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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along

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Speaker 2: with Paul Sweeney. Join us each day for insight from

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Speaker 2: the best in economics, finance, investment, and international relations. You

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Speaker 2: can also watch the show live on YouTube. Visit the

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Speaker 2: Bloomberg Podcast channel on YouTube to see the show weekday

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Speaker 2: mornings from seven to ten am Eastern from our global

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Speaker 2: headquarters in New York City. Subscribe to the podcast on Apple, Spotify,

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Speaker 2: or anywhere else you listen and always I'm Bloomberg Radio,

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Speaker 2: the Bloomberg Terminal, and the Bloomberg Business App. Joining us

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Speaker 2: now from Charles Schwab Liz Anne Saunders. I am really

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Speaker 2: upset this morning about the financial media. OMG, Apple, We're

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Speaker 2: all gonna die. I don't know what Apple's going to do.

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Speaker 2: I know it's inappropriate for you to talk about an

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Speaker 2: individual security, but where did we lose? Looking at support

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Speaker 2: of trend out one year? Dare I say out three years?

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Speaker 2: Or for retirement plan investors a five year window. Just

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Speaker 2: the Apple chat of the last twenty four hours has

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Speaker 2: been appalling.

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Speaker 3: Because time horizons have shrunk two you know, nanoseconds. It's

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Speaker 3: fine to talk about three years and five years. I

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Speaker 3: think that matters, but a lot of the money in

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Speaker 3: the market trades in a fraction of that time horizon.

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Speaker 3: And you know, in the case of not just Apple,

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Speaker 3: but Tesla and even Alphabet, it's the China tie. But

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Speaker 3: it's not unhealthy that we're seeing some dispersion, not just

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Speaker 3: among them Magnificent seven, but churn under the surface that

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Speaker 3: in a stealthy way, there is actually some action and

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Speaker 3: participation down the cap spectrum in other areas. You know,

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Speaker 3: industrials have broken out and to some degree financials and

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Speaker 3: that's not a bad thing.

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Speaker 4: So we've had Luziana such a great move in the

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Speaker 4: stock market in November December last year, really driving the

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Speaker 4: market high. We've actually started the year off very well.

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Speaker 3: If you look at the SFP at the index level.

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Speaker 4: At the index level, that's where I want to go.

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Speaker 4: So we go beneath. What are you telling your clients

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Speaker 4: like if they're saying, I don't feel it, you know,

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Speaker 4: I don't feel it.

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Speaker 5: I know that.

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Speaker 4: Everybody's tell me. The s andp's up six seven percent

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Speaker 4: this year. It rallied hard last year, but I don't

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Speaker 4: feel it.

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Speaker 3: What do you tell me, well, I it's understandable because

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Speaker 3: let's use the Nasdaq as an example, because the extremes

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Speaker 3: here are are more significant. But that NASDAK, notwithstanding yesterday

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Speaker 3: trading around highs and at the index level, that NASDAK

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Speaker 3: has not had more than a three percent maximum draw

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Speaker 3: down from a year to date high. Right, But the

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Speaker 3: average member Nasdaq member maximum draw down from your to

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Speaker 3: date highs is negative twenty two percent.

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Speaker 2: Really, wow, I didn't So what do you call that

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Speaker 2: a bear market?

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Speaker 3: Well, it's it's churned under the surface, and it's draw

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Speaker 3: downs at different times. But yes, you've had you've had

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Speaker 3: bear market level draw downs among the average stock within

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Speaker 3: the Nasdaq.

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Speaker 2: Jud John Tucker, that describes your entire tool one k. Right,

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Speaker 2: would you say it's a duck market.

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Speaker 3: It's calm, that Michael Caine line of calm on the

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Speaker 3: surface and paddling like the chickens.

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Speaker 4: Yeah, So listen, what do you tell folks? I mean,

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Speaker 4: and maybe I mean Tom's been long magnificent seven, he's

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Speaker 4: been clipping coupons. He's fine. How about the rest of us?

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Speaker 4: Where do we go from here? If we haven't been

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Speaker 4: long those magnificent seven? I mean, where do we go

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Speaker 4: from here?

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Speaker 3: So I think I think there is money that is

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Speaker 3: itching to find opportunities outside of that small group, also

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Speaker 3: helping displain some of the dispersion that we're seeing there.

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Speaker 3: I don't don't think though, that this is the time

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Speaker 3: you want to sacrifice quality. We've got this recent resurgence

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Speaker 3: again in you know, today's versions of the meme stocks,

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Speaker 3: and that's a little bit troubling, But I would I

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Speaker 3: would fade that type of move under the surface and

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Speaker 3: lean into quality, especially if you're going down the cap spectrum,

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Speaker 3: because in the case of the Wrestle of two thousand,

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Speaker 3: you still have somewhere between thirty and forty percent of

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Speaker 3: that index of stocks that are some combination of zombie

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Speaker 3: companies and or nonprofitable companies. I don't think we're at

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Speaker 3: the part of the cycle where you want to lean

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Speaker 3: into low quality. There are times where for a trade

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Speaker 3: that makes sense, it's where the leverage is to an

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Speaker 3: upturn in the economy. I don't think we're there yet.

