Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business App. Andrew Honhorst of City
Speaker 2: has got a different idea on things. He's looking for
Speaker 2: one twenty and a very different unemployment rate. And Andrew
Speaker 2: joins us now for more. Andrew go mornig. Let's start
Speaker 2: with unemployment. You think that's the bigger issue. What's your call?
Speaker 3: I think that's a more important issue.
Speaker 4: We're calling for four point four percent on the unemployment rate,
Speaker 4: which is not as big a mover as it sounds like.
Speaker 4: And this is maybe the silliness of what we're doing here,
Speaker 4: but I have to get into the hundreds of a
Speaker 4: percentage point on the unemployment rate. We're at four point
Speaker 4: two four percent unrounded right now, So that means if
Speaker 4: we just move up by a little bit more than
Speaker 4: a tenth, right, a tenth and one hundredth, then you're
Speaker 4: up at four point four.
Speaker 1: Why are you not dissuaded from your more bearish outlook
Speaker 1: on the employment market when you see things like the
Speaker 1: Jolt State of the job opening stata that come in
Speaker 1: hotter than expected, with actually the inflationary read through of
Speaker 1: ism coming in at the hottest level since twenty twenty three.
Speaker 4: Yeah, I think when you look at some of this data,
Speaker 4: and this is the issue we're all dealing with, economists,
Speaker 4: the market, the FED, there's so much noise in the data,
Speaker 4: and there are different details of the data you can
Speaker 4: look at and tell different stories. So the Jolts report
Speaker 4: is a great example of that. If you look at
Speaker 4: the level of job openings, that's stabilized at a higher
Speaker 4: level than where we thought it would have stabilized at,
Speaker 4: So that looks quite healthy. If you look at what
Speaker 4: people are doing, which I think are the more relevant
Speaker 4: statistics in that report, you see layoffs are low, so
Speaker 4: that's very good news for the job market, but you
Speaker 4: also see that the high rate is quite low. And
Speaker 4: that actually surprised us to the downside. Yesterday, that got
Speaker 4: a lot less attention. It was low in October. October,
Speaker 4: we know we had the strikes, we had hurricanes, but
Speaker 4: then in November it actually continued to move lower.
Speaker 3: You look at the quit rate.
Speaker 4: Are people feeling comfortable quitting their jobs?
Speaker 3: And this is kind of goes back to what you were.
Speaker 4: Talking about with companies bringing workers back five days a week.
Speaker 4: People are not feeling as comfortable now that they can
Speaker 4: find a new job if they leave their job. So
Speaker 4: those are the kinds of signs of softness that we're
Speaker 4: seeing in the data that we think are going to
Speaker 4: continue to feed through and lead to a higher unemployment rate.
Speaker 3: Yeah.
Speaker 1: Just talking about the quits rate that was one point
Speaker 1: nine percent. It was tied with the lowest rate going
Speaker 1: back to twenty twenty, talking about that DYNAMICEM I just
Speaker 1: wonder how offsides do you think this market is. How
Speaker 1: much pushback you get, and what you say to people
Speaker 1: who say you've been out of consensus for a while.
Speaker 1: The data has been surprising to the upside. Why aren't
Speaker 1: you capitulating?
Speaker 4: Yeah, so, I mean if you look at how much
Speaker 4: we've moved it's really been incredible over the last six months,
Speaker 4: over the last three months. In September, after we had
Speaker 4: the week jobs report and the FED was cutting fifty
Speaker 4: bases points and the FED was quite worried about unemployment
Speaker 4: picking up. Then we have had a run of better
Speaker 4: data since then. We're trying to look at the underlying
Speaker 4: trends and not kind of change the view every month
Speaker 4: based on where an individual data point is coming in.
Speaker 3: And I think and I don't blame the market.
Speaker 4: Because I think, like I was saying, there's been a
Speaker 4: lot of noise in the data. The FED is reacting
Speaker 4: to that noise in the data. So that means we've
Speaker 4: had ten year treasure heels that have been all over
Speaker 4: the place. We've had two year treasure heelds that have
Speaker 4: been all over the place. I think we're just going
Speaker 4: through a phase now where we've seen some better numbers.
Speaker 4: That unemployment rate at four point two four percent, It
Speaker 4: would be four point six percent if not for the
Speaker 4: participation rate dropping, and I think we'd be in a
Speaker 4: very different discussion right we'd be having a different discussion
Speaker 4: right now if we were at four point six percent.
