WEBVTT - Surveillance: Subramanian Lifts S&P 500 Target 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best and economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.439 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.840 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.000 --> 0:00:32.760 Joining us now with the shifts of Vita Supermanian head 0:00:32.760 --> 0:00:35.960 of Equity and Quantitative Strategy at BABA, give me the 0:00:36.040 --> 0:00:39.120 quant angle on how we lift up well above four thousand. 0:00:39.159 --> 0:00:42.000 What's the quantitative place we're in right now? 0:00:42.200 --> 0:00:43.800 It gets us out to a bull market. 0:00:44.280 --> 0:00:47.960 Yeah, Well, so we looked at a variety of signals, 0:00:47.960 --> 0:00:52.159 and first of all, narrow breath is not a precursor 0:00:52.440 --> 0:00:54.360 for doom and gloom. So I just want to get 0:00:54.400 --> 0:00:54.840 that out. 0:00:54.680 --> 0:00:56.840 There that Zanne Saunders agrees with that as schwall. 0:00:56.960 --> 0:00:59.360 Yeah, I think it's it's kind of a false negative. 0:00:59.480 --> 0:01:01.880 And then when you look at valuations right now, they 0:01:01.960 --> 0:01:04.520 look high, which is another reason nobody wants to buy stocks. 0:01:04.720 --> 0:01:07.920 But valuations generally look high when you're in an earnings recession, 0:01:07.959 --> 0:01:10.560 which we are in right now, and I think that 0:01:10.680 --> 0:01:13.480 when you look at the equity risk premium for stocks, 0:01:14.000 --> 0:01:17.720 it could actually go lower. And our call is the 0:01:17.880 --> 0:01:20.959 riskiest asset class in the world right now is the 0:01:21.080 --> 0:01:24.160 risk free rate, basically treasuries or the bubble. That's the 0:01:24.200 --> 0:01:27.679 epicenter of the bubble. Everyone's been buying treasuries and pushing 0:01:27.720 --> 0:01:30.800 interest rates down to close to zero and now we're 0:01:30.840 --> 0:01:33.760 working through that. But if we are in this sticky 0:01:33.800 --> 0:01:37.000 inflationary environment, do you really want to be in cash 0:01:37.080 --> 0:01:39.040 or bonds? Don't you want to be in stocks that 0:01:39.120 --> 0:01:42.160 participate in inflation. So that's our call, and I think 0:01:42.160 --> 0:01:45.039 that stocks are kind of, you know, reviled right now 0:01:45.080 --> 0:01:47.880 because everybody's worried that we're going into a recession. Think 0:01:47.880 --> 0:01:50.600 about it, We've been positioning for this recession for like 0:01:50.960 --> 0:01:53.559 six quarters, right So we're now at a point where 0:01:53.560 --> 0:01:59.280 the average money manager or individual investor is mostly in defensives, 0:01:59.440 --> 0:02:02.360 more over weight defensives and cyclicals than we've seen since 0:02:02.400 --> 0:02:04.720 two thousand and eight. So I feel like this is 0:02:04.760 --> 0:02:08.359 another setup for a cyclical rally. You know, forty three 0:02:08.440 --> 0:02:10.680 hundred isn't that far away from where we are today, 0:02:10.680 --> 0:02:12.760 So we're not being you know, heroes in terms of 0:02:12.760 --> 0:02:15.560 the cap weighted benchmark. But I do think that you 0:02:15.639 --> 0:02:19.079 can make money by owning some of these unloved cyclicals 0:02:19.280 --> 0:02:22.120 that aren't necessarily going to get roiled by you know, 0:02:22.160 --> 0:02:25.399 what looks to be, you know, not such a bad recession. 