Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Let's bring in Dr
Speaker 1: Lindsay Piaza. Now she's chief economist for STI Full Financial
Speaker 1: and we'll start off, Lindsay with your reaction to the
Speaker 1: FED discussion and and and the and the release that
Speaker 1: we had yesterday. I want to kick it off of
Speaker 1: the dots because clearly that's what the market paid the
Speaker 1: most attention to. But um, Jerome Palace had take this
Speaker 1: with a grain of salt. This isn't it's not not
Speaker 1: like a plan. We haven't discussed this and we're moving
Speaker 1: in that direction. Um, what do you think about the
Speaker 1: dot plot? Well, I thought it was pretty interesting. We
Speaker 1: saw actually a number of revisions to the Fed's forecast.
Speaker 1: Not only did they x but I to the potential
Speaker 1: pathway for higher rates, but they also increase their expectation
Speaker 1: for inflation and growth and at the same time, they
Speaker 1: left their view of the labor market pretty much unchanged.
Speaker 1: So their expectation for being able to raise rates faster
Speaker 1: is really predicated not on fears of inflation, but the
Speaker 1: fact that the recovery is picking up momentum, that it's
Speaker 1: it's recovering it a faster than expected pace. So I
Speaker 1: thought this was a pretty positive projection from the Fed.
Speaker 1: And you know, on the jobs front, on the labor front, Lindsay,
Speaker 1: you know, the data over the last couple of months
Speaker 1: has been a little bit disappointing in terms of the
Speaker 1: folks getting back to work. How do you view that?
Speaker 1: How do you think the Fed's viewing that is just
Speaker 1: kind of a little bit of an aberration that things
Speaker 1: will pick up. That seems to be what they're suggesting. Well,
Speaker 1: I think the FED was very clear and acknowledging the
Speaker 1: recent improvements that we've seen in the economy. But at
Speaker 1: the same time, I think the chairman was tempering the
Speaker 1: market's expectations to say, wait a minute, we're not entirely
Speaker 1: out of the woods quite yet. Yes, we've taken big
Speaker 1: steps in the right direction, but we still have millions
Speaker 1: of Americans that have yet to return to the labor market.
Speaker 1: So there's further progress that needs to be achieved before
Speaker 1: we can talk about reaching that pre crisis vitality. So
Speaker 1: I think the Fed was very careful to walk this
Speaker 1: delicate line of yes, applauding the improvements, but also justifying
Speaker 1: the need for further accommodation going forward. What do you
Speaker 1: think the ten year yield means that real yielded I
Speaker 1: think negative seven basis points. Does that change significantly through
Speaker 1: your end? I think this says that the market is
Speaker 1: buying into the FEDS inflation dismissal rhetoric, that the market
Speaker 1: is really buying into the notion that these these recent
Speaker 1: price pressures will prove temporary and going into the end
Speaker 1: of the year, in early we'll start to see inflation
Speaker 1: come back down in line with the FEDS two percent targets.
Speaker 1: So I think from here the market is signaling that
Speaker 1: ape Can inflation has already been priced in, and in fact,
Speaker 1: we could continue to see some downward pressure on the
Speaker 1: longer end of the curve as we do start to
Speaker 1: see that reduced price pressures come to fruition or translate
Speaker 1: into the data. So, lindsay, what's your sense of timing here,
Speaker 1: as we think about tapering, is going to be the first,
Speaker 1: you know, act that we will get from this Federal Reserve.