Speaker 3: So it just shows how quickly the narrative can change.
Speaker 5: What would you maybe change your mind January twentieth, is
Speaker 5: the president elects immigration policies that he's talking about going
Speaker 5: to mean a tighter labor marking.
Speaker 4: So this is part of the issue with trying to
Speaker 4: do a forecast here, is that these policies do matter
Speaker 4: quite a bit. That's why the market is moving so
Speaker 4: much on each of these headlines. And we'll continue to move.
Speaker 4: And it's not necessarily January twenty if when everything is
Speaker 4: going to be answered, because yes, we probably should get
Speaker 4: some answers on immigration. I'm really interested to know what
Speaker 4: does this reconciliation package look like. What's in this fiscal bill.
Speaker 4: If it's just extending existing tax cuts, that's not a
Speaker 4: big new fiscal stimulus to the economy, that's just extending
Speaker 4: what's already there. If we're getting no tax on overtime
Speaker 4: pay and these other kinds of things that could push
Speaker 4: the deficit higher, then that is more stimulus.
Speaker 3: That would change the FEDS view, That would change my view.
Speaker 2: Let's see what happens just quickly in about fifteen seconds,
Speaker 2: if you can. If we get four point four percent
Speaker 2: this Friday one twenty, is that sufficient to cut right
Speaker 2: to the end of this month.
Speaker 4: I think they may still pause. Even in that event,
Speaker 4: I think they have to see something In addition to that.
Speaker 4: It probably sets them up to continue cutting later this year.
Speaker 4: But they've really signaled towards this pause in January.
Speaker 2: My Schumacher of Wells Fargo saying that if we get
Speaker 2: that four point four percent that Andrew and the team
Speaker 2: are looking for, it would be ugly and we'd see
Speaker 2: the tenure yield falling twenty basis points. In that scenario,
Speaker 2: We've had a big move in the other direction over
Speaker 2: the past few months. Andrew, it's going to see us, sir,
Speaker 2: Thank you, Andrew. Homenhoorst there a city. Let's turn back
Speaker 2: to politics. Republicans in Congress gearing up to negotiate an
Speaker 2: extension of Donald Trump's twenty seventeen tax cuts. A group
Speaker 2: of House Republicans we're invited to meet with Trump this
Speaker 2: weekend at marri Laco and are expected to push to
Speaker 2: include an expansion of salt tax deductions in Congress's upcoming
Speaker 2: package and place to say that joining us now is
Speaker 2: one of those House Republicans. Congressman Michael Awler of New
Speaker 2: York Congressman fantastic to catch up with you once again, sir,
Speaker 2: I just want to know, from your perspective, how many
Speaker 2: friends you have outside of New York in the House
Speaker 2: that would be on board with the stafford.
Speaker 6: A lot more than people realize.
Speaker 7: Obviously, New York, New Jersey, and California three of the
Speaker 7: high tax states where this has most acutely impacted. Certainly
Speaker 7: we have a coalition, and given our small majority in
Speaker 7: the House, it's certainly a powerful coalition. But there's other
Speaker 7: states and members across the country in which you know,
Speaker 7: over the last seven years they've seen their own taxes
Speaker 7: rise up against that ten thousand dollars cap. So quietly
Speaker 7: there's a few more members than people would realize, but
Speaker 7: would realize. Look, the cap consalt was a pay for
Speaker 7: for the twenty seventeen tax Cuts in Jobs Act.
Speaker 6: That's it.
Speaker 7: It was used as a pay for to pay for
Speaker 7: other provisions within the tax bill. The ten thousand dollars
Speaker 7: cap is woefully insufficient. It's had a negative impact on
Speaker 7: states like New York. Now we can get into how
Speaker 7: New York excessively spends. They've increased their state budget by
Speaker 7: sixty one billion dollars in the last four years, for instance, that.
Speaker 6: Needs to change.
Speaker 7: But taxpayers should not be penalized by living in a
Speaker 7: eye tax state.
Speaker 6: This is double taxation.
Speaker 7: And for those of my colleagues that say this is
Speaker 7: somehow a subsidy, the fact is New York contributes more
Speaker 7: to the federal government than it receives, and more than
Speaker 7: some of these states in which my colleagues will claim
Speaker 7: that they don't want their taxpayers subsidizing New York.
