses, etcetera.
Speaker 1: I'm going to go with like four hundred and fifty
Speaker 1: thousand pounds fifty pounds show what do you want the
Speaker 1: over or under on that? Wow, that's a good I'm
Speaker 1: gonna go in there. We're gonna go in there. Yeah,
Speaker 1: the under is right, two hundred fifty pounds Derrick Castle,
Speaker 1: it's pretty amazing. It is a dump though, it really
Speaker 1: needs a lot of work. But she's one of these
Speaker 1: women who's like buys old houses and fixes them up
Speaker 1: in turns about telling her husband airbnbs. I think the
Speaker 1: rest of them she told her husband about. Is she American?
Speaker 1: Is she benefiting from the euro dollar parity? She's not.
Speaker 1: But her her investment thesis is that Americans love castles,
Speaker 1: and I think she's right about that. I went to
Speaker 1: Scotland one time and we saw a lot of castles.
Speaker 1: We saw the money Python, Holy Grail Castle. That was
Speaker 1: pretty good. So her she wants to turn it into
Speaker 1: a wedding hall and uh and Lura Americans over to
Speaker 1: gets European travels sheep right now yeah American. Yeah, I
Speaker 1: can't believe I almost went with two fifty. Yeah you were.
Speaker 1: You were in the ballpark though, don't beat yourself up
Speaker 1: about you still want Yeah, that's true, thank you. Yeah,
Speaker 1: and I lost on the one dead Rodents. Yeah, yeah,
Speaker 1: that was pretty embarrassing. I need to read a more
Speaker 1: on that. I really got you on how many dead Rodents.
Speaker 1: Can you dollar story? I think we've grossed out all
Speaker 1: the listeners enough for one week about John. Always a
Speaker 1: pleasure to hear your thoughts, what's going on at City
Speaker 1: US Wealth Management? And I'm sure we'll have you back
Speaker 1: on again. Thank you, appreciate it, Thank you, Sean. What
Speaker 1: Goes Up We'll be back next week. And so then
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