Speaker 1: How are you thinking about that and from a timing perspective, Well,
Speaker 1: I think the FED has been pretty clear that they're
Speaker 1: going to give the market ample notice in terms of
Speaker 1: that discussion, and once the discussion begins, they're going to
Speaker 1: again give the market ample notice before a formal announcement
Speaker 1: is made. So if we anticipate that the discussion really
Speaker 1: begins around that August September time frame, it's likely that
Speaker 1: by the end of the year, at that December meeting,
Speaker 1: the FED initiates a formal announcement that taper will begin,
Speaker 1: making the actual process of drawing down those purchases two
Speaker 1: event and I do think this is going to be
Speaker 1: a very deliberate, very slow, very transparent process over six twelve,
Speaker 1: maybe even eighteen months period, pushing out to that first
Speaker 1: rate increase well into which again lines up with what
Speaker 1: we saw in terms of the latest dot plot with
Speaker 1: the vast majority of FETE officials anticipating at least one
Speaker 1: rate hike by the end of What do you think
Speaker 1: about the housing market, Lindsay David Rosenberg. Obviously he's a
Speaker 1: bear um, but he says we're in a bubble and
Speaker 1: it's not hard to understand why. Well, I do think
Speaker 1: that the housing market strength is very different from what
Speaker 1: we saw going into the oh seven o eight recession.
Speaker 1: This time around, it's not being driven by speculative demand
Speaker 1: or purchases of vacation homes or second homes. This is
Speaker 1: a shift, a structural shift in demand for homes, particularly
Speaker 1: outside of the urban centers. Now some of the variable
Speaker 1: some of the factors are COVID related, but some are not.
Speaker 1: We see an entire generation of millennials finally deciding to
Speaker 1: jump into the housing market, and so there is some
Speaker 1: structural demand that I do think will continue to support
Speaker 1: this type of growth going forward. So I think it's
Speaker 1: a little bit premature to say that this is a
Speaker 1: bubble um. I do think this is more of a
Speaker 1: long standing structural support that we'll see in terms of
Speaker 1: the housing market. All right, Lindsay, thanks so much for
Speaker 1: joining us. We always appreciate getting your perspective here. Lindsay
Speaker 1: PEEGSA chief economists for Stephi Financial, joining us on the
Speaker 1: phone from Chicago, and I guess if you're in the
Speaker 1: market for buying a home, Matt, it might be higher
Speaker 1: prices for longer. That hurts. That hurts to hear. But
Speaker 1: the good news is if you're in the market for
Speaker 1: selling a home, you're gonna probably get a higher price.
Speaker 1: And I see that Porscha is now putting out the
Speaker 1: new nine eleven nine nine two in GT three form. Sure,
Speaker 1: so I would say, anyone who's selling a home right now,
Speaker 1: seriously consider buying this nine eleven that you heard it here. First,
Speaker 1: skin over now to Ian Billina. He is the founder
Speaker 1: and CEO at Token Metrics. He's been involved in the
Speaker 1: crypto space for uh three four human years, which is
Speaker 1: like twenty crypto years. He can speak to us on
Speaker 1: what he's seen in terms of well, let's talk about
Speaker 1: bitcoin to to start with, Ian, Um, I know there
Speaker 1: are five thousand, four hundred and sixty eight other coins
Speaker 1: out there, but you think bitcoin is widely considered still
Speaker 1: the most important and um expected to be still the
Speaker 1: most important cryptocurrency in the next decade. Oh wow. First
Speaker 1: of all, thanks for heaving me to be on So
Speaker 1: bitcoin right now is the most impromative piturency in the market. UM,
Speaker 1: it's basically a proxy for the whole market. But we
Speaker 1: actually take a contragrant viewpoint on this. We believe in
Speaker 1: the future in the next ten years belong to a
Speaker 1: crypt Well, we're not over bitcoin. Bitcoin we had the
Speaker 1: person of our advantage. However, if you see all the
Speaker 1: growth happening in the space, it's happening in other block chains,
Speaker 1: for example in DeFi. Right now, Defy has over one
Speaker 1: billion dollars in total value and over so many type
Speaker 1: percent of that is happening on Etheria. So well, bitkoin
Speaker 1: was first and it's definitely the champion of the space.