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Speaker 2: And now, folks for Global Wall Street, all of you

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Speaker 2: out on applecarplay and YouTube, the question that matters where

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Speaker 2: is Lizion Sanders on rebalancing? How do we rebalance without

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Speaker 2: over rebalancing or selling our winners. What's the sunders process.

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Speaker 3: Well, rebalancing is more about adding and trimming, not buying

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Speaker 3: and selling. So that's that's the beautiful component of that

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Speaker 3: discipline is it forces it's ad low trim high, distinct

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Speaker 3: from by low sell high. And one of the things

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Speaker 3: that individuals can consider doing, which is in contrast to

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Speaker 3: what most institutions, particularly cohorts like mutual funds, that have

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Speaker 3: that calendar based rebalancing final week of every quarter, I

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Speaker 3: think for individuals, and you have to take into consideration

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Speaker 3: the effect of turnover and transaction costs and even things

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Speaker 3: like tax brackets. So this is not a blanket recommendation,

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Speaker 3: but for investors to at least consider what I call

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Speaker 3: portfolio based rebalancing. Let your portfolio tell you when it's

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Speaker 3: time to do something, whether it's at the asset class

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Speaker 3: level or even within asset classes, as opposed to making

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Speaker 3: that decision on some sort of predetermined calendar schedule.

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Speaker 4: I don't know. I can buy a two year treasure

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Speaker 4: and get four point five to five percent, Why don't

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Speaker 4: I just do that and get ready for my beach?

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Speaker 3: For some investors, that does make a lot of sense.

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Speaker 3: But one of the reasons why, and you guys know,

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Speaker 3: are fixed income my fixed income counterparts, particularly Kathy Jones,

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Speaker 3: that when we talk about during extending duration, you get

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Speaker 3: that natural question, well, why would I go to a

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Speaker 3: ten year you know, four point two percent when I

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Speaker 3: can get something much shorter duration at a higher yield.

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Speaker 3: But there's the reinvestment risk, of course it comes into play.

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Speaker 3: But for many investors, the safety of treasuries, regardless of

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Speaker 3: where on the maturity spectrum, is a wonderful thing right now.

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Speaker 3: And you know, in the ZERP environment, so many investors

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Speaker 3: were forced out the risk spectrum, either into higher risk

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Speaker 3: segments of fixed income or into the equity market. And

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Speaker 3: that's not the case, which is one of the reason

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Speaker 3: why I think the six trillion dollars in money markets

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Speaker 3: could be a little bit stickier. And I don't know

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Speaker 3: that we should consider it so imminent pool of money

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Speaker 3: that's going to jump into the equity market.

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Speaker 2: You've been right on that. But what do you what

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Speaker 2: is the action of the trillions at schwab What do

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Speaker 2: you see people doing on a micro basis month to.

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Speaker 3: Month, Well, a lot more money in the safety of areas,

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Speaker 3: like whether it's money markets or treasuries, and I think

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Speaker 3: that's a good thing for that component of portfolios that

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Speaker 3: they want to have that sort of high liquidity, fairly

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Speaker 3: low risk. You know, we've been very factor focused on

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Speaker 3: the equity side of things. You know, we have sector biases,

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Speaker 3: but we think even applying it within individual sectors is

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Speaker 3: focused on factors, which is just investing based on characteristics.

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Speaker 2: I got to exqueeze this in you provided a service

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Speaker 2: to the nation with fiscal reviews for one of our

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Speaker 2: presidents coming in years ago. Things have changed now it's

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Speaker 2: trillions a month in debt and deficit. Should our listeners

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Speaker 2: and viewers be concerned about the burgeoning deficits?

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Speaker 3: Absolutely, and I think the investor class is gravely concerned

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Speaker 3: about this. I cannot remember the last time I did

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Speaker 3: a client event or a webcast where the first question

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Speaker 3: wasn't about the deficit and debt. The problem is that's

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Speaker 3: the investor class. I think broader constituents don't seem to

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Speaker 3: care much about it, which is why neither side of

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Speaker 3: the aisle tends to care about it. I think, frankly,

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Speaker 3: we need more adults in the room down in DC

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Speaker 3: having this conversation.

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Speaker 2: We're gonna go out with this because Lizzie sent me

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Speaker 2: a mean note I did nickelback one day. Ye oh yeah,

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Speaker 2: she was just like crushed. Lizzienne Saunders, thank you so much.

