WEBVTT - Surveillance: Growth Rate Peaking, Says Kostin 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:30.480 and of course, on the Bloomberg Terminal. Okay, what we're 0:00:30.480 --> 0:00:32.680 gonna do right now is bringing David Constant. He is 0:00:32.760 --> 0:00:35.440 chief US Equity Strategies for Goldman Sachs. We've got a 0:00:35.440 --> 0:00:39.040 whole bunch of questions as he resets for SMP five thousand, 0:00:39.360 --> 0:00:42.319 But David Constant, we must celebrate as you do at 0:00:42.320 --> 0:00:46.559 Goldman Sachs with a fully staffed team. Constant, today in 0:00:46.600 --> 0:00:50.320 the office, I want you to explain the path to 0:00:50.400 --> 0:00:54.120 get your team ascons at Goldben Sacks again. Well, I 0:00:54.440 --> 0:00:57.760 uh want to definitely congratulate all of our whole team. 0:00:57.760 --> 0:00:59.360 The entire team is here for the first time in 0:00:59.440 --> 0:01:03.040 fifteen US UH so we're pretty happy about that and 0:01:03.160 --> 0:01:06.560 the process has been halting. We had some density restrictions 0:01:06.560 --> 0:01:09.320 in terms of the seating arrangements, but given the way 0:01:09.360 --> 0:01:11.600 we've been able to use some extra offices. We're all 0:01:11.640 --> 0:01:14.120 here today, so I'm happy about that. We'll change is 0:01:14.200 --> 0:01:15.920 David for you. As the team gets back around the 0:01:15.959 --> 0:01:19.640 table together again, what's the big difference. Well, the difference 0:01:19.760 --> 0:01:23.240 is just the interaction and being able to have small 0:01:23.280 --> 0:01:26.959 conversations about different issues that come up on a computer 0:01:27.040 --> 0:01:29.560 screen and call someone over to point it pointed out. Uh. 0:01:29.600 --> 0:01:31.919 You know, some people wear masks still, but generally speaking, 0:01:31.959 --> 0:01:35.880 everyone everyone, everyone absolutely has been vaccinated, twice vaccinated and 0:01:35.920 --> 0:01:39.280 things like that. It's just a much more efficient way 0:01:39.319 --> 0:01:42.320 to communicate. Of course we're doing that before when people remotely, 0:01:42.640 --> 0:01:46.560 but just an incremental amount of communication. So I think 0:01:46.600 --> 0:01:49.320 that's really helpful on our teams were really happy about 0:01:49.560 --> 0:01:52.160 about that. And I think in my conversation with clients, 0:01:52.160 --> 0:01:53.520 you know, more and more of them seem to be 0:01:53.800 --> 0:01:56.280 to be coming back to UH working from their their 0:01:56.480 --> 0:02:00.480 their offices, and there's different portfolio managers have different time 0:02:00.480 --> 0:02:04.480 time frames UH to re reengage. But right here today 0:02:04.920 --> 0:02:07.040 my team US port follow strategy. We're all here. Well, 0:02:07.080 --> 0:02:08.720 let's shine a light on one of the debates at 0:02:08.720 --> 0:02:10.679 the moment. Imagine you the team happen right now. The 0:02:10.760 --> 0:02:13.000 nastacs made a bit of a bounce. David and early 0:02:13.120 --> 0:02:15.720 in the conversation, ely in the conversation on this program, 0:02:15.720 --> 0:02:18.240 we were talking about whether there is a correlation or 0:02:18.240 --> 0:02:20.919 a causation between what happens with rights and what happens 0:02:20.919 --> 0:02:23.320 with growth, Big tag, What are even the team saying 0:02:23.320 --> 0:02:27.600 about that? So, the interplay between growth and rates and inflation, 0:02:27.639 --> 0:02:29.960 it's obviously has a lot of different dynamics, and I 0:02:29.960 --> 0:02:33.480 would unpack that in sort of two ways. How does 0:02:33.560 --> 0:02:38.160 inflation affect the equity market broadly speaking? And then which 0:02:38.160 --> 0:02:40.480 sectors in particular? And so we think about it. The 0:02:40.480 --> 0:02:44.720 transmission mechanism, on the one hand, is on valuation, because 0:02:44.919 --> 0:02:48.000 the impact of higher inflation leads to generally higher rates 0:02:48.000 --> 0:02:51.360 and that has an impact particularly on the longer duration, 0:02:51.440 --> 0:02:55.680 longer expected growth stocks. But there's also a transmission mechanism 0:02:55.720 --> 0:02:59.040 through margins, and so I think we need to bring 0:02:59.160 --> 0:03:01.480 both of those together. Think about it. What is one 0:03:01.520 --> 0:03:04.720 of the attributes of the technology sector is they have 0:03:04.919 --> 0:03:10.000 extraordinarily high margins and they've been relatively immune upon intended 0:03:10.000 --> 0:03:14.440 their relative immune from the higher inflation curtailing their margins. 