Speaker 1: There's lots of innovation happening all over the space. Ian,
Speaker 1: I'd love to get your view on this one of
Speaker 1: the issues or one of the I guess the selling
Speaker 1: points if you will, or when the attributes a bitcoin
Speaker 1: was it's uh anonymity that can't be traced. But yet
Speaker 1: we've seen in some of the ransomware nymity. Yes, bitcoin
Speaker 1: is never was never thought to be anonymous. We we've
Speaker 1: always known that it is on a public ledger and
Speaker 1: can be traced by everyone in the world. Well, that
Speaker 1: was see, that was news to me at least, I guess,
Speaker 1: and you know, so talk to us about what happened
Speaker 1: with some of those ransomware and the ability of authorities
Speaker 1: to kind of trace it and get it back. Yeah. Well,
Speaker 1: I mean that's one of the miscommunications when it comes
Speaker 1: to crypto and bitcoin. People think bitcoin is completely anonymous. Now,
Speaker 1: early on, in the early days, yes, there was dark
Speaker 1: there was the dark web, so code and all those
Speaker 1: the farious actors were using bigmoin for crypto in general.
Speaker 1: For that means, however, the blockchain has been one of
Speaker 1: the best innovations in the last twenty years. So now
Speaker 1: regulators and that the police and FBI are able to
Speaker 1: work and transact and track transactions on the blockchain. The
Speaker 1: companies out there like chain analysis that helps regulators do
Speaker 1: just that. Right, So the people think they can hide
Speaker 1: from bitcoin and blocking blatchin transactions, that's completely false. If anything,
Speaker 1: it makes it easier to catch somebody. Yeah. I always, uh,
Speaker 1: whenever I'm talking to a money launderer or a drug dealer,
Speaker 1: I always say stick to cash, buddy, because everyone in
Speaker 1: the world can see the blockchain. It's all laid out
Speaker 1: in the open for you on the web. And I
Speaker 1: guess some people have strategies of breaking up their payments
Speaker 1: into tiny little pieces and sending it out to a
Speaker 1: million different wallists to try and confuse the Feds. But look,
Speaker 1: anybody with a little time on his or her hands
Speaker 1: or their hands can can go out there and and
Speaker 1: chase everything. I want to talk a little bit more
Speaker 1: about Defy, you know, because blockchain has become so ubiquitous,
Speaker 1: and I guess the community has now accepted that it
Speaker 1: needs more stringent regulation or at least clarification on regulation.
Speaker 1: Is Defy different in that it's more kind of libertarian
Speaker 1: still in its heart, I would say yes, right, I
Speaker 1: mean not all the way, but definitely yes. So Defy
Speaker 1: essentially is taking services that were typically done by the
Speaker 1: backing industry and Wall Street, and it's letting people now
Speaker 1: be able to participate in that globally, not having any
Speaker 1: mod aman, not having to ask for permission from anybody.
Speaker 1: So take different services such as lending, savings, investing. Now
Speaker 1: anybody globally can participate in this new economy, in this
Speaker 1: in this new world of open finance. So to me,
Speaker 1: this is breaking down barriers. This is breaking down borders,
Speaker 1: and it's it's becoming more inclusive. Is there a sense
Speaker 1: um in that in the crypto space broadly defined that regulation.
Speaker 1: Government regulation is coming and it's something that this industry
Speaker 1: needs to be ready for. Yes, I believe. So I
Speaker 1: think for crypto assets to go mainstream, they definitely do
Speaker 1: need more regulation. For example, today, Uh, the then e
Speaker 1: t F was perspected by the SEC. And for example,
Speaker 1: if the et F does get approved, that will be
Speaker 1: huge for both retail and institutional adoption. So if crypto
Speaker 1: ever hopes to go mainstream, uh, in a way, it
Speaker 1: kind of already is. But to fully go mainstream and
Speaker 1: gave global adoption, it doesn't need to have regulation and
Speaker 1: compliance were all all regular. It will be happy with it.