0:02:25.440 --> 0:02:30.200 I mean, our economists are basically forecasting zero point eight 0:02:30.480 --> 0:02:34.840 percent peak to trough declines and GDP not bad. 0:02:34.919 --> 0:02:36.880 Not bad. So let's get to it. Let's not bury 0:02:36.919 --> 0:02:39.480 the lead forty three hundred is not the headline. It's 0:02:39.480 --> 0:02:41.520 an equal way S and P five hundred calls. It's 0:02:41.600 --> 0:02:44.440 leaning into cyclicals for the cyclic calls. Just go through 0:02:44.880 --> 0:02:47.919 what industry groups, industrials, banks. What is it about the 0:02:47.919 --> 0:02:49.160 cyclic calls right now that you like? 0:02:49.720 --> 0:02:51.960 What I like about them is that nobody wants to 0:02:52.000 --> 0:02:54.760 talk about them. That the recession that we're heading into 0:02:55.000 --> 0:02:58.480 isn't that bad. And we are at a point where 0:02:59.320 --> 0:03:03.120 cyclical set vectors have actually become higher quality. And I 0:03:03.160 --> 0:03:05.200 know this sounds crazy to say, but if you look 0:03:05.200 --> 0:03:11.440 at energy, metals, even financials, right the big global regulated banks, 0:03:12.040 --> 0:03:16.600 these companies have been forced to get disciplined because they've 0:03:16.600 --> 0:03:19.799 been starved of capital for a very long time. We've 0:03:19.800 --> 0:03:22.240 been in a decade where nobody wants to invest in 0:03:22.240 --> 0:03:27.360 commodities or metals, or mining or banks, and these companies 0:03:27.440 --> 0:03:31.040 had to basically get discipline figure out how to become 0:03:31.160 --> 0:03:35.000 self sufficient. And today I would argue that they're higher 0:03:35.080 --> 0:03:38.440 quality than a lot of these so called secular growth 0:03:38.440 --> 0:03:41.280 plays that have just had a free ride from cheap 0:03:41.360 --> 0:03:44.480 capital globalization. Like all of these sort of low quality 0:03:44.520 --> 0:03:45.280 sources of growth. 0:03:45.400 --> 0:03:47.960 Let's talk about the other side of that call, especially 0:03:48.040 --> 0:03:50.920 given the equal weight is going to deliver double the 0:03:50.960 --> 0:03:54.320 gains of market cap weighted, which I think is fascinating 0:03:54.400 --> 0:03:57.320 and raises real questions about your tech call. And is 0:03:57.320 --> 0:04:01.480 it just simply trading sideways allowing this cyclicals to sort 0:04:01.520 --> 0:04:03.720 of gain and lifting the index, or does that mean 0:04:03.720 --> 0:04:05.680 that they sell off? I mean, are they basically going 0:04:05.760 --> 0:04:07.040 to go opposite each other? 0:04:07.520 --> 0:04:10.480 So I think there's a way that big tech can 0:04:11.200 --> 0:04:14.400 do all right during this period, and that's if these 0:04:14.400 --> 0:04:18.640 companies start to shorten their duration risk. And what I 0:04:18.680 --> 0:04:20.880 mean by this is a lot of these big tech 0:04:20.920 --> 0:04:24.240 companies offer great growth way out in the future, so 0:04:24.279 --> 0:04:26.960 they're going to get hurt harder by changes in the 0:04:27.000 --> 0:04:30.320 cost of capital. What some of these companies are doing 0:04:30.600 --> 0:04:32.920 is acknowledging that they're too big to grow as quickly, 0:04:33.000 --> 0:04:36.160 so they're returning cash and shortening their duration. I think 0:04:36.200 --> 0:04:38.560 that's the way that we can start investing in big 0:04:38.640 --> 0:04:41.920 tech again, is if we start getting more money upfront. 0:04:42.160 --> 0:04:44.080 And maybe that doesn't happen for a while. And I 0:04:44.120 --> 0:04:46.880 know it's heresy to say that some of these companies 0:04:46.880 --> 0:04:49.480 are going to initiate a dividend. All the growth investors 0:04:49.480 --> 0:04:51.840 that I talk to are like, what are you talking about. 0:04:51.880 --> 0:04:54.279 That's unthinkable, But you know, look at a lot of 0:04:54.279 --> 0:04:58.320 these tech companies in the past that have initiated dividends. 0:04:58.320 --> 0:05:00.680 They've rallied on the news. I think that this is 0:05:00.720 --> 0:05:04.000 one of those those themes where as we move forward 0:05:04.080 --> 0:05:06.720 the market, my trade sideways. Tech companies figure out how 0:05:06.720 --> 0:05:09.839 to navigate higher inflation, a higher cost of capital. Some 0:05:09.880 --> 0:05:12.400 of them go away. Some of them already have gone away. 0:05:12.640 --> 0:05:14.880 Smaller banks I worry about, but big banks I think 0:05:14.920 --> 0:05:18.800 are still in a very good capital position. So those 0:05:18.800 --> 0:05:19.360 are some of the things. 