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Speaker 2: This is the conversation of the day on the arch

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Speaker 2: theory that is out there, which is things are good

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Speaker 2: because the wage growth after adjusting for inflation, is finally constructive.

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Speaker 2: Jeff you with a chart of the week, chart of

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Speaker 2: the month, chart of the first quarter. He's with bn Y.

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Speaker 2: Mellon joins us out. Jeff you, thank you. You've got

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Speaker 2: the United States and we're popping four percent plus wages

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Speaker 2: and after inflation, there's a real wage. What is it

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Speaker 2: about Italy where they've got wage growth pushing eight percent

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Speaker 2: and they got disinflation deflation. How good are things in Italy?

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Speaker 1: Well, just based on headline numbers, they certainly are looking

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Speaker 1: are very good. And you know there were one offs

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Speaker 1: in place heading towards December, so that generated a nominal

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Speaker 1: wage of them seven point ninety percent. But there's genuine

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Speaker 1: disinflation in Italy as well due to lower growth as

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Speaker 1: you would expect, lower demand. So that buffer is in

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Speaker 1: place right now and if you fink it's what several

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Speaker 1: Eurozone policy makers are worried about. They're looking at real

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Speaker 1: wage growth and saying people can still spend. Are we

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Speaker 1: talking about cutting rates?

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Speaker 2: Go to the other end of the spectrum in your

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Speaker 2: magnificent chart, I'm still this church, and that is I've

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Speaker 2: got inflation substantial in Japan, and I don't have wage growth.

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Speaker 2: I got an ugliness. Is Japan borderline as you studied

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Speaker 2: at LC nineteen thirties England.

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Speaker 1: Oh, I think those are going to be very different

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Speaker 1: demographics to us start off, where than what is them

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Speaker 1: driving things that you know net that's what you're hearing

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Speaker 1: from Japanese policymakers. Japanese lawmakers. They want to see real

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Speaker 1: wage growth, not just a one off bounce, which is

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Speaker 1: maybe what happened in Italy, but so that to become entrenched,

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Speaker 1: only then can they consider to raise rates. And they

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Speaker 1: want to generate some inflation expectations to encourage corporates to

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Speaker 1: start paying higher nominal wages and generate real wage growth

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Speaker 1: as well. So basically, you know, that's the ebb and

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Speaker 1: flow of policy right now. And to be frank and

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Speaker 1: for those of us who think the yen should strengthen

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Speaker 1: in Japan. It is proving frustrating.

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Speaker 4: So Jeffrey, we're going to hear from Fed Truman, Jpal today.

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Speaker 4: What are the central banks in Europe? What are they

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Speaker 4: saying these days?

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Speaker 2: Are they following the US FED?

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Speaker 4: Do they have some independent thinking visa v their economies

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Speaker 4: and their rate structure?

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Speaker 1: Oh, totally be independent. But what is DCB thinking? What

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Speaker 1: is the government council thinking? It depends on which Government

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Speaker 1: Council member you are going to ask, right, there were

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Speaker 1: some members which said March should be so tomorrow should

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Speaker 1: have been a live meeting, and there others who question,

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Speaker 1: why are we even talking about rate cuts this year?

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Speaker 1: I think you know that's been brought onto the table

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Speaker 1: for the FED as well. So very different views. I'm

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Speaker 1: out there at this point, but we think Q two

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Speaker 1: they will need to move on rates. Eurozone economy, look

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Speaker 1: at manufacturing contracting that is not in a good place

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Speaker 1: compared to the US.

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Speaker 4: And I know just kind of the expectations here in

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Speaker 4: the US, Jeffrey, been tempered from early this year when

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Speaker 4: maybe five to six rate cuts were priced and now

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Speaker 4: maybe you know, kind of three or four as something

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Speaker 4: similar happened in the ECB and the BOE from the

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Speaker 4: market's expectations perspective.

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Speaker 1: Yes, totally so. Triple digits in total cuts were expected

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Speaker 1: in Europe towards the end of last year due to

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Speaker 1: the soft numbers. That certainly has them turned around as well.

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Speaker 1: Right now, you're seeing energy prices, for example, contributing positively

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Speaker 1: to headline inflation. And you know, funny that's going on now.

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Speaker 1: You know, given core inflation was too high last year,

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Speaker 1: now headline inflation is them too high, So what are

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Speaker 1: you really targeting? So that's where going back to my

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Speaker 1: euro dollar, going back to parity core for this year,

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Speaker 1: where we think the ECB will acknowledge that manufacturing really

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Speaker 1: is slowing too much such that they have to move early.

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Speaker 2: It's a great coverage yesterday, Jeff You and the NPC

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Speaker 2: and basically three thousand people in a room with the

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Speaker 2: President of China trying to move forward as a communist party.