Speaker 1: And you went from um IBM as a technical sales
Speaker 1: engineer and open source UM Analytics sales executive into UM
Speaker 1: dealing with cloud essay software is a service UM and
Speaker 1: then into and then you and then you started token
Speaker 1: matrix and you have uh apparently kind of a moneyball
Speaker 1: approach to the way you invest in crypto. Yeah, what
Speaker 1: about analysis? Could you give us a price target for
Speaker 1: example on bitcoin year end? Oh? Wow, Well, I mean
Speaker 1: so we're talking with twecks. We use machine learning and
Speaker 1: data analytics to help the customers make money. Crypto or
Speaker 1: rather also prevented from losing money. Um prediction wise, our
Speaker 1: predictions only go out for about a month or so.
Speaker 1: But we are pretty optimistic in bitcoin and crypto this year.
Speaker 1: I'm optimistic all the way into about QUO three and
Speaker 1: then QUO four to Pree. Historically has not been a
Speaker 1: good except for maybe in December during Christmas to see
Speaker 1: them cycle back in right now, forty k. We're kind
Speaker 1: of in Limbor territory next month, and so we do
Speaker 1: expect summer somewhere between July and August and September. But
Speaker 1: bitcoin and it didom to go up because the room
Speaker 1: is going to have an upgrade, but the bitcoin, I
Speaker 1: wouldn't be surprised that bitcoin want to do my k
Speaker 1: okay here, all right, and thanks so much for joining
Speaker 1: us to really appreciate a fascinating im Bilina, founder and
Speaker 1: CEO of Token Metric. Alright, So yesterday we had the
Speaker 1: FED coming in and you know, a little bit of
Speaker 1: a hawkish view here as it relates to interest rates,
Speaker 1: and we want to get a sense of what that
Speaker 1: means for the banks because the banks have had such
Speaker 1: a good trade here recently and it's been such a
Speaker 1: good place. So if you want to talk banks, Matt,
Speaker 1: there's only one person to chat with, and that's Mike Mayo,
Speaker 1: senior banking analysts for Wells Fargo Securities. Mike, what was
Speaker 1: your takeaway for the banks that you cover as it
Speaker 1: relates to what looks to be You know, we're gonna
Speaker 1: have some ingust rates going up by you three. What
Speaker 1: does that mean for your call on the banks? Well, Matt,
Speaker 1: we have several nineteen seventies classics. We had disco, leisure suits,
Speaker 1: mood rings, and inflation, and I thought those were all gone.
Speaker 1: But right up front in the four page FED press release,
Speaker 1: they had the three key words inflation has risen. And
Speaker 1: then as you said, now now the FED is saying
Speaker 1: to interest rate increases sooner than people had expected. Um.
Speaker 1: And you know, inflation can be either heaven or hell
Speaker 1: for the banks, and it was hell for the banks
Speaker 1: in the nineteen seventies, and frankly, in UM that was
Speaker 1: pretty hellish. Uh. Banks had all sorts of losses on
Speaker 1: securities and derivatives and mismatches between their assets and liabilities.
Speaker 1: But I think in this scenario, I think it's in
Speaker 1: the direction of heaven. Banks have really paid a big
Speaker 1: price for the unusual low level of interest rates. UH.
Speaker 1: The our net interest margin over the past year showed
Speaker 1: the biggest decline in a century. And that's because while
Speaker 1: banks has spent a lot of money gathering deposits with
Speaker 1: branches and technology and service and everything else, they haven't
Speaker 1: earned much on those deposits. Are now they can finally
Speaker 1: redeploy those deposits and the potentially higher yielding securities and
Speaker 1: and hopefully loans. Let's talk about the big investment banks
Speaker 1: for a moment, because we had I mean we were
Speaker 1: we weren't expecting trading to keep up with the same
Speaker 1: um at the same pace as last year this time,
Speaker 1: but we've had a number of CEO s um Jamie Diamond,
Speaker 1: I think Gorman also saying that you know it's time
Speaker 1: to come back to earth already trading Credit Suite is
Speaker 1: dismantling their trading business kind of unrelated reasons. But UM,
Speaker 1: they have said that M and A may make up
Speaker 1: for some of the loss there. What's your view on
Speaker 1: on the big investment banks. Well, look from the trading side, UM,
Speaker 1: nobody expected the levels to be sustained at two pieces.