0:05:19.360 --> 0:05:22.279 Because it's a wide netted Bank of America. Are people cautious, 0:05:22.320 --> 0:05:24.320 so they gloomy? I mean I'm getting back and forth 0:05:24.360 --> 0:05:26.160 here in the world like the world's coming to an end, 0:05:26.160 --> 0:05:28.919 We're all going to die versus Well, that's what they're saying. 0:05:28.920 --> 0:05:31.839 But they're actually long Apple's. 0:05:31.360 --> 0:05:32.920 Well there, collective Apple. 0:05:33.120 --> 0:05:36.360 Yeah, I mean they're probably long big tech because it's 0:05:36.480 --> 0:05:38.760 dangerous not to be in those stocks, and those stocks 0:05:38.800 --> 0:05:41.760 are seen as defensive. I don't agree. I think those 0:05:41.760 --> 0:05:44.840 stocks are actually more cyclical. But I will tell you 0:05:45.000 --> 0:05:48.760 the mood is very gloomy, and I think that bears 0:05:48.800 --> 0:05:54.040 are just waiting for that downturn. But the one thing 0:05:54.080 --> 0:05:55.479 that makes me think we're not going to get a 0:05:55.520 --> 0:05:58.920 downturn is that the question we get most frequently is 0:05:59.600 --> 0:06:02.479 I have capital, I'd like to put it to work. 0:06:02.680 --> 0:06:06.080 Should I wait until the debt ceiling is behind us? 0:06:06.240 --> 0:06:09.760 Or do something now? And if everybody's asking that question, 0:06:10.560 --> 0:06:13.400 we're probably not going to see some major downdraft. That's 0:06:13.400 --> 0:06:13.760 our call. 0:06:13.920 --> 0:06:15.960 You think that some kind of debt agreement does deliver 0:06:16.080 --> 0:06:19.360 a pretty strong relief rally based on that, well, yeah. 0:06:19.120 --> 0:06:19.560 I think that. 0:06:19.720 --> 0:06:22.240 And I think that the reason the market hasn't sold 0:06:22.240 --> 0:06:25.159 off as much is that there is this sense, even 0:06:25.160 --> 0:06:29.159 when you listen to the most bearish investors. We all 0:06:29.279 --> 0:06:32.599 kind of think that they're going to get a deal done, right, 0:06:32.720 --> 0:06:37.440 I mean, that's the base case, So why bother selling 0:06:37.680 --> 0:06:40.000 if the base case is resolution? 0:06:40.480 --> 0:06:44.280 The psychology this moment I find fascinating. If you've made 0:06:44.279 --> 0:06:46.520 the call already and you're in the market, great. If 0:06:46.600 --> 0:06:49.000 you're on the sidelines and you're in cash, you're so 0:06:49.120 --> 0:06:51.200 nervous right now, sevida, because you believe that you're the 0:06:51.240 --> 0:06:54.240 guy that's going to get sucked in last right, right right, 0:06:54.360 --> 0:06:56.880 I mean enough, and they're going to smash into the 0:06:56.960 --> 0:06:58.200 downturn of course. 0:06:58.360 --> 0:07:00.400 Yeah. Well, here's the thing. If if you look at 0:07:00.440 --> 0:07:04.039 asset allocations, they're more overweight bonds than stocks that we've 0:07:04.080 --> 0:07:06.880 seen since O. Wait, so I think that there's less 0:07:06.920 --> 0:07:09.560 selling pressure. If you look at our own client flows, 0:07:10.080 --> 0:07:13.679 individual investors have been selling for the past four weeks. 0:07:13.680 --> 0:07:17.480 We actually saw big spike in outflows that would indicate 0:07:17.560 --> 0:07:21.120 almost capitulation like levels of selling. So I think that, 0:07:21.240 --> 0:07:25.520 you know, folks have basically braced themselves for this calendar date, 0:07:25.560 --> 0:07:29.600 this X date. And it's it's not necessarily. 0:07:29.080 --> 0:07:32.200 That people loving Savita talking here. 0:07:32.240 --> 0:07:39.000 I got stock recommendations, I mean, whalen emails good morning, Whalen, 0:07:39.080 --> 0:07:40.000 thank you for emailing. 0:07:40.440 --> 0:07:42.520 Whaleen emails in and says, go along. 