Speaker 6: But the reality is it's the other way around.
Speaker 5: Congressman, you certainly don't have a friend, though, and someone
Speaker 5: like Lindsey Graham, the center of South Carolina, who said,
Speaker 5: why should I from South Carolina pay for what's going
Speaker 5: on in some of these blue states? And he's pushing
Speaker 5: for this one big sorry for the two bill approach
Speaker 5: because he doesn't want to talk about taxes. He thinks
Speaker 5: it's going to take too long, and he doesn't, frankly
Speaker 5: want to sign up for salt. How are you going
Speaker 5: to convince the president this weekend that you should do
Speaker 5: one bill together and make sure salts included.
Speaker 7: Well, Respectfully, South Carolina is one of those states that
Speaker 7: gets more back, certainly percentage wise, than New York does.
Speaker 7: So you know, if we want to talk about subsidies,
Speaker 7: we can go chapter and burst through everybody's subsidies that
Speaker 7: they get.
Speaker 6: Look with respect to one versus too.
Speaker 7: The President has already made clear he is moving forward
Speaker 7: on one big bill. We need to deal with taxes,
Speaker 7: the border, energy debt, among other issues. And the fact is,
Speaker 7: given our small margin in the House, we're going to
Speaker 7: need everybody's vote and everybody on board. Two track bills
Speaker 7: are going to make that harder. So while it may
Speaker 7: take a little bit more time to get one bill negotiated,
Speaker 7: it is necessary if we're going to get all of
Speaker 7: these issues addressed. And I think the President understands that.
Speaker 7: I think that's why the President made clear last week
Speaker 7: one bill, and that's how we are proceeding forward in
Speaker 7: the House. And look, ultimately, our Senate and House Republican
Speaker 7: majorities are going to have to work together. Nobody's going
Speaker 7: to get everything they want out of this. There's going
Speaker 7: to have to be a good faith negotiation if we
Speaker 7: had any chance of passing a reconciliation bill.
Speaker 5: I was one of those individuals who watched your festivus
Speaker 5: airing of grievances during the Christmas week and you did
Speaker 5: a little bit of a wink at your potential future
Speaker 5: maybe becoming the governor of New York to make sure
Speaker 5: you could potentially go down that path, do you need
Speaker 5: to secure a higher salt tax break.
Speaker 7: Look, regardless of whether or not I run for governor,
Speaker 7: this was a promise of mine, and it's said top
Speaker 7: priority for my district. I represent one of the highest
Speaker 7: tax districts in the country, inclusive of Westchester and Rockland
Speaker 7: Counties number one and number two highest property tax counties
Speaker 7: in America. So this is critically important to lift the
Speaker 7: cap on salt. Ten thousand dollars is woefully insufficient. And
Speaker 7: you know this is something that I said I would
Speaker 7: deliver on, and we're going to as part of this
Speaker 7: reconciliation bill. Long term for New York, this is critical.
Speaker 7: We lead the nation in out migration. Our tax base
Speaker 7: is eroding, in large part because of the disastrous policies
Speaker 7: of Kathy Hochel and Albany Democrats. One party rule in
Speaker 7: Albany has been an abject disaster, whether you're talking about
Speaker 7: the affordability crisis or public safety. People being burned alive
Speaker 7: on subways, pushed in front of oncoming subway trains. Kathy
Speaker 7: Hochl now scamming New Yorkers out of twenty five hundred
Speaker 7: dollars a year for the privilege of driving to work
Speaker 7: while spending billions of dollars of taxpayer money on free
Speaker 7: thousand clothing, food, education, and healthcare for illegal immigrants. New
Speaker 7: York needs change, there's no question about that. But from
Speaker 7: a federal perspective, we should not be penalizing New York
Speaker 7: taxpayers because of the disastrous decisions of Cappy Local and
Speaker 7: Albany Democrats.
Speaker 5: And just to be clear, when it comes to the
Speaker 5: salt cap, how high are you looking for it to
Speaker 5: be raised?
Speaker 7: Look, I've introduced legislation, you know, my marriage Penalty Elimination
Speaker 7: Bill reintroduced to raise it to one hundred thousand dollars
Speaker 7: for individuals two hundred thousand dollars for married couples.
Speaker 6: This is going to be a negotiation.