0:03:14.720 --> 0:03:18.280 Uh So, on the one hand, you have a suppressing 0:03:18.360 --> 0:03:22.000 or a depressing effect on valuation for inflation and what 0:03:22.080 --> 0:03:25.080 that means for rates and the valuation of that long 0:03:25.200 --> 0:03:28.760 term expected growth. And another hand, you have the durability 0:03:28.800 --> 0:03:31.720 of their margins as compared with some other more cyclical 0:03:31.760 --> 0:03:35.600 sectors where their margins may not be so robust in 0:03:35.680 --> 0:03:39.160 terms of ability to pass through those higher input costs. 0:03:39.240 --> 0:03:41.000 I think those are the two things that we are 0:03:41.600 --> 0:03:44.280 uh trading off one against the other, and I think 0:03:44.440 --> 0:03:48.080 are My view is that the margins are going to 0:03:48.160 --> 0:03:52.400 become the more dominant topic of conversation. The idea of 0:03:52.440 --> 0:03:58.040 transitory is a debate we will be having consistently until October. Right, 0:03:58.080 --> 0:03:59.880 we'll put a stake in the ground and say that's 0:03:59.880 --> 0:04:02.760 for six months, and so the Fed has indicated its view. 0:04:03.320 --> 0:04:06.080 My colleagues at Golden Sacks Economics team also have a 0:04:06.160 --> 0:04:10.040 view that the inflationary impulses a relatively transitory and then 0:04:10.080 --> 0:04:14.480 we'll receed back towards the two core pc next year. 0:04:14.760 --> 0:04:16.919 So that's sort of the issue. We're going to have 0:04:16.960 --> 0:04:19.960 that repeatedly. I think the more interesting analytical debate with 0:04:20.000 --> 0:04:24.760 portfolio managers is around the durability of margins and margins 0:04:24.920 --> 0:04:28.880 Jonathan and Tom and Lisa have recovered now to their 0:04:28.920 --> 0:04:31.680 pre pandemic levels, So they're already back to where they 0:04:31.680 --> 0:04:35.720 were pre UH February of two thousand twenty. And so 0:04:36.080 --> 0:04:38.520 question is from here where we're going, And my view 0:04:38.640 --> 0:04:41.360 is margins are going to be relatively flat and a 0:04:41.440 --> 0:04:45.239 big variable there is the tax rate, the corporate taxes. 0:04:45.400 --> 0:04:47.920 If you told me for a moment we did not 0:04:48.560 --> 0:04:52.039 we will not have UH corporate tax reform, then would 0:04:52.040 --> 0:04:56.760 have earnest growth of around ten from this year into two. 0:04:57.080 --> 0:04:59.200 Now that's not our view. We expect there's going to 0:04:59.279 --> 0:05:01.880 be an increasing corporate taxes and that is going to 0:05:01.960 --> 0:05:05.479 mean that growth in earnings is gonna be around five. 0:05:06.320 --> 0:05:09.480 So they paid multiple for a five percent growth as 0:05:09.520 --> 0:05:12.400 opposed to tempercent growth. David, this has been the story 0:05:12.480 --> 0:05:15.480 that big tech can pass on pricing increases. Big tech 0:05:15.680 --> 0:05:18.600 reign supreme again and again and again, and that is 0:05:18.640 --> 0:05:21.240 why it is the top holding for so many companies, 0:05:21.440 --> 0:05:23.839 for so many investors. At what point do you start 0:05:23.880 --> 0:05:28.240 to worry about concentration risk yet again, as hedge funds 0:05:28.320 --> 0:05:32.279 double down on say Facebook positions after already having large, 0:05:32.600 --> 0:05:36.080 large positions outstanding, Well, it is interesting you mentioned UH 0:05:36.200 --> 0:05:39.839 Facebook as it is the largest stock in our hedge 0:05:39.880 --> 0:05:43.000 fund very important position to basket. We have on Bloomberg 0:05:43.040 --> 0:05:46.600 been tracking this now for