0:07:42.400 --> 0:07:46.240 Fender f n d R. It's long Fender emailed in. 0:07:46.360 --> 0:07:51.160 Tell mom the Bryant Tyler, Bryan and Bryant pinky strat. 0:07:50.760 --> 0:07:52.480 Five seven hundred dollars. 0:07:52.920 --> 0:07:53.880 Whal good call. 0:07:54.240 --> 0:07:55.480 Yeah, we'll ask Sam. 0:08:01.640 --> 0:08:04.680 Oh Savita thank you this. Yeah, it's a bit of 0:08:04.680 --> 0:08:11.280 sup reminding the Bank of America. Granikfull Yer of AHF 0:08:11.440 --> 0:08:14.640 Investments running the following. If the X state really is 0:08:14.720 --> 0:08:17.840 June one, we're in trouble because there simply may not 0:08:17.880 --> 0:08:21.600 be enough time to write the deal into legislative language. 0:08:21.800 --> 0:08:24.760 Then give law makers time to actually read it. If 0:08:24.800 --> 0:08:27.560 the X state is around June sixth or seventh, there 0:08:27.600 --> 0:08:29.400 may be time to reach an agreement. 0:08:29.480 --> 0:08:29.800 TK. 0:08:30.040 --> 0:08:31.559 Pretty scathing from Greg this morning. 0:08:31.680 --> 0:08:33.920 Get out the calendar and someone that's known the calendar 0:08:33.960 --> 0:08:36.760 of Washington for decades and decades, mister Valier briefs this 0:08:36.880 --> 0:08:40.920 this morning here on May twenty third. I've been calling 0:08:41.000 --> 0:08:44.199 it next week Tuesday somewhere in the zeitgeist. Last night, 0:08:44.240 --> 0:08:48.280 Greg Valier, I saw people talking about next week is 0:08:48.320 --> 0:08:49.400 suddenly upon us? 0:08:49.679 --> 0:08:49.959 Is it? 0:08:50.360 --> 0:08:53.120 Yeah, we're getting there. Tom I've been very negative, as 0:08:53.160 --> 0:08:57.000 you know, but I think that the caps, these spending caps, 0:08:57.040 --> 0:09:01.160 are really crucial. That Democrats have agreed to spending freeze, 0:09:01.200 --> 0:09:04.400 that's a big deal. So I think we're not going 0:09:04.440 --> 0:09:08.840 to defall, however, a big caveat. I don't think they 0:09:08.880 --> 0:09:10.400 can get it done in time. I think there's going 0:09:10.480 --> 0:09:12.600 to have to be an extension of a week or 0:09:12.600 --> 0:09:16.040 two because there's a lot of members in both parties 0:09:16.080 --> 0:09:19.000 that need to be persuaded. But we're getting there. We're 0:09:19.000 --> 0:09:20.200 getting a little bit closer. 0:09:20.360 --> 0:09:24.559 Which can kick down the road is best for Americans? 0:09:24.640 --> 0:09:27.000 Is it a shorter term one where they fix us 0:09:27.040 --> 0:09:29.480 in two weeks or do we want it can kick 0:09:29.600 --> 0:09:32.240 down the road and to say September. 0:09:32.600 --> 0:09:35.040 You really don't want to go into September tom I 0:09:35.040 --> 0:09:39.400 think that's going to be annoying to the markets. The 0:09:39.440 --> 0:09:42.080 longer this thing sits out in the sun, the more 0:09:42.160 --> 0:09:45.360 it's going to attract flies. So I think that we've 0:09:45.400 --> 0:09:47.199 got to get something done, and I think it can 0:09:47.280 --> 0:09:49.480 be done, but there's going to probably have to be 0:09:49.520 --> 0:09:50.720 a short term extension. 0:09:51.000 --> 0:09:53.280 It's definitely already annoying to markets and far beyond, and 0:09:53.320 --> 0:09:55.360 it seems like there's been a shift in rhetoric away 0:09:55.400 --> 0:09:58.880 from job botting the other side with fiery threats of 0:09:58.880 --> 0:10:01.880 a default to something of a nature reflecting the fact 0:10:01.920 --> 0:10:04.360 that nobody wants to have the US default. Is this 0:10:04.400 --> 0:10:07.360 a political shift on both sides to basically say, look, 0:10:07.360 --> 0:10:09.040 we're not going to do this, We're not holding the 0:10:09.120 --> 0:10:11.839 US hostage, We're just trying to negotiate in good faith. 