WEBVTT - Surveillance: Economic Recovery With Lavorgna 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa brown Witz Jaily. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:29.760 dot com, and of course on the Bloomberg terminal. We 0:00:29.880 --> 0:00:33.000 get lucky here are booking team is really wonderful at 0:00:33.040 --> 0:00:36.879 piecing together the people, the voices, the conversation with the 0:00:36.920 --> 0:00:40.559 news flow. Let us move from TARJ with terrific earnings 0:00:40.600 --> 0:00:42.320 coming out. One of the great joys of T g 0:00:42.520 --> 0:00:45.680 T folks is they come out with just very crystal 0:00:45.760 --> 0:00:49.920 career headlines of their financial performance and as we well know, 0:00:50.080 --> 0:00:53.880 retail doing better than good target with a sustained thirty 0:00:53.920 --> 0:00:58.200 percent margin. They say that this year's operating margin well 0:00:58.240 --> 0:01:01.280 above two thousand, which twenty as well. We'll go into 0:01:01.320 --> 0:01:04.160 that as as we go along. So much of this 0:01:04.400 --> 0:01:07.360 is the state of the American economy. A great student 0:01:07.360 --> 0:01:10.120 of this is a guy who I started reading Lehman 0:01:10.200 --> 0:01:13.440 Brothers years ago. He's one of those people that writes 0:01:13.480 --> 0:01:16.360 a three page economic report. You hate him because you 0:01:16.400 --> 0:01:19.320 actually have to read the thing. Joseph Lavorgnia joins us 0:01:19.400 --> 0:01:21.920 right now in the Texas after his public service to 0:01:22.040 --> 0:01:25.319 President Trump and the nation. Joe, wonderful to have you on. 0:01:25.760 --> 0:01:28.479 The great conundrum we have each day is the legs 0:01:28.480 --> 0:01:31.560 of the X axis. We've got a boom economy. How 0:01:31.600 --> 0:01:35.160 long does the boom last? Thank you Tom for having 0:01:35.200 --> 0:01:38.399 me on. Everybody the boom lasts for a while. I mean, 0:01:38.480 --> 0:01:41.880 the household looks excellent. You've got very high savings RAITs, 0:01:42.319 --> 0:01:45.919 you've got very hell very high wealth positions, the labor 0:01:45.959 --> 0:01:49.559 markets improving. I mean, there's some frictions certainly in the economy, Tom, 0:01:49.560 --> 0:01:52.720 but the household looks great. I do worry that after 0:01:53.640 --> 0:01:56.400 one boom, we're gonna slow, perhaps more than people expect 0:01:56.400 --> 0:01:59.600 next year. But but a recession is still many years. 0:01:59.640 --> 0:02:02.240 And what a when you get these recoveries. I know 0:02:02.280 --> 0:02:04.280 it was a pandemic led down term, but when you 0:02:04.320 --> 0:02:06.720 get these recoveries and now we're going to enter expansion 0:02:06.760 --> 0:02:09.040 mode in the second quarter with a big GP number. 0:02:09.600 --> 0:02:11.560 They're not measured in terms of months, they're measuring in 0:02:11.639 --> 0:02:13.760 terms of years, So it's going to last. Joe, I 0:02:13.760 --> 0:02:16.880 want to take your income statement analysis and the American economy. 0:02:16.880 --> 0:02:18.680 I want to fold it over to your former shop. 0:02:18.720 --> 0:02:23.360 George Saravelos holding holding court with Deutsche Bank in London, 0:02:23.400 --> 0:02:27.919 and he notes the exterior dynamics, the trade deficit, the 0:02:28.000 --> 0:02:31.760 flow of funds within our financial system, and the foreign 0:02:31.800 --> 0:02:35.680 owners of our bomb our bonds. Rather, do we risk 0:02:36.160 --> 0:02:40.320 instabilities as we come out of this boom economy when 0:02:40.360 --> 0:02:43.120 we look at the trade deficit or the current account 0:02:43.200 --> 0:02:47.680 surplus deficit, I'm