Speaker 7: My colleagues and I are looking forward to sitting down
Speaker 7: with the President having a discussion about it, hearing obviously
Speaker 7: what his priorities are as part of the tax bill,
Speaker 7: and working to a consensus. At the end of the day,
Speaker 7: my objective is to provide tax really to hardworking Americans.
Speaker 7: It's incumbent upon everybody to negotiate in good faith because
Speaker 7: here's the reality. If we do not pass a tax
Speaker 7: bill number one, salt comes back unlimited, but it is
Speaker 7: accompanied by the largest tax increase in American history. So
Speaker 7: it is important that we actually negotiate a fair tax
Speaker 7: deal for the American people in August.
Speaker 3: I just want to end on this.
Speaker 5: You are one of these individuals that wrote a letter
Speaker 5: to the Speaker talking about that you didn't want the
Speaker 5: repeal of energy tax credits with the IRA. This is
Speaker 5: something that president like Donald Trump wants. Are you going
Speaker 5: to be trying to assuage him of your view over
Speaker 5: this weekend in mar Lago.
Speaker 7: Look, many provisions for the IRA absolutely need to be repealed.
Speaker 7: What we signed on to a letter is that we
Speaker 7: were not going to just sign off on a wholesale repeal.
Speaker 7: There needed to be a discussion and again a negotiation.
Speaker 7: Companies make decisions based on tax provisions and they need certainty.
Speaker 7: And there's already been significant investment, including in New York,
Speaker 7: based on some of these energy tax credits, and so
Speaker 7: we want to make sure that any changes are done
Speaker 7: smartly and not just wholesale repeal. So that'll be part
Speaker 7: of the discussion and conversation as we move forward. And
Speaker 7: you know, again, I think the key here is to
Speaker 7: come up with a reconciliation bill that increases domestic production
Speaker 7: of energy, ensures the American people have a good, smart
Speaker 7: tax bill to reduce their taxes, reduce the cost of
Speaker 7: living here in the US, and ultimately secures our border.
Speaker 7: It's a lot of a lot of important issues that
Speaker 7: have to be included in this reconciliation bill. It's going
Speaker 7: to require negotiation, and it's going to ultimately require every
Speaker 7: Republican supporting the final product.
Speaker 2: A Congressman as we speak, Bonyotza climbing. And we've we've
Speaker 2: seen quite a significant move since September when the Federal
Speaker 2: reserves standing it's right cutting effort. We've moved one hundred
Speaker 2: basis points. And I certainly don't expect you to follow
Speaker 2: the ins and outs of fixed income on any given day,
Speaker 2: but I wonder whether you and your colleagues are sensitive
Speaker 2: to some of the pressure that is starting to build
Speaker 2: in the US dept market.
Speaker 7: No question, Look, our debt at thirty six trillion dollars
Speaker 7: total and counting, is a major problem, and this is
Speaker 7: something that everybody in the Republican Conference is in agreement on.
Speaker 7: We have to tackle our debt. We have to reduce
Speaker 7: our deficit spending. We have to right size the federal government.
Speaker 7: Spending is out of control. Joe Biden's disastrous first two
Speaker 7: years gave us record inflation. It despite the cost of living,
Speaker 7: and we have to unwind a.
Speaker 6: Lot of this.
Speaker 7: You look at a state like New York, it is
Speaker 7: floundering because of some of the economic pressures.
Speaker 6: And just think about this.
Speaker 7: The MTA has more debt than eighty percent of the
Speaker 7: states in the country. So debt is a major problem.
Speaker 7: It's something that we have to deal with across the board.
Speaker 7: We cannot continue to print and borrow money at the
Speaker 7: levels that we have.
Speaker 2: Do you think we can afford to extend CCJA, which
Speaker 2: baseline is something like four to five trillion? Do you
Speaker 2: think we can afford to include an expansion of cell
Speaker 2: tax deductions? In Congressman, I wouldn't push back against anything
Speaker 2: you said about the effort that needs to take place.
Speaker 2: I swear I'm just wondering how much fiscal space you
Speaker 2: and your colleagues believe we actually have at the moment.
Speaker 7: Look, tax policy is critical to economic growth, but it's
Speaker 7: one part. We need to increase domestic production of energy,
Speaker 7: which will help generate more revenues. Energy policy is also critical,
Speaker 7: not just domestically for cost, but for national security. You
Speaker 7: were talking obviously about the threats to Europe from Russia.