0:10:13.120 --> 0:10:15.840 Well, I think there's a growing feeling on Capitol Hill 0:10:15.920 --> 0:10:18.920 this could be a pox on both your houses if 0:10:18.960 --> 0:10:21.240 we don't get anything. I think the level of discuss 0:10:21.640 --> 0:10:25.560 toward Congress will increase, if that's possible. So no, I 0:10:25.600 --> 0:10:27.760 think both sides want to get this done. Both sides 0:10:27.800 --> 0:10:31.240 genuinely do not want to see that defall. What is 0:10:31.320 --> 0:10:33.920 annoying to me is that at the very last minute 0:10:33.920 --> 0:10:36.959 they've brought up revenues. We're going to talk about taxes now. 0:10:37.080 --> 0:10:40.600 That seems to be an issue that just complicates things. 0:10:40.760 --> 0:10:43.319 Let's talk about that, especially given the fact that tax 0:10:43.360 --> 0:10:46.640 receipts tax income this year was so far below what 0:10:46.679 --> 0:10:48.719 the US was expecting. Part of the reason why the 0:10:48.880 --> 0:10:51.480 X state perhaps is a bit earlier than other people 0:10:51.559 --> 0:10:53.720 had been projecting is this because of a lack of 0:10:53.760 --> 0:10:56.440 investment in the IRS. Is this because of loopholes, Is 0:10:56.440 --> 0:10:59.040 this because of tax code, or simply because the economy 0:10:59.080 --> 0:11:01.000 isn't doing as well as people had previously thought. 0:11:02.240 --> 0:11:04.280 Well, there are a lot of variables, Lisa, and I 0:11:04.320 --> 0:11:07.319 would say that the one that could snag this whole 0:11:07.320 --> 0:11:10.360 thing is a proposal to cut back dramatically on the 0:11:10.400 --> 0:11:14.400 IRS funding, as you mentioned, If they did that, that 0:11:14.480 --> 0:11:17.800 could drag this thing well into the summer. But I'd 0:11:17.880 --> 0:11:20.800 say they're there. They probably have at least half of 0:11:20.840 --> 0:11:25.840 the deal done, so the odds continue to improve slightly 0:11:26.240 --> 0:11:28.520 that we'll get a deal in a week or two. 0:11:29.160 --> 0:11:32.600 What happened to all of the intransigent members of both parties, 0:11:32.840 --> 0:11:35.560 basically the ones on the right who have been saying, 0:11:35.600 --> 0:11:37.920 we're not going to pass any kind of increase in 0:11:38.120 --> 0:11:40.240 the debt limit. We're going to mandate all sorts of 0:11:40.280 --> 0:11:42.320 cutting over our dead bodies. That was sort of the 0:11:42.360 --> 0:11:45.120 platform that they ran on. And then on the other side, 0:11:45.240 --> 0:11:47.400 people pushing back on Biden and saying, why are you 0:11:47.440 --> 0:11:49.839 even negotiating, You're giving in far too much and you're 0:11:49.880 --> 0:11:52.600 looking weak. How much are you seeing those two sides 0:11:52.600 --> 0:11:54.720 willing to come to the table and actually vote for 0:11:54.760 --> 0:11:58.360 a plan that is hashed out between McCarthy and Biden. 0:11:59.200 --> 0:12:01.640 It's a really good and it's a big wildcard right 0:12:01.679 --> 0:12:04.839 now that couldn't both parties hold their members. I think 0:12:04.920 --> 0:12:08.680 McCarthy's done a pretty good job at holding Republicans. I 0:12:08.679 --> 0:12:10.800 think a lot of Democrats don't want to be seen 0:12:10.840 --> 0:12:16.280 as contrasting with Joe Biden. So I say, in both parties, 0:12:16.320 --> 0:12:19.240 there's a resignation that they're going to have to get 0:12:19.280 --> 0:12:19.680 this done. 0:12:19.760 --> 0:12:21.400 Okay, Gregor, I want to see gow me here. 0:12:21.520 --> 0:12:25.040 I was thunderstruck in the early early morning yesterday of 0:12:25.120 --> 0:12:30.000 the Telegraph of London having is its lead headline, the 0:12:30.000 --> 0:12:34.520 opbed from the Washington Post on elderly presidents, of course 0:12:34.600 --> 0:12:38.200 led by President Biden. The study that the Washington Post did, 0:12:38.360 --> 0:12:42.520 what was the ramifications inside the Beltway of the post 0:12:42.800 --> 0:12:45.560 study of many older presidents. 