twenty years. Every ninety days 0:05:46.600 --> 0:05:49.479 we're looking at around two point eight trillion dollars of 0:05:49.760 --> 0:05:52.839 long and short exposure. And that's the most uh, sort 0:05:52.839 --> 0:05:57.080 of most most important position. Uh. It's ap planted Amazon 0:05:57.160 --> 0:05:59.880 that previously had that position. We just published that last week. 0:05:59.880 --> 0:06:02.640 And so yes, it's a big topic of conversation just 0:06:02.839 --> 0:06:06.400 how sort of dominant these can be now right now, Lisa, 0:06:06.680 --> 0:06:09.200 these five stocks, the big five companies that we all 0:06:09.200 --> 0:06:15.280 know are comprising around or so of the spquity cap. 0:06:15.680 --> 0:06:20.839 But last September that was so the actual concentration is 0:06:20.880 --> 0:06:24.359 diminished slightly. Uh. And perhaps more importantly is in the 0:06:24.440 --> 0:06:26.320 growth index. If you look at to say, the Russell 0:06:26.480 --> 0:06:29.719 one thousand growth index. This was a big issue for 0:06:30.200 --> 0:06:36.919 diversified growth mutual funds where the passive index weight in 0:06:37.000 --> 0:06:40.320 the Russell one thousand of the five largest companies put 0:06:40.400 --> 0:06:43.960 a number of funds in excess or tripping if you will, 0:06:44.080 --> 0:06:48.080 the diversification requirements of the sec that has suppressed and 0:06:48.120 --> 0:06:50.359 that has come down a little bit. As these companies 0:06:50.400 --> 0:06:52.880 as big and dominants, they are relative to the rest 0:06:52.880 --> 0:06:54.760 of the market, they've receded a little bit in terms 0:06:54.760 --> 0:06:57.160 of their concentration. So the question we think about and 0:06:57.200 --> 0:07:00.640 the discussions with fund managers leases well, just how further 0:07:00.760 --> 0:07:03.279 can they run? If you think what happened year every 0:07:03.360 --> 0:07:07.200 year in revenue growth in the first quarter they were 0:07:07.279 --> 0:07:11.880 up forty one percent compared to the rest of the 0:07:11.920 --> 0:07:15.120 market where they were up modestly in terms of sales growth. 0:07:15.120 --> 0:07:17.600 And so the idea in a and even think of 0:07:17.640 --> 0:07:19.880 the worst part of the pandemic in the second quarter 0:07:19.960 --> 0:07:22.840 last year, the worst part of the pandemic. Year every year, 0:07:23.040 --> 0:07:26.560 these companies had eighteen percent revenue growth. Rest market was 0:07:26.840 --> 0:07:29.680 around seven. And so we're looking forward to ask ourselves, well, 0:07:29.760 --> 0:07:32.400 these companies are pre durable in terms of their growth. 0:07:32.600 --> 0:07:36.040 They're expected in terms of revenue growth three times faster 0:07:36.080 --> 0:07:38.120 than the rest of the market. In terms of top 0:07:38.160 --> 0:07:42.680 line sales. They trade at basically about five multiple points higher, 0:07:43.160 --> 0:07:47.160 uh multiple than the market markets like one times right now, 0:07:47.600 --> 0:07:50.680 uh these are six times. So they're trading at a 0:07:51.360 --> 0:07:55.040 premium valuation, no question about that. But they're also offering 0:07:55.080 --> 0:07:57.520 both growth. David, in the time we've got left, I've 0:07:57.520 --> 0:07:58.880 got any ways to go here and I do want 0:07:58.880 --> 0:08:01.520 to congratulate your team on their Amazon research of a 0:08:01.520 --> 0:08:03.480 couple of weeks ago. I thought it was great how 0:08:03.520 --> 0:08:05.840 you went to cash flow. There's a lot of people 0:08:05.840 --> 0:08:09.160 out there cautious short term or a constant long term view, 0:08:09.640 --> 0:08:12.200 and one of them is Douglas Cass. Doug Cass is 0:08:12.240 --> 0:08:15.000 cautious right now, and Doug Cass is saying, I don't 0:08:15.040 --> 0:08:18.360 care what constant thinks about the bull market. There's no 0:08:18.680 --> 0:08:22.720 volume out there. How does volume play into your view 0:08:23.120 --> 0:08:26.560 of the equity markets? Well, when I think about it 0:08:26.600 --> 0:08:29.760 in terms of liquidity, in terms of low versus high 0:08:29.840 --> 0:08:33.679 liquidity stocks and groups of companies that have more or 0:08:33.760 --> 0:08:36.840 less liquid from a from a trading perspective, and the 0:08:36.880 --> 0:08:40.720 markets actually awarded companies that have relatively lower liquidity. And 0:08:40.760 --> 0:08:43.920 that's just a factual statement in terms of the performance. Uh. 0:08:43.960 --> 0:08:45.880 You know Doug. I know Doug. I haven't talked to 0:08:45.960 --> 0:08:48.000 him in a while, but he's generally more on the 0:08:48.040 --> 0:08:50.640 bare side and the short side. So it wouldn't be 0:08:50.679 --> 0:08:53.240 surprised you have a more more cautious take on the 0:08:53.320 --> 0:08:55.960 on the world. To be fair, the market right now 0:08:56.000 --> 0:08:58.599 in SMP has four thousand, two hundred Our target for 0:08:58.640 --> 0:09:00.880 the end of the year is around fourth and three hundred, 0:09:01.040 --> 0:09:04.640 so pretty modest upside to be very clear, and that 0:09:04.920 --> 0:09:08.840 is likely to be shifting from more cyclicals, which has 0:09:08.880 --> 0:09:11.760 done really really well so far, towards more of the growth. 0:09:11.800 --> 0:09:15.360 And the idea behind this intuition Tom is the economy 0:09:15.480 --> 0:09:18.199 is peaking this quarter in terms of growth rate like 0:09:18.320 --> 0:09:21.520 ten percent, and that's gonna decelerate, still grow, but at 0:09:21.520 --> 0:09:24.679 a slowing pace, and that's where the transition and handoff 0:09:24.720 --> 0:09:27.319 to some of the companies that are positioned to grow 0:09:27.880 --> 0:09:30.560 at a more extended level. And the intuition behind that 0:09:31.120 --> 0:09:34.199 is the companies that are investing in their business and 0:09:34.240 --> 0:09:37.880 that is what makes some companies differentiated from others. The 0:09:37.920 --> 0:09:41.880 techical company invests eleven percent of its cash FUF from 0:09:41.920 --> 0:09:45.040 operations to grow its business. And there's a portfolio of companies, 0:09:45.040 --> 0:09:48.360 whether it's seventy and so it's big companies that we 0:09:48.480 --> 0:09:51.880 talked about earlier around so it's an enormous amount of 0:09:51.880 --> 0:09:55.600 investment to grow into two and make no mistake about it, 0:09:55.679 --> 0:09:58.320 all of the conversations with fund managers are about the 0:09:58.360 --> 0:10:02.200 growth prospects in to right. David love catching up with 0:10:03.800 --> 0:10:09.199 because David, We're excited to have around this table at 0:10:09.240 --> 0:10:11.839 one point in the future, maybe in the next time. 0:10:12.120 --> 0:10:14.720 Lean over, Oh, Lisa, Lisa, could you plass me the 0:10:14.760 --> 0:10:23.240 tank please? Right now, Let's go to Marvin Lowe. He 0:10:23.280 --> 0:10:26.120 has the State Street and their senior global macro strategists 0:10:26.320 --> 0:10:30.800 always writing really cogent notes linking FED policy into the markets. Marvin, 0:10:30.880 --> 0:10:33.160 I want to go from Mr Gorman and Morgan Stanley 0:10:33.240 --> 0:10:36.760 gaming out two thousand twenty two to the chairman with 0:10:36.880 --> 0:10:40.040 a way to the world on his shoulders to what 0:10:40.280 --> 0:10:42.960 it means for the equity market. I want you to 0:10:43.000 --> 0:10:46.320 explain to our radio and TV audience what this FED 0:10:46.440 --> 0:10:51.840 babel means for stocks. You know what. It's as simple 0:10:51.960 --> 0:10:57.400 as how much liquidity and how ultimately dumbased the FED 0:10:57.480 --> 0:11:01.439 makes it for the market. UM with negative really guilds, 0:11:01.600 --> 0:11:04.800 you've got to you've got a repressive financial system, and 0:11:04.920 --> 0:11:08.040 equities benefit from the fact that there aren't that many alternatives. 