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Speaker 2: Jeff You, when you see a Bloomberg headline that says

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Speaker 2: President g wants quote new productive forces to fit local conditions,

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Speaker 2: What a god's name does that mean? Jeff you?

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Speaker 1: If you actually go back to an NDRC document, I

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Speaker 1: believe it was from a month ago. They actually specifically

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Speaker 1: cite the academic who came up with these theories are

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Speaker 1: within the fifth and Dove sufctral Revolution and the like.

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Speaker 1: So it really is basically about resilience. It really is

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Speaker 1: about identifying aspects of the economy technology at its core

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Speaker 1: being able to generate high quality growth, generate productivity growth,

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Speaker 1: to compensate for things like soft demographics and also potential

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Speaker 1: supply chain challenges as well. That is the plan. Can

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Speaker 1: it deliver growth and we shall see, But overall we

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Speaker 1: do think there's upside surprise that flows into China.

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Speaker 2: Technologies in the news. Ed Ludlow, Sure, I don't know

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Speaker 2: what to get the man, but Jeff, you technologies in

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Speaker 2: the news, whether it's ASML in the Netherlands or you

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Speaker 2: know you as Microme and litigation the other day, is

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Speaker 2: the Taiwan magic of TSMC? Is it at risk?

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Speaker 1: So right now, China has said in the past that

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Speaker 1: if let's just say supply chains are going to be

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Speaker 1: at risk, then China is counting on its own innovative capacity,

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Speaker 1: its own universities, its own education system to start to

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Speaker 1: generate that innovation. And then if we look at what's

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Speaker 1: happened over the last few decades. Of course, globalizations has

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Speaker 1: helped being able to access and global knowledge, but should

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Speaker 1: we also count China out in terms of its ability

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Speaker 1: not being able to innovate them alike. I think that

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Speaker 1: is a big assumption as well, because you know, when

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Speaker 1: some times you are forced into a position where you

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Speaker 1: have to innovate yourself back into growth out of the

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Speaker 1: supply chain challenges, that's when sparks in a tend to happen.

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Speaker 1: So I think globally, you know this trend towards deglobalization,

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Speaker 1: not just China but everywhere people sharing less with each other,

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Speaker 1: trading less with each other. That doesn't mean you are

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Speaker 1: going to achieve your strategic objectives. So I do think

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Speaker 1: with the electoral season upon us and these are things

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Speaker 1: that policymakers will make us really need to think about.

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Speaker 2: Thanks for the brief on Europe with the ECB tomorrow.

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Speaker 4: We had Super Tuesday, but I don't know as far

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Speaker 4: as Super Tuesdays goes didn't feel that super to me.

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Speaker 4: But let's check in with somebody who thinks about this

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Speaker 4: stuff full time, Jen Flinton. She's head of US Government

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Speaker 4: affairs for Investco.

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Speaker 6: Jen.

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Speaker 4: We had fifteen States, and I guess Samoa as well,

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Speaker 4: voting yesterday. Key takeaways for you.

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Speaker 5: Yeah, I think we saw what we expected to see,

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Speaker 5: which was Donald Trump pretty much taking control of the

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Speaker 5: fifteen states, all but one Vermont, which he seems to

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Speaker 5: have lost to Nicky Haley. But the expectation was that

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Speaker 5: after Super Tuesday, NICKI Haley would leave the race, and

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Speaker 5: it looks like we're going to get that around ten

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Speaker 5: o'clock today.

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Speaker 4: All right, So where do we go from here? For

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Speaker 4: this is going to be a very long campaign because,

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Speaker 4: as I remember, the election is not till November. So

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Speaker 4: what do each of these politicians, these candidates, what did

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Speaker 4: they do for the next you know, I don't know,

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Speaker 4: nine eight months.

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Speaker 5: Yeah, this is going to be a really early start

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Speaker 5: to the general election season. And we're already starting to

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Speaker 5: see some of that momentum building up for the policy discussion. Right,

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Speaker 5: and we have this State of the Union on Thursday,

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Speaker 5: where I think the President's going to telegraph some of

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Speaker 5: his messaging going forward into this very long general election season.

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Speaker 5: And as we approach the summer, which.

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Speaker 7: Is the conventions.

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Speaker 5: In July, you'll have the Republican Convention there in Wisconsin,

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Speaker 5: followed in August by the Democratic Convention in Chicago, and

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Speaker 5: then we'll immediately go into general election season. I think

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Speaker 5: the big question right now is are we going to

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Speaker 5: see debates in the fall?

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Speaker 2: Okay, well, you know, I'll go with all that. But

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Speaker 2: I think there's a lot going on beneath. And I

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Speaker 2: know California got the Steve Garvey remember him on first base?

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Speaker 4: Yes, first first base?