Speaker 1: In fact, going into the year everybody said we expect
Speaker 1: and the way it's playing out is it's going to
Speaker 1: be somewhere between based on our forecast. So there's just
Speaker 1: no big surprises there. Um And frankly, corporations frontloaded a
Speaker 1: lot of their financing earlier in the pandemic and that's
Speaker 1: a good thing, and trading plays off of that, so
Speaker 1: less issue was less trading. On the other hand, Wow, mergers,
Speaker 1: This might have been missed by the market, but Jamie
Speaker 1: Diamond just said investment banking this quarter could be one
Speaker 1: of the best quarters they've ever seen. Um So, you
Speaker 1: know the likes of Goldman, Sachs and JP Morgan And
Speaker 1: if you think about it, take a step back, every
Speaker 1: company and every industry globally is in some way rethinking
Speaker 1: their business model post pandemic, given the acceleration or the
Speaker 1: second wave of digitization. Um So you have Murders are strong,
Speaker 1: that's likely to have legs trading its subsiding some but
Speaker 1: that shouldn't be a big surprise. Mike, what's your top
Speaker 1: conviction bet right here? I know you've been focusing a
Speaker 1: lot on technology for these global banks, but what's the
Speaker 1: what's the bet You're what's the bank you're talking to
Speaker 1: most of your clients. Well, I don't like using the
Speaker 1: word debt. It's it's it's a new because we've been
Speaker 1: a lot of ours dissecting the financial statements and dissecting
Speaker 1: what management has to say, and on both fronts, Bank
Speaker 1: America really is surprising. I thought that the CEO Bank
Speaker 1: America should have been fired um a little less than
Speaker 1: a decade ago. I went to the shareholder meetings, I
Speaker 1: spoke up. They weren't always happy about that, but you know,
Speaker 1: that's what the facts said to me at the time.
Speaker 1: That never stopped you before, But now, as a fact
Speaker 1: change so to our conclusions. And now I think the
Speaker 1: CEO Bank America, Brian Monahan, is really one of the
Speaker 1: best um and it's really remarkable how he's grown into
Speaker 1: that position. And there you know, they start off saying
Speaker 1: responsible growth. Everybody at the company knows responsible growth, and
Speaker 1: at first I thought it was an empty platitude that
Speaker 1: didn't mean much at the beginning, but now it means
Speaker 1: a great deal. Not just to have earnings growth sustainably
Speaker 1: by not being in the most risky segments. Remember they
Speaker 1: bought countrywide and how all the mortgage problems, but also
Speaker 1: means responsible to you know, their their customers and their
Speaker 1: employees and their communities, and you know they're out front
Speaker 1: and center saying we're gonna pay a dollar minimum. Ways
Speaker 1: by the Brian Morning and on the Sunday talk shows
Speaker 1: talk about cyber security. So what you have here is
Speaker 1: both UM strategically positioned much better than before. Financially they
Speaker 1: benefit from higher interest rates three times more than the
Speaker 1: average bank, and then just from a you know, tone
Speaker 1: of society, they're they're right on top of it. So
Speaker 1: Bank America is the name that we've been going with,
Speaker 1: and they're also one of the best fintech players in
Speaker 1: the world. By the way, I was talking to UH
Speaker 1: David Rosenberg this morning, and Rosie said something along the
Speaker 1: lines of when the housing bubble bursts now, there will
Speaker 1: be people arguing that we're seeing that we're wait seeing
Speaker 1: a housing bubble right now, but you've got to admit
Speaker 1: it's red hot this market. How important is that UM
Speaker 1: and and how dangerous is that to the big banks? Well,
Speaker 1: I think what's interesting here is just the degree of