0:11:08.080 --> 0:11:10.920 If you're buying UM a church of security at this point, 0:11:10.960 --> 0:11:13.679 you're buying into the view that you're going to lose 0:11:13.720 --> 0:11:17.240 money after inflation. Ultimately, UM in terms of how you 0:11:17.400 --> 0:11:20.560 part the FED, in terms of whether or not they're 0:11:20.600 --> 0:11:23.480 correct that inflation will be trenditory. Is the key that 0:11:23.520 --> 0:11:25.199 all of us are asking right now? Yeah, I think 0:11:25.200 --> 0:11:27.680 this is so important, Johnny for a radio audience, we've 0:11:27.720 --> 0:11:29.839 really got a state that we go from Gorman to 0:11:29.960 --> 0:11:33.800 Powell and then the jargon is dj I and john 0:11:33.840 --> 0:11:36.439 I did that for you. That's the Jones. Thank you. 0:11:36.520 --> 0:11:40.160 Industrial Marvin. When you responded to that question, you weren't 0:11:40.160 --> 0:11:43.120 talking about a shift in the FET's reaction function. You 0:11:43.160 --> 0:11:45.920 were talking about the data may become again hotter than 0:11:45.960 --> 0:11:48.480 they anticipate. Do you think that's the lower bar here 0:11:48.520 --> 0:11:51.400 to disagree with their forecast, to say that actually it 0:11:51.400 --> 0:11:53.000 will look a little different in the future to the 0:11:53.000 --> 0:11:56.520 way they anticipate. Yeah, I mean, I think I think 0:11:56.559 --> 0:11:59.480 the real challenge is that the FETE is giving us 0:11:59.480 --> 0:12:02.439 a message that um it has it hasn't believed in 0:12:02.480 --> 0:12:05.560 the forecast in the past. That's why they become outcomes based. 0:12:05.760 --> 0:12:09.760 But everything is based on their view, UM that data 0:12:09.840 --> 0:12:13.400 is going to be transitory. So from one instance, believe 0:12:13.480 --> 0:12:15.880 us that you know, the numbers are are going to 0:12:16.000 --> 0:12:19.360 get back to normal into something that is um much 0:12:19.400 --> 0:12:21.920 more familiar to what we've seen before. But at the 0:12:21.920 --> 0:12:24.360 other side, we don't necessarily believe what we've seen in 0:12:24.360 --> 0:12:27.600 the past is accurate. Um. The risk is that the 0:12:27.679 --> 0:12:30.439 risk is that not only the data comes in hotter 0:12:30.640 --> 0:12:33.200 remains hotter. I think is kind of the important part 0:12:33.200 --> 0:12:36.679 of it. UM. And the FED is so far behind 0:12:36.840 --> 0:12:39.440 the curve UM that it's hard for them to catch up. Um. 0:12:39.520 --> 0:12:42.440 You know, not not necessarily saying an eighties type of 0:12:42.600 --> 0:12:45.840 environment again, UM, but we're talking massive balance sheets with 0:12:45.920 --> 0:12:48.599 the potential for for slip ups. Shure, absolutely, Mom. And 0:12:48.640 --> 0:12:50.520 do you think in one way that contradicted themselves when 0:12:50.520 --> 0:12:52.679 they say we're an outcome based federal serve, but also 0:12:52.800 --> 0:12:54.720 we will give you a long enough late time to 0:12:54.800 --> 0:12:57.200 know when we're thinking about talking about talking about whatever 0:12:57.480 --> 0:13:00.599 when it comes to type rink. Yeah, yeah, absolutely. And 0:13:00.960 --> 0:13:02.800 I think and I think what we saw earlier this 0:13:02.880 --> 0:13:05.520 year in terms of yields, in terms of real yield 0:13:05.800 --> 0:13:09.240 UM kind of coming off the bottom feel being less 0:13:09.280 --> 0:13:12.480 negative fuel UM is an example that the market is 0:13:12.520 --> 0:13:15.720 not necessarily a hundred and comfortable with the Fed's ability 0:13:16.120 --> 0:13:18.839 to do everything that it says. UM. Having said that, 0:13:18.960 --> 0:13:21.840 to push against the FED UM where it does have 0:13:21.920 --> 0:13:24.440 covered to remain where it is now, is something that 0:13:24.520 --> 0:13:26.839 kind of keeps us in the range even though we've 0:13:26.880 --> 0:13:29.840 had data on really both sides in terms of surprise 0:13:29.880 --> 0:13:32.360 to the upside and downside. Marvin, where's the bigger risk 0:13:32.440 --> 0:13:34.840 right now that yields go up or that yields go 0:13:34.920 --> 0:13:38.839 materially lower. I think it's materially lower, to be honest 0:13:38.840 --> 0:13:43.160 with you, because to get materially materially lower, you've got 0:13:43.200 --> 0:13:47.200 to really um abandon the growth that we expect to 0:13:47.240 --> 0:13:50.120 have not only from reopening, but from the fact that 0:13:50.160 --> 