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Speaker 2: He is janormous. Yeah, and he did a genormous day yesterday,

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Speaker 2: I guess. But Jen, what did you learn about like

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Speaker 2: the future of the House off of Super Tuesday? Can

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Speaker 2: you say tildmore Republican likely tilmore Democratic? Lady? Which way

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Speaker 2: does that go?

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Speaker 6: Well?

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Speaker 5: I was watching some specific races a little lessoteric, but

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Speaker 5: in Arkansas you had some fights for some of your

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Speaker 5: more traditional Republicans against some type primaries to their right,

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Speaker 5: most notably Steve Womack, and he survived with a nice

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Speaker 5: little cushion there. Looking into Texas, some of those races

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Speaker 5: you're going to have to have some additional primary runoffs,

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Speaker 5: so that's going to require some spend and money. But

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Speaker 5: I think going into going into this next election day

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Speaker 5: on March twelfth, you know, the Senate is looking really

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Speaker 5: strong for Republicans.

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Speaker 2: And I believe after Duke takes the acc and we

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Speaker 2: have selections Sunday, isn't there a Florida primary out there?

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Speaker 2: Like within two cups of coffee?

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Speaker 5: That's right, Florida and last night was Texas.

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Speaker 7: These are the two states.

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Speaker 5: That are the most difficult states for Republicans right This map,

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Speaker 5: this Senate map is really advantaged for Republicans right now.

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Speaker 7: So you know, if you think Texas and.

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Speaker 5: Florida are they're tough estates, you know that that's not

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Speaker 5: really that tough. While you have the Democrats defending a

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Speaker 5: number of states.

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Speaker 2: So what if Haley drops out, where's we come out?

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Speaker 2: We got to justify a road trip down there. Jennifer

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Speaker 2: help us. How do we what's going to be the

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Speaker 2: tension of the Florida primary?

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Speaker 5: Well, I mean, look, Florida is a pretty ruby red

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Speaker 5: state now. I mean it wasn't long ago that it

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Speaker 5: was a purple place, but it's a pretty red state now.

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Speaker 7: I will say this.

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Speaker 5: You had the Biden campaign sort of telegraphing expanding the

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Speaker 5: map into Florida, which kind of raised a question mark

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Speaker 5: over my head.

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Speaker 7: I'm not quite sure how that's going to happen.

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Speaker 5: I'm really quite frankly focused in on these battleground states.

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Speaker 5: I'm after, you know, Haley drops out and we start

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Speaker 5: this general election and Trump probably takes the delegates he

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Speaker 5: needs by next week. I'm looking at Arizona, Nevada, Wisconsin, Michigan, Pennsylvania,

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Speaker 5: and ja.

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Speaker 7: I am honed in on those states.

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Speaker 2: I'm enough of a fossil where Florida was actually a.

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Speaker 4: Battleground bund exactly, all right, Jen, the Republican Party, it

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Speaker 4: is the party of Donald Trump. My father, who would

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Speaker 4: vote for Nixon today if he were on the ballot,

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Speaker 4: would not recognize this party. What is the Republican National Committee,

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Speaker 4: the apparatus, the machine? What does it do over the

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Speaker 4: next eight months?

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Speaker 7: Yeah, that's a great question.

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Speaker 5: So what we're seeing is as Trump really consolidating his

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Speaker 5: support there and turning over the leadership at the rn C.

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Speaker 7: This will now be his RNC.

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Speaker 5: He's putting his daughter in law at sort of the

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Speaker 5: front face of the RNC and then moving Chris Losa Vida.

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Speaker 5: He's one of Trump's co campaign shairs and runs the

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Speaker 5: campaign there next to Susie Wiles. He's going in and

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Speaker 5: he's going to be doing a lot of the operational

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Speaker 5: work at the rn C, and what they will be

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Speaker 5: focused on are those battleground states and getting really strong

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Speaker 5: captains to those days.

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Speaker 2: Carry out suppose really important question, and I take your point.

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Speaker 2: The leader takes over the party. That's the way it

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Speaker 2: used to be. What's a Trump methodology in Pennsylvania versus

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Speaker 2: Republican and name only Mitt Romney's methodology in Pennsylvania.

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Speaker 7: Right, It's going to be focused on those.

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Speaker 5: Suburbs right in the Pittsburgh area, in the Philadelphia area

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Speaker 5: and trying to raise those numbers he has clearly has

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Speaker 5: He clearly has a lot of growth that he needs

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Speaker 5: to make there with suburban women.

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Speaker 2: Okay, this has been a great brief Selvita Supermanian who

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Speaker 2: joins us now from Bank of America and Sevida, what's

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Speaker 2: important about this conversation. If you've made the trek across

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Speaker 2: a year and a half from a more measured, cautious

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Speaker 2: XPX call out to well over five thousand, describe that trek.