0:12:46.679 --> 0:12:48.360 Well, I think a lot of people think this has 0:12:48.400 --> 0:12:52.200 been overdone. But we see overnight Hillary Clinton, who is 0:12:52.840 --> 0:12:57.080 late seventies, saying that, yes, I understand Joe Biden is 0:12:57.240 --> 0:13:00.240 real old and this could be a liability. You know, 0:13:00.280 --> 0:13:02.680 it's an issue that is not going to go away. 0:13:02.720 --> 0:13:05.440 But as I point out to people Donald Trump has 0:13:05.440 --> 0:13:08.400 a birthday in about a month, he turned seventy seven. 0:13:08.720 --> 0:13:10.560 Greg, don't you think, though, this is just a way 0:13:10.760 --> 0:13:13.440 of avoiding the actual elephant in the room. It's not 0:13:13.480 --> 0:13:16.439 about age, it's about mental acuity. Why don't we actually 0:13:16.480 --> 0:13:19.400 have that discussion. Not all seventy year olds are created equally, 0:13:19.720 --> 0:13:21.880 not all eighty year olds are created equally. In fact, 0:13:21.960 --> 0:13:24.200 I know some ninety year olds who were as sharp 0:13:24.240 --> 0:13:26.600 as some of the sixty year olds that I know. Greg, 0:13:26.600 --> 0:13:28.880 why don't we having a proper conversation about this topic? 0:13:29.600 --> 0:13:31.840 Well, you're right, and you guys mentioned a few minutes ago. 0:13:32.200 --> 0:13:36.360 Henry Kissinger turns our hundred today and he's still really sharp. 0:13:36.679 --> 0:13:40.440 So you're absolutely right, John. I think that's the big issue. 0:13:40.520 --> 0:13:43.640 But it's going to be a blood object used against 0:13:43.920 --> 0:13:47.200 Joe Biden whenever he says something in articulate, whenever he 0:13:47.280 --> 0:13:49.520 looks frail. It's an issue He's not going to be 0:13:49.559 --> 0:13:50.320 able to avoid. 0:13:50.520 --> 0:13:50.720 Greg. 0:13:50.800 --> 0:13:54.000 Value of a Jeff Investments, Greg, thank you appreciate itself. 0:14:05.480 --> 0:14:08.640 Around the trail, let's get to j D from Avacuil. 0:14:08.720 --> 0:14:10.319 Good morning, good morning. 0:14:10.360 --> 0:14:13.960 I'll give you two views. Bank of America constructive, JP Morgan, 0:14:14.000 --> 0:14:15.800 not at all. Why are giving the team right now? 0:14:15.840 --> 0:14:16.560 Somewhere in between? 0:14:17.480 --> 0:14:20.560 So think about it. Everything has been in between for 0:14:20.600 --> 0:14:24.200 the last seven months. Uh, this is one of these times, John, 0:14:24.360 --> 0:14:28.040 where the signal and the noise are incredibly difficult to 0:14:28.120 --> 0:14:31.040 pars and that there are times where there just isn't 0:14:31.080 --> 0:14:33.880 that much information from the price. And what it comes 0:14:33.920 --> 0:14:38.200 down to is we are waiting to see if one 0:14:38.280 --> 0:14:42.600 year's worth of incredible, incredible tightening, I mean really historic 0:14:43.160 --> 0:14:45.880 is going to have the effect, and we're seeing, you know, 0:14:46.080 --> 0:14:49.960 minor parts of that effect. So for us, essentially, what 0:14:50.040 --> 0:14:52.440 it comes down to is we do expect a recession 0:14:52.680 --> 0:14:55.000 to begin sometime in the second half, and for the 0:14:55.040 --> 0:14:59.240 equity market that means down first and then likely back up. 0:14:59.400 --> 0:15:01.120 Essentially, here take. 0:15:00.960 --> 0:15:04.480 The Heymen dynamics of a Hymen recession. It's in your 0:15:04.520 --> 0:15:06.720 note talking about some real gloom here in the first 0:15:06.800 --> 0:15:11.040 quarter twenty twenty four, and also his call of dramatically 0:15:11.080 --> 0:15:14.800 lower inflation getting out there under three percent, and you've 0:15:14.800 --> 0:15:17.480 got SPX forty one fifty. How are you going to 0:15:17.560 --> 0:15:22.000 frame equities forward given a Hymen recession and a Hymen disinflation. 