0:13:52.679 we've got as much savings as we have and we're 0:13:53.480 --> 0:13:56.040 predicting above trend for at least the next year year 0:13:56.080 --> 0:13:58.320 and a half or so. If that's the case, and 0:13:58.360 --> 0:14:00.600 a lot of people would agree with you, that isn't 0:14:00.600 --> 0:14:03.040 the FED doing exactly what people would hope the FED 0:14:03.200 --> 0:14:05.600 would do. I mean other words, run the economy as 0:14:05.640 --> 0:14:08.680 hot as possible, because the downside risk to the economy, 0:14:08.720 --> 0:14:11.719 the downside risk to yield, is way worse and more 0:14:11.720 --> 0:14:15.840 difficult for them to combat than the alternative. Yeah. Absolutely, 0:14:15.880 --> 0:14:18.360 and I think that's why risk assids remained um as 0:14:18.400 --> 0:14:21.040 supported as supportive as they have been over the course 0:14:21.040 --> 0:14:24.120 of the last couple of months. Despite you know whether 0:14:24.200 --> 0:14:29.280 it's of medical virus volatility and or inflation volatility, kind 0:14:29.280 --> 0:14:32.600 of making twins in the market, Marvin, So much of 0:14:32.640 --> 0:14:34.920 the exercise right now, and I take this at a 0:14:35.040 --> 0:14:38.480 macro level, is all this news slow coming out of 0:14:38.520 --> 0:14:43.880 an original natural disaster into something original a boom economy. 0:14:43.920 --> 0:14:47.760 We haven't seen this in forty seven. What should our 0:14:47.800 --> 0:14:52.680 listeners and viewers do given a boom economy? How do 0:14:52.800 --> 0:14:58.200 they allocate given the macro flow of news? Well, um, 0:14:58.240 --> 0:15:01.880 you know, and I think and I um rates and 0:15:01.920 --> 0:15:04.520 the FED is the backdrop around that. So so long 0:15:04.520 --> 0:15:07.040 as we've got these negative yields in a booming economy, 0:15:07.360 --> 0:15:10.720 it's really supportive for risk assets. It's really supportive for 0:15:10.800 --> 0:15:13.640 taking that equity risk. And I think that becomes part 0:15:13.640 --> 0:15:16.640 of the asset allocation discussion. Um. And then and then 0:15:16.680 --> 0:15:18.560 we start to pars things that this has been a 0:15:18.600 --> 0:15:21.680 market where we're looking for those that might benefit more 0:15:21.720 --> 0:15:24.920 than others. Yeah, John from Coventry says, go Matthew, right now, 0:15:25.000 --> 0:15:27.600 let's go Matthew Marvin. When you see the real yield 0:15:27.640 --> 0:15:31.280 come up from a substantial negative level towards zero as 0:15:31.320 --> 0:15:34.480 it did in Switzerland, because they're seeing German tenure. Is 0:15:34.560 --> 0:15:37.440 that a linear flow or is John's using this phrase 0:15:37.520 --> 0:15:42.600 reaction function? Is that a linear or quadratic movement? I 0:15:42.600 --> 0:15:45.080 think I think that the market should be able to 0:15:45.240 --> 0:15:49.440 handle zero percent really yields UM. You shouldn't need a 0:15:49.480 --> 0:15:53.320 repressive financial system for companies to do well. There is 0:15:53.360 --> 0:15:56.000 a level with within kind of that really yield discussion 0:15:56.000 --> 0:15:59.280 when it becomes much more positive than zero that UM 0:15:59.320 --> 0:16:02.520 you wind up with alternatives UM and the risk reward 0:16:02.920 --> 0:16:05.560 amongst different asset classes are coming to play. But a 0:16:05.720 --> 0:16:08.440 zero really yield, which is at this point from a 0:16:08.520 --> 0:16:12.000 tenure perspective, still eighty basis points away, shouldn't be enough 0:16:12.040 --> 0:16:16.840 to derail how companies are able to still perform well 0:16:17.080 --> 0:16:20.080 UM in an environment where you've got positive growth, mom, 0:16:20.080 --> 0:16:24.040 And do you think Europe can handle zero row yots? Yeah, 0:16:24.080 --> 0:16:28.640 that's that's certainly a much different type of UM equation. 