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Speaker 2: What was the path in the process to get to

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Speaker 2: your new optimism.

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Speaker 6: Yeah, so it was it was a path that was

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Speaker 6: paved with potholes.

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Speaker 8: You know, we I think at the beginning of.

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Speaker 6: Last year, all of our sentiment models were flashing green

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Speaker 6: because everyone was so bearish on everything, and that was

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Speaker 6: a point at which you know, we we basically saw

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Speaker 6: that the real risk was being underinvested in equities. Then

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Speaker 6: you had, you know, another bank blow up, you had

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Speaker 6: some volatility.

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Speaker 8: Closer to the end of the year.

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Speaker 6: But I think it was really a year where most

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Speaker 6: of our models were flashing green except valuation. And I think,

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Speaker 6: you know, today we are still constructive on equities, but

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Speaker 6: I would say we're less convicted in that outright. And

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Speaker 6: the reason is, you know, we're at a more of

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Speaker 6: a neutral point in terms of sentiment, and I think

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Speaker 6: the market, you know, kind of optimism has built around

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Speaker 6: themes and.

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Speaker 2: Stuff for Global Wall Street. Sevita, what methodology you are using?

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Speaker 2: Are you bottom up, top down? Are you factor based?

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Speaker 2: Is it some magical mathematics out of Berkeley? What's the

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Speaker 2: Sevita Supermanian method to look out a tea months?

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Speaker 6: Yeah, so, I mean it's a lot of different reads.

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Speaker 6: So what we tried to do is come up with

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Speaker 6: different signals that are uncorrelated, so they give you a

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Speaker 6: kind of a very diverse take on the market, and

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Speaker 6: we ended up I remember when I got this job

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Speaker 6: back in twenty eleven, back testing all of the market

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Speaker 6: timing models that we've all heard about, like the FED

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Speaker 6: model or dividend yields versus bond yields.

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Speaker 8: Et cetera.

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Speaker 6: Most of them don't work, surprise, surprise, which is why

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Speaker 6: we're all here. But you know, what we did find

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Speaker 6: was that if you use kind of different models for

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Speaker 6: different timeframes, you see, it seems to.

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Speaker 8: Work out better.

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Speaker 6: So we have a sentiment model, we have a fair

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Speaker 6: value model. Long term valuation is probably all that matters.

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Speaker 6: Shorter term it's technicals, and then over the next three

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Speaker 6: months we look for the probability of an earning surprise and.

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Speaker 8: A positive or negative direction. So that's the suite.

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Speaker 6: But then, of course, Tom, you know, it's more of

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Speaker 6: an art than a science, and each of these models

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Speaker 6: is basically as good as the inputs that you feed

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Speaker 6: into it. So I think where we are today is

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Speaker 6: an environment where our valuation framework for the long term

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Speaker 6: says returns are going to be lower for longer.

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Speaker 8: I think we all.

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Speaker 6: Kind of knew that, but our near term sentiment and

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Speaker 6: earning surprise models are telling us that things are actually

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Speaker 6: the direction of the market is more likely to be

437
00:23:51,080 --> 00:23:54,040
Speaker 6: up rather than down. So I think that's our net

438
00:23:54,040 --> 00:23:57,639
Speaker 6: message to investors is stay invested. We're not at that

439
00:23:57,760 --> 00:24:02,920
Speaker 6: point of absolute euphoria on equities. We've seen euphoria build

440
00:24:02,960 --> 00:24:05,040
Speaker 6: around a few themes in the market, but we think

441
00:24:05,080 --> 00:24:07,440
Speaker 6: that it could broaden out from here significantly.

442
00:24:07,720 --> 00:24:10,480
Speaker 4: So, Savite, I'm looking at your research note here, realistic

443
00:24:10,680 --> 00:24:14,160
Speaker 4: bull bear case fair value forty one hundred to sixty

444
00:24:14,160 --> 00:24:17,040
Speaker 4: five hundred on the S and P five hundred. Huge

445
00:24:17,280 --> 00:24:19,880
Speaker 4: disparity there. What's kind of what are the key two

446
00:24:19,960 --> 00:24:23,200
Speaker 4: or three drivers to push you between you know, your

447
00:24:23,200 --> 00:24:24,000
Speaker 4: bold and bear case.