more I'm more work right now the 0:02:47.760 --> 0:02:50.919 current account surplus, current acount deficit tom right now it's 0:02:50.919 --> 0:02:53.160 about three and a half percent's on its way to four. 0:02:53.800 --> 0:02:56.919 It was over six percent back in the mid two thousand's. 0:02:57.440 --> 0:03:00.840 I'm more concerned, less about trade, but more about fiscal side, 0:03:01.280 --> 0:03:03.720 where we're going to run a deficit this year of 0:03:03.760 --> 0:03:07.960 about six a GDP, and if we get this four 0:03:08.040 --> 0:03:11.800 trillion extra and spending, we could see deficits in the 0:03:11.840 --> 0:03:14.960 ten to twelve percent range for quite some time. So 0:03:15.000 --> 0:03:17.960 I'm more worried about the federal spending much less so 0:03:18.160 --> 0:03:22.240 on the on On the international side, remember, imports are 0:03:22.240 --> 0:03:25.600 growing very strongly, are growing about but that's because the 0:03:25.680 --> 0:03:29.800 demand is so strong. As per targets results the consumers robust, 0:03:29.880 --> 0:03:33.360 So worry more about the government's fiscal commitments much less 0:03:33.360 --> 0:03:35.920 so about the international side. What do you think needs 0:03:35.920 --> 0:03:40.600 to adjust yields or foreign exchange. It will come through 0:03:40.600 --> 0:03:43.080 the foreign exchange market, because the FED is likely to 0:03:43.160 --> 0:03:46.040 depress yields of picture strakes where to rise, So that 0:03:46.040 --> 0:03:48.360 would be a risk, is that the dollar does soften 0:03:48.840 --> 0:03:50.880 Right now though the dollar, as you were saying earlier, 0:03:50.880 --> 0:03:54.240 just regarding the euro, the broad trade weighted dollar is 0:03:54.240 --> 0:03:56.360 about flat on the year. It's down from where it 0:03:56.440 --> 0:03:59.280 was last year, but that got a big surge because 0:03:59.280 --> 0:04:01.720 of the pandemic in the flight to quality. That's what 0:04:01.800 --> 0:04:04.800 we saw during the Great Financial Crisis. But long term, 0:04:04.840 --> 0:04:07.160 the dollars still look stable. If the dollar was to 0:04:07.280 --> 0:04:10.320 collapse or plunge, that's a different story. But I don't 0:04:10.320 --> 0:04:12.360 see that right now in the cars that is, that's 0:04:12.360 --> 0:04:14.760 a risk, but I'd say it's a low probability. It's 0:04:14.800 --> 0:04:16.600 it's a risk though a fact that Joe, that you 0:04:16.640 --> 0:04:18.599 think maybe we're not considering enough, and that's not that 0:04:18.640 --> 0:04:20.480 the dollar collapses. I'm not in that camp, and I'm 0:04:20.520 --> 0:04:23.840 not advocating even questioning that right now. I just wanted 0:04:23.839 --> 0:04:25.480 to going forward from here we have shifted from a 0:04:25.560 --> 0:04:29.520 dynamic whether the US has been importing disinflation, particularly from China, 0:04:29.600 --> 0:04:33.200 and that seems to be changing. Jug Well, here's the 0:04:33.240 --> 0:04:36.000 thing though, Jonathan. If you look at the goods sector 0:04:36.040 --> 0:04:38.560 of the economy, it's booming. It's a big kink if 0:04:38.560 --> 0:04:39.960 you look at the growth. If you look at the 0:04:40.000 --> 0:04:43.039 dollar level, we're about I think fifteen percent above trend 0:04:43.120 --> 0:04:47.080 ten percent above trends, huge number where we've blagged asign 0:04:47.120 --> 0:04:49.520 the services side, So it doesn't surprise me that the 0:04:49.600 --> 0:04:54.719 imports are strong. We've depleted inventories, so manufacturing production is big. 0:04:54.760 --> 0:04:57.560 We're importing all sorts of goods and materials, which is 0:04:57.560 --> 0:05:01.200 why commodity prices are booming. As the economy reopens and 0:05:01.320 --> 0:05:03.880 service spending comes back, you're gonna see those pressures on 0:05:04.080 --> 0:05:07.760 goods moderate, especially as factories get fully back up to speed. 