0:16:29.160 --> 0:16:31.720 You know, their demographics are different, UM. Certainly the amount 0:16:31.720 --> 0:16:34.400 of fiscal stimulus that they have is different. It's going 0:16:34.440 --> 0:16:36.240 to be it's going to be harder. And I think 0:16:36.280 --> 0:16:40.400 that's the conundrum that ECB has UM as they try 0:16:40.480 --> 0:16:44.960 to sound as dubbish as they can, but ultimately you know, 0:16:45.160 --> 0:16:48.120 is moving along the same normalization path without as much 0:16:48.160 --> 0:16:52.040 of a without much much of a growth response that 0:16:52.040 --> 0:16:54.200 that we're seeing here. Ultimately the mom and isn't then 0:16:54.240 --> 0:16:57.360 the tension the issue hit the the U S treasury 0:16:57.400 --> 0:16:59.960 market can't trite and a vacuum that it's the global 0:17:00.040 --> 0:17:01.840 on market and then you've got to move towards zero 0:17:01.920 --> 0:17:04.040 real yield. It's on a ten year treasury. Can you 0:17:04.080 --> 0:17:07.480 imagine what it looks like cover in Europe? It's it's 0:17:07.520 --> 0:17:10.560 the conundrum of the ECB Um. You know, it's still 0:17:10.600 --> 0:17:13.520 a lot of different economies with a lot of different speeds, 0:17:13.560 --> 0:17:16.639 and you've got one organization trying to keep it all 0:17:16.680 --> 0:17:19.360 together with one number. Whereas you know, certainly for us 0:17:19.440 --> 0:17:21.879 with the dollar um and a more cohesive economy, it's 0:17:21.920 --> 0:17:24.200 it's much easier. Good luck, Jane tent and the next 0:17:24.280 --> 0:17:28.760 day see may sink. Yes, yes, absolutely, Um. You know 0:17:28.800 --> 0:17:30.439 the focus is going to be on what they what 0:17:30.480 --> 0:17:32.960 they do with PEP. It's going to be um. You know, 0:17:33.000 --> 0:17:34.879 everyone certainly is looking at the size of the balance 0:17:34.880 --> 0:17:37.679 sheets and that being the first stage of normalization. The 0:17:37.800 --> 0:17:42.040 envelope themselves, the envelope structure itself leads itself to a 0:17:42.119 --> 0:17:45.239 natural tapering process unless we hear differently. So um, it's 0:17:45.240 --> 0:17:47.400 an important meeting in the middle of summer. Absolutely, Mom 0:17:47.400 --> 0:17:49.119 and gonna catch up as always, Mom and love that 0:17:49.240 --> 0:17:59.040 given straight the global Macrost strategical they've tweeted up to 0:17:59.359 --> 0:18:02.639 eleven times this morning. No, it's not President Trump of 0:18:03.320 --> 0:18:07.119 a few months and quarters ago. It is Lizanne Saunders 0:18:07.160 --> 0:18:09.679 piece of advice. Folks, if you haven't signed up for Twitter, 0:18:10.240 --> 0:18:14.080 your single reason is the early morning chart set up 0:18:14.160 --> 0:18:17.240 of liz Ane Saunders l I Z A N N 0:18:17.520 --> 0:18:21.359 S O N D E R S. And the biggest problem, Paul, 0:18:21.600 --> 0:18:26.639 is not one single tweet is average. That's smart. Smart. 0:18:26.760 --> 0:18:31.080 Do you do this yourself or your kids helping? You know? Well, 0:18:31.280 --> 0:18:35.000 not not my kids. But I have an incredible UM 0:18:35.240 --> 0:18:39.600 research associate, Kevin Gordon, who's uh two years out of 0:18:39.640 --> 0:18:42.919 college and joined the two years ago, and he puts 0:18:42.960 --> 0:18:46.119 a lot of the charts together. Rich Kevin Gordon g 0:18:46.440 --> 0:18:51.160 O R to be sure, And by the way, thank 0:18:51.160 --> 0:18:53.560 you for selling my Twitter handle because I have had 0:18:53.560 --> 0:18:57.640 a rash of the posters. YEA, well, I can understand 0:18:57.640 --> 0:18:59.560 with your claim over the years. Listen, I'm gonna go 0:18:59.600 --> 0:19:03.600 to your right, which shows under performance by tech and 0:19:03.720 --> 0:19:08.760 consumer discretionary. We're talking big tech under performing others. David 0:19:08.800 --> 0:19:12.080 Costan says, a renaissance occurs is a thing is going 0:19:12.160 --> 0:19:16.040 to have a good Q three. So I think we're 0:19:16.119 --> 0:19:19.320 we're already seeing a bit of movement back into some 0:19:19.440 --> 0:19:24.320 of those what were oddly the defensive areas of the market. 0:19:24.520 --> 0:19:27.680 Last year. You know, big tech in the Big five 0:19:27.880 --> 0:19:31.640 became the covid eras defense because it was pretty much 0:19:31.680 --> 0:19:36.840 the only ecosystem that was operational and helpful in that environment. 