0:15:22.240 --> 0:15:25.160 So that is where actually, when you think about it 0:15:25.280 --> 0:15:28.520 the long term, which we as investors have been guilty 0:15:28.600 --> 0:15:31.560 of perhaps not thinking about. Given the fact that these 0:15:31.720 --> 0:15:36.360 seven most difficult months of sideways actions, the view twenty 0:15:36.400 --> 0:15:40.360 four and thirty six months out is literally unequivocally positive 0:15:40.640 --> 0:15:44.280 because of the fact that inflation is likely to fall 0:15:44.320 --> 0:15:46.640 below three percent sustainably. 0:15:47.480 --> 0:15:51.240 Have we worked through the stimulus potentially dollars stimulus during COVID. 0:15:51.280 --> 0:15:52.640 How far are we down in that? 0:15:53.000 --> 0:15:56.040 So if you look in terms of the excess savings 0:15:56.040 --> 0:15:59.120 on the part of computer consumers, you're really only about 0:15:59.160 --> 0:16:03.080 halfway through. And I think that, again is one of 0:16:03.160 --> 0:16:06.600 these things that we failed to appreciate, is this idea 0:16:06.880 --> 0:16:09.600 that there was so much money put into the system, 0:16:09.640 --> 0:16:13.600 both monetary and fiscal, that it's really still working its 0:16:13.600 --> 0:16:16.160 way through. And then the question is, and this is 0:16:16.200 --> 0:16:19.360 both given the market action, a glass half empty and 0:16:19.440 --> 0:16:22.280 a glass half full view. The glass half empty view is, 0:16:22.320 --> 0:16:26.359 my goodness, if we could have had that banking problems 0:16:26.560 --> 0:16:29.479 of the last several months in an environment where stimulus 0:16:29.520 --> 0:16:33.360 is still working through, maybe that's not so good. Glass 0:16:33.360 --> 0:16:37.200 half full is that the stimulus is so profound that 0:16:37.240 --> 0:16:40.800 it's going to engineer this adjustment that we've had. 0:16:41.000 --> 0:16:43.640 This is the tale of two narratives, whatever you want 0:16:43.680 --> 0:16:45.240 to justify the data with. 0:16:45.400 --> 0:16:45.920 So how do you. 0:16:45.880 --> 0:16:48.760 Really work in an environment where you can basically come 0:16:48.840 --> 0:16:51.080 up with it whatever story you want to You might 0:16:51.080 --> 0:16:53.200 as well be happy and just go with stocks. Right. 0:16:54.360 --> 0:16:57.560 Look, we think you need to say invested. We think 0:16:57.600 --> 0:17:03.840 this is an alpha extraction time and defensive sectors have 0:17:04.000 --> 0:17:07.159 worked and then they've not worked. AI, as we all know, 0:17:07.280 --> 0:17:11.159 seems to be the overriding principle right now. We, like 0:17:11.640 --> 0:17:14.199 others of the last half hour, concerned that there's too 0:17:14.280 --> 0:17:17.359 much concentration there, and we do think that there is 0:17:17.400 --> 0:17:20.400 a bit of catch down to do, given the fact 0:17:20.400 --> 0:17:23.080 that small caps have underperformed the way they have. But 0:17:23.200 --> 0:17:25.000 you really need to stick to your ding. And the 0:17:25.040 --> 0:17:28.720 interesting thing about this environment is with rates where they are, 0:17:28.960 --> 0:17:32.680 if you want to hedge your portfolio, it's extremely cost 0:17:32.680 --> 0:17:33.679 efficient to do so. 0:17:33.800 --> 0:17:35.399 I've heard that before. So let's pick up on that 0:17:35.440 --> 0:17:37.080 point in just a moment. I just want to finish 0:17:37.080 --> 0:17:40.160 on the poor breath point. It's poor breath actually any 0:17:40.160 --> 0:17:42.359 indication of how much oxygen is left in a rally, 0:17:42.640 --> 0:17:44.639 because I feel like people complained about the breadth that 0:17:44.680 --> 0:17:46.360 is stock market and the ball market of the last 0:17:46.400 --> 0:17:50.600 ten years, and it carried on why can't this continue? 0:17:51.000 --> 0:17:54.920 Well, look, so it can continue provided that we get 0:17:54.960 --> 0:17:57.800 that sort of glide path in terms of the stimulus 0:17:57.880 --> 0:18:00.399 that we were talking about a few minutes to go 0:18:00.720 --> 0:18:04.359 wearing off. It's just our view that first of all, 0:18:04.520 --> 0:18:09.119 this whole rate cut talk forget about it. Sure they're not. 0:18:09.680 --> 0:18:12.800 So there is some repricing in our view that needs 0:18:12.840 --> 0:18:16.040 to occur based on that misperception. 