Speaker 7: Europe is still buying gas from Russia. It's idiotic. It
Speaker 7: makes no sense that they're helping fund the very war
Speaker 7: they're trying to stop. So there is a lot that
Speaker 7: has to be done here, including reigning in federal spending. Obviously,
Speaker 7: as we work through the tax cuts, we will look
Speaker 7: to help offset some of the cost through spending reduction.
Speaker 7: So this is going to be a comprehensive approach to
Speaker 7: how we right size the American economy.
Speaker 6: I do think it's possible.
Speaker 7: It's going to be one of the most critical things
Speaker 7: any of us ever do in our careers in government,
Speaker 7: and so we all have to be committed to the
Speaker 7: final cause.
Speaker 2: Here, and we're certainly looking forward to continue in the
Speaker 2: conversation with you, sir, in your current capacity and maybe
Speaker 2: in the future. Is the next government of the Great
Speaker 2: State of New York. Mike Laondad Congressman. Thank you, sir,
Speaker 2: appreciate it. We begin this side with stock steady investors
Speaker 2: taking stock of an equity and bond market sell off
Speaker 2: in the last twenty four hours. Mike Wilson and Morgan
Speaker 2: Stanley saying equities are right sensitive once again, which is
Speaker 2: another reason to stick with quality. Rates are the most
Speaker 2: important variable to watch in early twenty five. Mike joins
Speaker 2: us now for more. Mike Wilson, Good morning, Happy New Year,
Speaker 2: Good morning John. It's going to see you, sir. Let's
Speaker 2: start with the bond market and the importance of it.
Speaker 2: What is driving these yeld hire and how important is
Speaker 2: the why to the equity market.
Speaker 3: Yeah, that's the right question.
Speaker 8: It's not just rates are going up, but why are
Speaker 8: they going up? I think Lisa mentioned a few things
Speaker 8: that are driving in an our view, which is some
Speaker 8: of the fiscal sustainability questions. We have a new administration
Speaker 8: and while it is the second version of Trump, it's
Speaker 8: still uncertain, right, It's a new administration. There's a lot
Speaker 8: of new cabinet members we just don't know. And usually
Speaker 8: the first the first quarter after a new president and
Speaker 8: new administration comes in, the markets typically don't do that well, right,
Speaker 8: we rally into the election, have a relief, and then
Speaker 8: we have these variables that we don't know. So the
Speaker 8: main risk that we talked about a month ago was
Speaker 8: probably US dollar strength and rates, and that was always
Speaker 8: our view going into the election that Trump would be
Speaker 8: good for stocks and probably not as good for bonds,
Speaker 8: and that's exactly what's playing out. So we had this
Speaker 8: euphoria around the election. We're getting a pullback on that.
Speaker 8: There's two things that are driving rates now. I think
Speaker 8: it's more about inflation and physical sustainability than it is
Speaker 8: about growth, and that's the key, and that's why the
Speaker 8: rate sensitivity now matters. For equity multiples. We tracked this closely, right,
Speaker 8: The correlation between multiples and rates flipped negative again when
Speaker 8: we crossed over four point five percent, almost exactly what
Speaker 8: we thought because that's what we experienced last year in April,
Speaker 8: so it makes perfect sense. So this is the issue.
Speaker 8: We don't know how it's going to resolve itself. But
Speaker 8: until this does resolve itself in a favorable way, meaning
Speaker 8: rates go back below four point five percent and term
Speaker 8: premium comes down, right, that's the other part of the variable.
Speaker 8: So term premiums up seventy seven to eighty basis points
Speaker 8: somewhere net range. That's a massive move, I mean in
Speaker 8: a very short period of time. So I'm actually surprised
Speaker 8: that multiple seven come down more. Okay, Now, part is
Speaker 8: because the high quality stocks are where people are crowding
Speaker 8: into still, not only in the US but globally, and
Speaker 8: that's probably keeping the S and P multiple a little
Speaker 8: higher than it would be normally. But this persists, multiples
Speaker 8: are going to come in more.
Speaker 2: That mix is toxic for risk ampetsite. The way you've
Speaker 2: laid out things, we have Tolston slock and you'll see
Speaker 2: yesterday from Apollo who raised the risk of a repeat
Speaker 2: of twenty twenty two. Would you share that fear a
Speaker 2: year in which stocks and bonds do poorly?