Speaker 1: collateral that banks have. So you know, when banks have
Speaker 1: a big crisis, they don't normally repeat the same problem
Speaker 1: in the next grace, it's right. So the type of
Speaker 1: underwriting for homes, the type of people who get those loans,
Speaker 1: the collateral behind that. I mean, you you know, you know,
Speaker 1: I've lived through the global financial graces and saw how
Speaker 1: crazy it was. I mean, everyone from you know, kids
Speaker 1: to dogs to deceive people got application that that's real, right,
Speaker 1: Florida strippers with five condos exactly. And the crazy thing is,
Speaker 1: you know, people were like getting credit without everyone else
Speaker 1: knowing what kind of credit they were getting. It was
Speaker 1: the best. The banking industry is cleaned up, by the way,
Speaker 1: if there's if there's risk, it's remember banks provide less
Speaker 1: than one third of all loans in our economy, so
Speaker 1: if there's risk of some of these non banked players
Speaker 1: out there. So when it comes to housing, I think
Speaker 1: that's fine. I think, you know, areas to watch continue
Speaker 1: to be commercial real estate offices. That's not a new phenomena,
Speaker 1: but it's still something worth noting. And look, I do
Speaker 1: go back to interest rates though, I mean it could
Speaker 1: be you know, a heaven or hell, and you know
Speaker 1: hell comes in two forms if you have deflation like Japan,
Speaker 1: and that's what you know, the bed and everybody was
Speaker 1: worried about for a number of years. But there is
Speaker 1: still tail risk for hell, if rates get out of control.
Speaker 1: And this is something we had a bank conference last month,
Speaker 1: and this is something that investors we're talking about more
Speaker 1: than I had heard in like maybe over a decade
Speaker 1: or two it and um, so that's a sort of
Speaker 1: chail risk. And if rates went up too much too quickly,
Speaker 1: then you could have credit issues because then the interest
Speaker 1: cost for borrows would go higher. So, Mike, you've been
Speaker 1: covering these banks for decades. Can they earned the returns
Speaker 1: they earned before the financial crisis? Or is the where
Speaker 1: is the industry just fundamentally changed on a secular basis? Well,
Speaker 1: yes and no, Um, we don't have their traditional banking revenues,
Speaker 1: their traditional banking margins getting back to where they were
Speaker 1: pre pandemic for a few more years. And that's just
Speaker 1: the nature of low rates. And frankly, you could say
Speaker 1: banks benefited from some of the government programs, but they
Speaker 1: also got hurt a lot by the low level rate.
Speaker 1: In the other hand, we think banks for making up
Speaker 1: the difference by improving efficiency, by lowering unit costs, by
Speaker 1: you know, embracing the tech revolution. And you know what,
Speaker 1: I went to a tech conference as a bank analyst.
Speaker 1: What was I doing there? I didn't I didn't understand
Speaker 1: of what I heard, the jargon it was, it was
Speaker 1: kind of crazy. But the one percent that I did
Speaker 1: take away with my aha moment. My aha moment was
Speaker 1: look at all these other industries that have implemented tech,
Speaker 1: you know, whether it's retail or healthcare or pick your industry,
Speaker 1: They've already had their transformation. And so now banks are
Speaker 1: in the cusp of doing what's already been done elsewhere.
Speaker 1: So you're not it's not like you're reinventing the wheel.
Speaker 1: You're just applying what's already been tried and true elsewhere.
Speaker 1: So when you know the CEO of Microsoft, as Satia
Speaker 1: talks about the second wave of the digital transformation, well,
Speaker 1: banks are about to jump on board on that. Mike,
Speaker 1: thanks so much for joining us. Always a pleasure talking
Speaker 1: to you. Um, I wish we could spend more time.