0:18:15.400 --> 0:18:17.280 That the market happened in that Judy, and I think 0:18:17.320 --> 0:18:19.640 what's interesting for me is that we've repriced yields ower 0:18:19.640 --> 0:18:22.400 at the front end, taken back some of those rate cuts, 0:18:22.400 --> 0:18:25.320 and this Nastak's still fine. So can you explain to 0:18:25.359 --> 0:18:27.919 me what the relationship is between what's developing in the 0:18:27.920 --> 0:18:29.480 bond market and what's happening in stocks. 0:18:29.560 --> 0:18:33.720 So the relationship is again this question of the time 0:18:33.800 --> 0:18:37.919 before the recession. Remember we've had a lot of excitement 0:18:38.119 --> 0:18:40.959 around AI in these last two or three months, and 0:18:41.000 --> 0:18:44.480 what investors are sort of harping back to is the 0:18:44.560 --> 0:18:48.560 nineteen ninety eight yield curve inversion. I saw something this 0:18:48.720 --> 0:18:51.440 morning that said, best start to the Nasdaq since nineteen 0:18:51.520 --> 0:18:54.040 ninety eight. Well, two things happen. First, you had a 0:18:54.119 --> 0:18:56.680 roaring bear market in nineteen ninety eight, and then if 0:18:56.680 --> 0:18:59.560 you got defensive, you gave up three hundred percent gains 0:18:59.560 --> 0:19:02.320 and then over the next year and a half. So 0:19:02.520 --> 0:19:05.720 that's the conundrum that people face, and they don't want 0:19:05.760 --> 0:19:08.119 to let go, and that's perhaps the right decision. 0:19:08.280 --> 0:19:11.160 Your shop is going to do the most eagerly anticipated 0:19:11.280 --> 0:19:15.600 daily call in about ten minutes with mister Hymen. I 0:19:15.640 --> 0:19:18.360 want you to call us here. The message from your 0:19:18.480 --> 0:19:22.080 shop to people in cash scared stiff. 0:19:23.960 --> 0:19:27.199 So the message is is that it's okay to be 0:19:27.240 --> 0:19:30.960 in cash for now, but if you're thinking long term, 0:19:31.160 --> 0:19:34.359 you need to be prepared for that time where you 0:19:34.440 --> 0:19:37.639 need to shift assets. But that isn't coming until we 0:19:37.720 --> 0:19:42.160 get inflation sustainably lower, which again the path to get 0:19:42.200 --> 0:19:44.119 there is through an economic slowdown. 0:19:44.440 --> 0:19:46.800 Jillian, final question, you touched on it. I just want 0:19:46.840 --> 0:19:49.920 to squeeze it in optionality, do you want to hedge 0:19:49.960 --> 0:19:51.560 to the upside to the downside? Where do you want 0:19:51.560 --> 0:19:53.440 to take advantage of we things a christ at the moment? 0:19:53.560 --> 0:19:56.960 Well, that actually comes down to you know, one's own 0:19:57.040 --> 0:20:01.240 portfolio prep look at your portfolio, think about how you feel. 0:20:01.240 --> 0:20:04.480 And we always say for the retail investor is when 0:20:04.480 --> 0:20:06.439 the market's going here, and we do think you're at 0:20:06.440 --> 0:20:07.920 the upper end of the range here. We don't think 0:20:07.920 --> 0:20:11.840 this is a breakout. But if you have FOMO options 0:20:11.880 --> 0:20:14.719 are cheap enough that you can buy upside in themes. 0:20:14.800 --> 0:20:18.040 Like the rest of the world, we actually prefer portfolio 0:20:18.080 --> 0:20:20.320 hedges with the S and P five hundred, where you 0:20:20.359 --> 0:20:24.280 can sell upside to finance downside. And it's very as 0:20:24.359 --> 0:20:25.040 I said. 0:20:24.760 --> 0:20:27.000 Costa, there we go, brilliant, Jenny, and that was wonderful. 0:20:27.040 --> 0:20:28.840 Thank you, sir. Do you want to talk about it tests? 0:20:28.880 --> 0:20:32.800 I think I want to take a pass pass in 0:20:32.800 --> 0:20:33.880