Speaker 8: Yeah, I think that's I think that's fair. I only
Speaker 8: I mean nearly a severe. I mean the Fed's not
Speaker 8: raising rates. I mean in twenty twenty two, I mean
Speaker 8: they raise rates four hundred basis points and that's not happening.
Speaker 8: So I think that's a little extreme to say that,
Speaker 8: you know, bonds are not going to sell out that much. Okay,
Speaker 8: that's point number one. Point number two though, is that
Speaker 8: multiples are much higher coming into this year than they were,
Speaker 8: say in twenty twenty two, relative to where bond yields are,
Speaker 8: So in other words, I've been surprised. I think a
Speaker 8: lot of people have been surprised that multiples have gotten
Speaker 8: this high in the face of rates at four four
Speaker 8: and a half five percent, I mean, that's where we've
Speaker 8: been from the last year. That's probably been the single
Speaker 8: biggest miss by any most people, then multiples could be
Speaker 8: this high. So you have more give, i think, and
Speaker 8: multiples to come down even if rates just stay in
Speaker 8: this range. They don't have to go up hundred basis
Speaker 8: points for multiples to come in ten percent. And that's
Speaker 8: what we're trying to figure out. So what do you
Speaker 8: do in that environment where you still stay at the
Speaker 8: quality curve? Okay, that's typically what works. And if you
Speaker 8: look at what happened by the way in the fall,
Speaker 8: the low quality stocks absolutely when bonkers, So that has
Speaker 8: to come out of the market. That's where we would
Speaker 8: be most concerned or most kind of area we'd be
Speaker 8: most avoiding for the next sort of three to six months.
Speaker 1: What's interesting to me is how much the narrative has
Speaker 1: shifted around which area of the equity market is most
Speaker 1: rate sensitive. At one time, it was considered the high
Speaker 1: flying tech stocks that would be really hit hard. Now
Speaker 1: you're talking about actually some of the rest of the
Speaker 1: index that you think you're going to have to come in.
Speaker 1: Is that how you'd frame it that? Essentially, tech stocks
Speaker 1: are not nearly as rate sensitive as a lot of
Speaker 1: people used to think they were.
Speaker 8: Well, let's be clear, not all tech stocks are created equal. Okay,
Speaker 8: so we're you got to separate the ten magical stocks
Speaker 8: whatever you want to call them, versus everybody else. If
Speaker 8: you look at the average tech stock, right, you look
Speaker 8: at the equal weighted Tech index, it's been lousy, right,
Speaker 8: it hasn't performed that well relative to the overall market.
Speaker 6: Looks like the average stock.
Speaker 8: So once again, you know, we're talking about monopolies here, Okay,
Speaker 8: monopoly businesses, high quality businesses, and it's not just tech stocks, right,
Speaker 8: there's just about thirty forty fIF types of these businesses.
Speaker 8: They will typically hold up until growth becomes a serious problem.
Speaker 8: Like that's not where we are right now. We're not
Speaker 8: in a recession. We're not in a situation where growth
Speaker 8: is going to really disappoint like it did in twenty
Speaker 8: twenty two. That was the big difference I think in
Speaker 8: twenty two versus today is at twenty two, we had
Speaker 8: a massive earnings recession. Okay, I mean it led by
Speaker 8: the magnificent seven. By the way, that's not what we're
Speaker 8: forecasting right now. So that's what probably keeps a bid
Speaker 8: into some of the higher quality parts of the market.
Speaker 3: Now.
Speaker 8: Having said that, if we go through five percent and
Speaker 8: term premium continues to go, yeah, the exposure and the
Speaker 8: equity market is in that space and those stocks will
Speaker 8: eventually get clipped the hardest. But that's not We're not
Speaker 8: quite at that threshold yet.
Speaker 1: Mentioning Dorson Slock a number of other guests yesterday, we're
Speaker 1: talking about how important it is to have an increasing
Speaker 1: allocation to cash at a time when there is going
Speaker 1: to be a lot of volatility and there is great
Speaker 1: uncertainty about rate sensitivity as well as fiscal policy in Washington,
Speaker 1: d C.
Speaker 3: Do you agree with that cash.
Speaker 6: Is great right now?