Speaker 1: We could talk to you for an hour. Maybe someday
Speaker 1: we'll do that, Mike Mayo. UM, they're talking to us
Speaker 1: about the banks, and as we've said, he's probably one
Speaker 1: of the most well known banking analysts in in the US,
Speaker 1: if not the world. Um. There he is the US
Speaker 1: large cat bank research director, managing director at Wells Fargo Securities.
Speaker 1: Now I'm gonna bring in David Deeds right now. He
Speaker 1: is managing principal and senior portfolio strategies at Pepack Private
Speaker 1: Wealth Management. They have just under ten billion dollars in
Speaker 1: assets under management. And i'll at first, David, ask your
Speaker 1: take on j Pal's performance yesterday. How how do you
Speaker 1: think he handled well, no real moves, but kind of uh,
Speaker 1: a little bit of a more hawkish tone. Yeah, I
Speaker 1: think he did a good job. Obviously, it did catch
Speaker 1: the market a little bit by surprising. You never want
Speaker 1: to catch the market by surprise. You always want to
Speaker 1: ease into things. I think they were just a little
Speaker 1: bit more hawkish than they were just several months ago,
Speaker 1: by um, you know, pulling forward the potential data, the
Speaker 1: first rate hike, at least it's reflected in that dot plot.
Speaker 1: And of course you know talking about that, the next
Speaker 1: conversation is going to be on the tapering, and I
Speaker 1: think that caught people by surprise. I think, from my perspective,
Speaker 1: what was most interesting is the big reason for going
Speaker 1: slow on normalizing monetary policy is trying to figure out
Speaker 1: whether inflation is transitory or permanent. We don't have enough information.
Speaker 1: The Fed doesn't have enough information to make that decision now,
Speaker 1: So why are they getting a little bit more hawkish?
Speaker 1: I think the real reason is always goes back to
Speaker 1: the pandemic. The pandemic is receiving. This economy is on track,
Speaker 1: and ultimately, if the economy gets to be normalized and
Speaker 1: interstrates have to get normal realize and that's what they're
Speaker 1: looking at. Um. But it did catch people by surprise.
Speaker 1: All right, Dave, given that background, here, did your view
Speaker 1: of the market, where do you want to be allocated
Speaker 1: within these markets that changed much yesterday? You know? No, Um,
Speaker 1: you know, we look at the economy and the data
Speaker 1: and what history tells us is the most likely pass forward.
Speaker 1: Not We're not going to base anything based on one
Speaker 1: meeting by the Federal Reserve. Obviously, this meeting was different
Speaker 1: than the meeting back in March, so that can change. Um.
Speaker 1: I think it's clear that the most important factor out
Speaker 1: there is that pandemic is receding. Obviously, they are concerns
Speaker 1: about variants and so forth. Overseas not doing quite as well,
Speaker 1: but I think the direction is very, very positive. We're
Speaker 1: seeing UM. The only thing that's lagging here a little
Speaker 1: bit is the labor market. But there are good reasons,
Speaker 1: have nothing to do with the economy really as to
Speaker 1: why that's lagging. Obviously, there's some incentives to keep collecting benefits.
Speaker 1: There's like a childcare. There's some fear of COVID into work.
Speaker 1: I think all that will get resolved positively. So I
Speaker 1: think we've got a strong economy going forward, and I
Speaker 1: want to position UH portfolios to take advantage of that.
Speaker 1: How do you best position them to do so well?
Speaker 1: If the economy is getting better, I think you want
Speaker 1: UH your portfolio to be filled with investments that will
Speaker 1: respond to that, In other words, a slight cyclical tilt,
Speaker 1: unless everyone else has done so already. David, right, because
Speaker 1: you don't want to do that if the prices are
Speaker 1: too high. Yeah. I think people who own material stocks,
Speaker 1: who own financial services stocks, who own energy stocks, who
Speaker 1: are most cyclical stocks, don't feel we're at the peak UM.