0:05:07.800 --> 0:05:10.440 So what I see on the commodity pricing side is 0:05:10.520 --> 0:05:14.400 really this is a is a post pandemic price level adjustment, 0:05:14.640 --> 0:05:17.599 and we're gonna see this inflation on the good side dissipate. 0:05:18.040 --> 0:05:21.440 So I I would still argue where the disinflationary environment 0:05:22.000 --> 0:05:24.760 not an inflationary environment. Can you elaborate on that, Joe, 0:05:24.800 --> 0:05:27.000 particularly when it comes to wages, the idea that we're 0:05:27.000 --> 0:05:30.200 actually starting to see wage pressures on the lowest end 0:05:30.240 --> 0:05:33.599 to even the higher end of the income spector. Sure 0:05:33.920 --> 0:05:37.159 the wage side, we are seeing lower and middle income 0:05:37.200 --> 0:05:40.160 wages rise. We still have under President Trump, actually right 0:05:40.200 --> 0:05:43.800 before the pandemic, at very strong wage growth. But broadly speaking, 0:05:43.839 --> 0:05:45.960 I don't see much wage pressure. For example, if I 0:05:45.960 --> 0:05:48.560 look at the employment across the index, I see that 0:05:48.600 --> 0:05:51.840 we're growing only around three percent. We're actually trend through 0:05:51.920 --> 0:05:54.320 last year it actually slowed. If I look at the 0:05:54.360 --> 0:05:57.360 recent trends and average generally earnings, I don't see much 0:05:57.360 --> 0:06:01.160 acceleration there, and unit labor us are still growing under 0:06:01.200 --> 0:06:04.320 two percent. So there are some anecdotes and certain industries 0:06:04.360 --> 0:06:07.919 facing shortages. People certainly are having to pay up for labor. 0:06:08.000 --> 0:06:10.560 McDonald's I think there was one company that comes to mind, 0:06:10.880 --> 0:06:14.240 But royally speaking, I don't see much much wage pressure. 0:06:14.279 --> 0:06:17.520 And I think as an unemployment benefits expire in September, 0:06:17.800 --> 0:06:19.600 you're going to see more people come back to work. 0:06:19.640 --> 0:06:22.560 In factor, about twenty one states now that are limiting 0:06:22.560 --> 0:06:25.760 federal unemployment benefits, so to the extent that that was 0:06:25.800 --> 0:06:28.880 the fact that perhaps hurting labor supply, you're gonna stet 0:06:28.960 --> 0:06:30.960 labor supply come back in, and you're gonna see wage 0:06:30.960 --> 0:06:33.719 pressures moderate. So this raises a question for the Federal 0:06:33.720 --> 0:06:36.920 Reserve and the actions that they should be taking right now. 0:06:36.960 --> 0:06:40.560 A lot of people have been critical, including Robert Kaplan 0:06:40.600 --> 0:06:42.600 of the Dallas Fed, saying that the Fed should act 0:06:42.640 --> 0:06:46.479 sooner rather than later to counteract froth in markets. You 0:06:46.520 --> 0:06:48.360 seem to be saying that they're doing the right thing, 0:06:48.440 --> 0:06:50.640 that they're holding tight, and that they should because these 0:06:50.680 --> 0:06:54.520 are transitory influence. What would you have to see to 0:06:54.600 --> 0:06:57.720 change your mind? So you would need to see two things. 0:06:57.720 --> 0:06:59.920 You need see that wage pressure really start to sell 0:07:00.120 --> 0:07:03.799 rate some real cost pusher or demand poll wage inflation. 0:07:04.120 --> 0:07:06.800 I don't see that, but that's number one. Number two, 0:07:06.880 --> 0:07:11.440 you have to see inflation expectations, market expectations and consumer 0:07:11.480 --> 0:07:15.400 measures of inflation expectations really turn up. On the market side, 0:07:15.440 --> 0:07:17.360 they have. They're at about two and a half percent. 