0:19:36.920 --> 0:19:39.719 And I think given what's happened with the tenure yield 0:19:40.640 --> 0:19:44.320 stalling a bit here, uh, economic growth a bit weaker. 0:19:45.240 --> 0:19:49.280 I think the view that maybe inflation actually is transitory, 0:19:49.320 --> 0:19:52.439 I think you've got a bid back toward the growth 0:19:52.480 --> 0:19:54.840 side of the equation. I think it's still be choppy. 0:19:54.880 --> 0:19:57.639 I think we'll see kind of value in growth factors 0:19:58.280 --> 0:20:02.280 volleyball a bit much like we'll the consumer discretionary and 0:20:02.359 --> 0:20:05.080 tech on one end of the spectrum, energy and financials 0:20:05.080 --> 0:20:06.919 on the other end. And that's been the name of 0:20:06.920 --> 0:20:09.400 the game for quite a few months now. But growth 0:20:09.680 --> 0:20:12.199 factors are finding a bit of a bit. Yeah, so 0:20:12.200 --> 0:20:14.119 we've noticed the town. I were just discussing that. The 0:20:14.280 --> 0:20:16.560 Over the last couple of days, the inflation talk is 0:20:16.640 --> 0:20:19.280 kind of quieted down a little bit. What is your view, 0:20:19.320 --> 0:20:22.159 Lasann about kind of where we are with inflation. I mean, 0:20:22.200 --> 0:20:24.880 the Fed obviously has had a very consistent message about 0:20:24.920 --> 0:20:28.199 it being transitory. What are your thoughts, Well, look up 0:20:28.200 --> 0:20:32.560 transitory and the Oxford Dictionary. It's not permanent. With that 0:20:32.600 --> 0:20:38.760 basic definition, you could you could find that you could 0:20:38.800 --> 0:20:42.040 call the seventies there of of inflation transitory based on 0:20:42.160 --> 0:20:44.879 that fairly simple definition. So I suppose it's all a 0:20:44.920 --> 0:20:47.320 function of how long you define that. We know the 0:20:47.320 --> 0:20:50.080 base effects will say it as early as June, we're 0:20:50.160 --> 0:20:54.320 seeing some of the supply disruption start to ease a 0:20:54.400 --> 0:20:58.400 little bit. We some of the speculative froth has come 0:20:58.520 --> 0:21:02.359 a bit out of a certain segments of the commodities market. 0:21:02.920 --> 0:21:05.480 There are longer term issues. I think the problems and 0:21:05.560 --> 0:21:10.680 semiconductors probably don't get solved imminently. And then it's a 0:21:10.800 --> 0:21:16.080 question of the psychology of inflation that doesn't get enough attention. Uh. 0:21:16.280 --> 0:21:19.040 It ends up this when it turns into a spiral. 0:21:19.280 --> 0:21:22.000 It has a lot to do with psychology. The psychology 0:21:22.000 --> 0:21:26.119 of workers demanding higher wages, the psychology of companies deciding 0:21:26.160 --> 0:21:30.960 to try to pass those on consumers in turn um 0:21:30.960 --> 0:21:34.159 feeding that into wages, so that spiral comes not just 0:21:34.400 --> 0:21:38.520 based on the math, but also based on psychology. So 0:21:38.760 --> 0:21:41.840 I think watching labor market indicators and then trying to 0:21:42.280 --> 0:21:45.840 uh to gauge that psychology will be key to whether 0:21:45.880 --> 0:21:48.280 this truly is just a short term phenomenon that set 0:21:48.320 --> 0:21:50.800 to fade imminently. I think the pay attention to the 0:21:50.800 --> 0:21:54.400 bondo market. I think the bondo market is a more 0:21:54.600 --> 0:21:59.480 rational um viewer of what goes on in the economy 0:21:59.600 --> 0:22:02.280 than at times the stock market is. So I think 0:22:02.359 --> 0:22:05.560 the stalling and the tenure yield may be indicative of 0:22:05.640 --> 0:22:08.800 inflation problem that is not quite as dire as some 0:22:08.960 --> 0:22:13.800 equity market watchers might suggest. So lazy, and that labor 0:22:13.840 --> 0:22:16.399 market point is I think really telling here if we 0:22:16.520 --> 0:22:18.320 you know, you really have to have wage inflation have 0:22:18.359 --> 0:22:21.160 any meaningful inflation in this economy. So when you see 0:22:21.240 --> 0:22:24.119 the McDonald's of the world raising their minimum wage to 0:22:24.240 --> 0:22:28.160