Speaker 1: So I think there is more to go UH in
Speaker 1: the economy, and UH, for example, of financial institutions are
Speaker 1: are trading at evaluation trials of the book value and
Speaker 1: relative to earnings, it's much lower than historically has been
Speaker 1: the case. So that kind of goes to the question
Speaker 1: I've had, David, and and given your experience and perspective,
Speaker 1: I suspect you can have an opinion here. But as
Speaker 1: we think about these cyclical stocks which have traded so
Speaker 1: well really since uh last September, that cyclical trade has
Speaker 1: really been a great rotation trade for a lot of investors.
Speaker 1: How long do you think that can go on? Like
Speaker 1: how much legs does that type of trade have on
Speaker 1: as opposed to just buying Amazon and Apple and you know,
Speaker 1: looking at it maybe ten years from now. Yeah, you
Speaker 1: know it's a great question. You know one answer as well,
Speaker 1: how long did the tech roth stock trade trump the
Speaker 1: value trade? Um? Almost a decade probably, but if you
Speaker 1: look back for a hundred years, they're kind of neckonnect
Speaker 1: maybe a slight actual edge to value. Second, of course,
Speaker 1: is I think you want to look at the interest
Speaker 1: rates to explain what's going on today and where things
Speaker 1: may lie. You know, what's interesting today is the industration
Speaker 1: coming back down is one five one where we expect
Speaker 1: the ten your treasury to be when the dust settles
Speaker 1: and we have a normal economy. I think that is
Speaker 1: highly unlikely. In two thousand nineteen, we saw the ten
Speaker 1: year at two point nine, so by many metrics, businesses
Speaker 1: are saying even more business and they saw pre pandemic
Speaker 1: in two thousand nineteen, So why wouldn't that Why wouldn't
Speaker 1: that tenure treasury go back up to two point nine?
Speaker 1: If that's the case, what are going to be the
Speaker 1: aspects of the economy that are going to respond. Well,
Speaker 1: you've got to start with financials. Their most important products
Speaker 1: as loans, and if the interest rate is going to
Speaker 1: go up one to one and a half percent more
Speaker 1: from here, I think that positions them quite well. Do
Speaker 1: you expect dollar strength now against for example, the year
Speaker 1: on the pound? Um, I'm just I'm just asking David,
Speaker 1: because a lot of people have been investing in European
Speaker 1: equities saying, look, they're they're reopening is to come, so
Speaker 1: they are going to get that growth pushed that the
Speaker 1: US got a couple of months ago. So I think
Speaker 1: that the dollar is not going to strengthen dramatically. Here's why.
Speaker 1: I think overseas are lagging relative to what we've done,
Speaker 1: and as they ultimately get the pandemic as well. Under
Speaker 1: controls we have, I think their economies have respond their
Speaker 1: currencies will get better ultimately. Of course, I think that
Speaker 1: although we should normalize the interest race, and they talked
Speaker 1: a good game yesterday, there's gonna be just trendous pressure.
Speaker 1: Even though they're independent. There's gonna be political pressure to
Speaker 1: let things grow, to keep the party going, to keep
Speaker 1: the punch bowl out longer. That's not gonna be a
Speaker 1: boon to the dollar until therefore, Um, I think the
Speaker 1: dollar will we can ultimately. All right, David, thanks so
Speaker 1: much for joining us. As always, we love getting your perspective.
Speaker 1: David Dead's managing principal and senior portfolio manager at p
Speaker 1: PACK Private Wealth Management, located in beautiful downtown Summit, New Jersey, which,
Speaker 1: by the way, Matt has a hopping outdoor dining scene,
Speaker 1: particularly on Thursday nights. We're gonna have more coming up.
Speaker 1: This is bloom Thanks for listening to the Bloomberg Markets podcast.
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