448
00:24:24,600 --> 00:24:28,399
Speaker 6: Yeah, so the bull case is really predicated. It's not

449
00:24:28,480 --> 00:24:31,800
Speaker 6: even that lofty of a set of assumptions, but it's

450
00:24:31,840 --> 00:24:34,960
Speaker 6: really the idea that you know, real rates stay lower

451
00:24:35,000 --> 00:24:38,040
Speaker 6: for longer because of demographics, disruption, all the stuff we

452
00:24:38,040 --> 00:24:40,920
Speaker 6: were talking about, you know, five years ago before COVID,

453
00:24:41,520 --> 00:24:43,560
Speaker 6: and then on top of that, the equity risk premium

454
00:24:43,640 --> 00:24:46,000
Speaker 6: actually settles a little bit lower than where it is

455
00:24:46,040 --> 00:24:50,040
Speaker 6: today because companies are actually focused on high quality growth

456
00:24:50,119 --> 00:24:53,600
Speaker 6: rather than just levered buybacks, and you know, kind of

457
00:24:53,600 --> 00:24:56,080
Speaker 6: this lower quality growth that we've seen over the last

458
00:24:56,520 --> 00:24:58,040
Speaker 6: you know, the prior decade.

459
00:24:58,240 --> 00:24:59,840
Speaker 8: So that's when that's one.

460
00:25:00,520 --> 00:25:02,399
Speaker 6: And then the other factor is just the idea that

461
00:25:02,440 --> 00:25:06,280
Speaker 6: normalized earnings can actually be. You know, we're not necessarily

462
00:25:06,320 --> 00:25:08,959
Speaker 6: at a point where normalized darnings, where earnings are peaked

463
00:25:09,000 --> 00:25:11,280
Speaker 6: and likely to calm down significantly.

464
00:25:11,680 --> 00:25:14,320
Speaker 8: So I think our bookcase is actually pretty realistic.

465
00:25:14,480 --> 00:25:17,560
Speaker 6: And then similarly, the realistic bare case scenario is the

466
00:25:17,640 --> 00:25:19,960
Speaker 6: idea that real rates subtle higher.

467
00:25:20,640 --> 00:25:22,359
Speaker 8: You know, inflation isn't controlled.

468
00:25:22,840 --> 00:25:26,119
Speaker 6: We have a and we also have ten year yields

469
00:25:26,160 --> 00:25:28,240
Speaker 6: backing up on various drivers.

470
00:25:28,680 --> 00:25:29,800
Speaker 8: And then on top of that you.

471
00:25:29,760 --> 00:25:32,879
Speaker 6: Have normalized darnings coming back down to kind of the

472
00:25:32,960 --> 00:25:35,199
Speaker 6: long term average.

473
00:25:34,720 --> 00:25:36,560
Speaker 8: Which I think is too punitive.

474
00:25:37,480 --> 00:25:40,960
Speaker 6: So one of the reasons I just just for you know, clarification,

475
00:25:41,000 --> 00:25:43,480
Speaker 6: One of the reasons that we maintained our constructive outlook

476
00:25:44,000 --> 00:25:48,200
Speaker 6: is that I think that valuation is particularly problematic because

477
00:25:48,600 --> 00:25:51,720
Speaker 6: if you're looking at a long term valuation framework and

478
00:25:51,760 --> 00:25:55,240
Speaker 6: you say the market is expensive today versus nineteen eighty

479
00:25:55,359 --> 00:25:59,240
Speaker 6: or nineteen ninety or even two thousand, the makeup of

480
00:25:59,280 --> 00:26:01,439
Speaker 6: the S and P five one hundred is so different

481
00:26:01,520 --> 00:26:03,879
Speaker 6: today that it's almost like apples to oranges.

482
00:26:04,359 --> 00:26:07,159
Speaker 4: How concerned are you, Savita that you know a lot

483
00:26:07,200 --> 00:26:09,120
Speaker 4: of folks tell you there's not a lot of breath

484
00:26:09,160 --> 00:26:11,600
Speaker 4: in this market. Yeah, you know, the Magnificent Seven have

485
00:26:12,040 --> 00:26:14,320
Speaker 4: everyonet to phrase it. There's not a lot of breath

486
00:26:14,320 --> 00:26:16,720
Speaker 4: in this market, and a lot of market folks would

487
00:26:16,720 --> 00:26:17,879
Speaker 4: say you that's not healthy.

488
00:26:18,440 --> 00:26:22,120
Speaker 6: What do you think, Well, again, we back tested this

489
00:26:22,280 --> 00:26:26,520
Speaker 6: breath indicator and it's not necessarily bullish or bearish.

490
00:26:26,680 --> 00:26:28,840
Speaker 8: So narrow markets.