Speaker 8: I mean you're getting a really good real return, you
Speaker 8: have no duration risks, Like what's wrong with cash doesn't
Speaker 8: mean you have forty percent cash, but like we're still
Speaker 8: very much short duration right. So when I say cash,
Speaker 8: it's like two years an in. I mean, that's a
Speaker 8: cash management. By the way, that's what most clients have
Speaker 8: been doing, you know, having a barbell of kind of
Speaker 8: your equity portfolio, your risk assets, and then within your
Speaker 8: fixed thinking portfolio, they've basically shortened their duration. So that's
Speaker 8: essentially where how people are positioned cash heavy and then
Speaker 8: maybe taking a little more risk in their equity portfolio.
Speaker 8: That's not that barbells work quite well, and I don't
Speaker 8: see why that's going to change.
Speaker 5: You said, one thing that's different now than in twenty
Speaker 5: twenty two was the Fed was raising rates. We just
Speaker 5: had Adam Posen on who thinks that Defen's going to
Speaker 5: be forced to raise rates this year though, because of
Speaker 5: what's going on policies in Washington, c and sticky inflation.
Speaker 5: Do you think there's no chance at the FED raises
Speaker 5: rates this year?
Speaker 8: No, of course there's a chance. I mean, I mean,
Speaker 8: I mean, I it' cent our house call. But if
Speaker 8: things continue to move in this direction, and it's let's say,
Speaker 8: let's say we get an oil risk, you know, to
Speaker 8: the upside. Oil's kind of making a move right now,
Speaker 8: I mean, that could cause the FED to raise rates
Speaker 8: twenty five basis points. But even if we say that, okay,
Speaker 8: we're not raising four hundred basis points, that I'm very
Speaker 8: comfortable saying the chance that is zero. So that's how
Speaker 8: I think it's different than twenty twenty two. In that sense,
Speaker 8: I don't think there's as much a downside for rates,
Speaker 8: but that doesn't mean there could be, you know, ten
Speaker 8: ten percent downside for many stocks just if rates stay.
Speaker 3: At this level.
Speaker 5: It's only the second week of twenty twenty five and
Speaker 5: already we've had multiple narratives on fiscal expansion, on tariffs.
Speaker 5: What's one thing you would love to have clarity on
Speaker 5: to understand the market this year?
Speaker 8: Well, I think clearly tariffs is going to be the
Speaker 8: one that is the most that's for equity investors, that's
Speaker 8: going to be the biggest focus because that can affect
Speaker 8: earnings probably the most severely. In growth right immigrant, I
Speaker 8: think is going to be a kind of a push
Speaker 8: and take. And I think the other one is taxes.
Speaker 8: Are they going to try to get more tax cuts
Speaker 8: through are they just going to try to extend the
Speaker 8: existing tax cuts or you know, the current tax law,
Speaker 8: and that will affect. I think that will affect race.
Speaker 8: So it's really terriffs and taxes. I don't think we're
Speaker 8: going to know about taxes for quite a while. I
Speaker 8: think tariffs we're going to know quite a bit in
Speaker 8: the next month or two. And we've said this for
Speaker 8: a while, we said, I think we think the first
Speaker 8: half is going to be is going to be choppy. Okay,
Speaker 8: second half if things, if they can execute in all
Speaker 8: these policies and we can kind of get to a
Speaker 8: point where the markets get comfortable with this, the second
Speaker 8: half of the year could be much much better for equities.
Speaker 1: What do you like? Where are the opportunities? And there's
Speaker 1: hiding out in quality stocks, But is there anything that's
Speaker 1: getting you actually excited?
Speaker 8: Well, I think the area we've been most wellish is financials.
Speaker 8: I do think that's an area where there's it seems
Speaker 8: to be a lot of a coalition around deregulation. There
Speaker 8: is pent up demand for M and A, there's pent
Speaker 8: up demand for other capital market activities. So I do
Speaker 8: think financial is an area we continue to think there's
Speaker 8: value there, and.
Speaker 6: That's that's a global call.
Speaker 8: The second one is probably energy and commodities and materials,
Speaker 8: these parts of the market that we can't do. All
Speaker 8: these things everybody wants to do, like build data centers,
Speaker 8: you know, add you know, add infrastructure, you know, robotics
Speaker 8: and all these things. You need materials, you need energy
Speaker 8: for that. So I think those are areas that have
Speaker 8: been underlooked, overlooked by the market, underappreciated by the market,
Speaker 8: that could be quite interesting this year.
Speaker 2: Mike, got to see you enjoyed the night to start
Speaker 2: the week as well, My Wilson that Morgan Stanley, thank you.
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