491
00:26:28,400 --> 00:26:33,520
Speaker 6: Can precede strong goal markets with broad leadership. Narrow markets

492
00:26:33,520 --> 00:26:37,320
Speaker 6: can precede a downturn. There's no real rhyme or reason

493
00:26:37,400 --> 00:26:40,760
Speaker 6: to just the fact that the market is narrow. I

494
00:26:40,840 --> 00:26:42,480
Speaker 6: think you have to look at a whole bunch of

495
00:26:42,520 --> 00:26:46,800
Speaker 6: other other factors. What makes me more bullish on the

496
00:26:46,840 --> 00:26:50,760
Speaker 6: rest of the SMP versus the Magnificent seven is the

497
00:26:50,840 --> 00:26:56,080
Speaker 6: idea that when you look at expectations, expectations for the

498
00:26:56,119 --> 00:27:00,679
Speaker 6: Magnificent Seven are pretty aggressive, and we're now at point where,

499
00:27:01,040 --> 00:27:05,520
Speaker 6: you know, growth expectations are quite lofty. You know, our

500
00:27:05,560 --> 00:27:08,440
Speaker 6: analysts think that some of these companies meet or beat

501
00:27:08,440 --> 00:27:10,960
Speaker 6: those expectations. But if you look at the rest of

502
00:27:11,000 --> 00:27:13,760
Speaker 6: the market, what's actually interesting to me is that the

503
00:27:13,840 --> 00:27:18,280
Speaker 6: average consensus long term growth forecast for a company outside

504
00:27:18,320 --> 00:27:22,800
Speaker 6: of the Magnificent seven is the lowest we've seen in

505
00:27:22,920 --> 00:27:27,440
Speaker 6: twenty five years. This is a market where nobody's expecting

506
00:27:27,560 --> 00:27:31,119
Speaker 6: anything good to happen outside of AI or GLP.

507
00:27:30,880 --> 00:27:35,080
Speaker 2: One and the exuberance meter. We've seen that this week, Sevida,

508
00:27:35,440 --> 00:27:37,320
Speaker 2: I've been dying to ask you this, and this goes

509
00:27:37,359 --> 00:27:40,200
Speaker 2: back Paul to me and Sevida and Davos years ago

510
00:27:40,720 --> 00:27:44,360
Speaker 2: talking up ESG and folks to give you a framework here.

511
00:27:44,520 --> 00:27:50,600
Speaker 2: Miss Subermanian was the first to excel spreadsheet ESG just

512
00:27:50,640 --> 00:27:53,679
Speaker 2: as simple as that in October. I believe it was

513
00:27:53,680 --> 00:27:56,320
Speaker 2: in November and the ft one of our heroes. In

514
00:27:56,400 --> 00:28:02,359
Speaker 2: Yours to Sevida, Astra Demodrad wrote an essay ESG is

515
00:28:02,440 --> 00:28:08,520
Speaker 2: beyond redemption? May it rest in peace? Is ESG investing dead?

516
00:28:09,560 --> 00:28:09,840
Speaker 7: Look?

517
00:28:10,000 --> 00:28:13,480
Speaker 6: I think ESG is like anything else. There are good

518
00:28:13,480 --> 00:28:15,159
Speaker 6: ways to do it, bad ways.

519
00:28:14,920 --> 00:28:15,359
Speaker 7: To do it.

520
00:28:15,600 --> 00:28:18,439
Speaker 6: I actually don't even think it is a thing or

521
00:28:18,440 --> 00:28:21,760
Speaker 6: a concept. It's really just a new set of information

522
00:28:22,440 --> 00:28:26,679
Speaker 6: that's become formally available to us. I mean, analysts always

523
00:28:26,680 --> 00:28:30,480
Speaker 6: thought about governance. They always thought about companies with litigation

524
00:28:30,640 --> 00:28:32,719
Speaker 6: risk around bad environmental practices.

525
00:28:33,040 --> 00:28:35,200
Speaker 8: But I think now what's happened is it's become a.

526
00:28:35,119 --> 00:28:39,240
Speaker 6: Little more transparent through companies telling us more about themselves,

527
00:28:39,240 --> 00:28:39,920
Speaker 6: which is great.

528
00:28:40,000 --> 00:28:42,080
Speaker 8: I love data. Who doesn't love data?

529
00:28:42,240 --> 00:28:44,840
Speaker 6: So, you know, I think that's that's the crux of it,

530
00:28:44,880 --> 00:28:46,800
Speaker 6: is that you now have a little bit more insight

531
00:28:46,920 --> 00:28:51,160
Speaker 6: into the innards of a company beyond just the financials.

532
00:28:51,280 --> 00:28:54,440
Speaker 2: Savita, thank you so much. Savina Supermania and she is

533
00:28:54,440 --> 00:28:58,680
Speaker 2: with Bank of America. This is a Bloomberg Saveillance podcast,

534
00:28:58,920 --> 00:29:03,720
Speaker 2: bringing you the best economics, finance, investment, and international relations.

535
00:29:03,960 --> 00:29:07,320
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536
00:29:07,360 --> 00:29:11,520
Speaker 2: the Bloomberg Podcast channel on YouTube to see the show

537
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538
00:29:14,840 --> 00:29:18,600
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539
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540
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