0:07:17.400 --> 0:07:20.000 If you look at five year five your phone slop rates, 0:07:20.440 --> 0:07:23.240 but still that's not with energy prices. Up to two 0:07:23.240 --> 0:07:25.760 and a half percent inflation rate after a long period 0:07:26.200 --> 0:07:29.080 of undershooting is not very much. So you need wages, 0:07:29.360 --> 0:07:32.520 you need inflation expectations. That's what I need to say, Joe. 0:07:32.600 --> 0:07:36.360 Your career is a career of economic optimism. There's always 0:07:36.440 --> 0:07:38.880 a timeline, not of morning in America, but just a 0:07:38.920 --> 0:07:42.760 real clear right optimism on the US economy. Do we 0:07:42.840 --> 0:07:47.280 massively misjudge now the X axis? Are we just flying 0:07:47.360 --> 0:07:51.120 blind on the durability or duration of this fiscal and 0:07:51.160 --> 0:07:55.840 monetary stimulus that we have where we grossly misjudge the 0:07:55.960 --> 0:08:01.880 positive benefits? Uh? Potentially, yes, Tom, we do. I am 0:08:01.880 --> 0:08:05.800 an optimist. The Cares Act, that the Second Care's Act 0:08:05.880 --> 0:08:09.000 was a two point three trillion dollar package, was unanimous. 0:08:09.000 --> 0:08:11.480 There believe there was one person in Congress that voted 0:08:11.520 --> 0:08:15.360 against it. The Fed move with incredible lacrty. The economy 0:08:15.480 --> 0:08:19.240 is recovering clearly as you know where Washington is debating 0:08:19.720 --> 0:08:26.240 unprecedented fiscal stimulus or package spending initiatives U, and monetary 0:08:26.280 --> 0:08:28.440 policy has been very easy. So yes, there is this 0:08:28.520 --> 0:08:32.840 possibility U that we are creating some great risks for 0:08:32.920 --> 0:08:35.920 better for worse. We are we are testing modern monetary 0:08:36.000 --> 0:08:39.360 theory in real time, So yes, there is a risk. However, 0:08:39.520 --> 0:08:42.080 I will say that the dynamism of the US economy. 0:08:42.120 --> 0:08:45.480 It's entrepreneurial spirit. Uh. If you look at the business 0:08:45.559 --> 0:08:48.600 dynamic data yes last year from the Census Bureau. I mean, 0:08:48.640 --> 0:08:51.800 there's a lot of incredible things that this economy does. 0:08:51.840 --> 0:08:54.200 So I'm still an optimist, but certainly there are risks. 0:08:54.240 --> 0:08:56.560 No question. Hey, judge, it's gonna catch you up. It's 0:08:56.600 --> 0:08:58.920 gonna see it come back. Saying Jennivoni that it takes 0:08:58.960 --> 0:09:08.000 as seek the chief economists of the amount US good 0:09:08.000 --> 0:09:12.040 news on retail. Stephanie Whiston nailed it at Jeffrey. She 0:09:12.160 --> 0:09:15.600 joins us this morning where she's recalibrated on comp sales 0:09:15.679 --> 0:09:17.800 and stuff. Stephanie, I want to get out on the 0:09:18.000 --> 0:09:21.160 X axis too into the holiday season. Do you have 0:09:21.200 --> 0:09:25.720 any vision, any idea, any new information on where the 0:09:25.800 --> 0:09:32.559 retail juggernaut will be past August, past October. Yeah, that's 0:09:32.559 --> 0:09:35.040 a great question. I think. You know, we're seeing evidence 0:09:35.120 --> 0:09:38.600 that the consumer is interested in re engaging with retail. 0:09:39.400 --> 0:09:42.720 Actually across the board, Walmart Home Depot made these target 0:09:42.760 --> 0:09:46.679 loads all beat handily and all signaling that compliment um 0:09:46.760 --> 0:09:49.840 has persisted. In Q two as we look to the 0:09:49.840 --> 0:09:53.040 back half, we're looking at a few key indicators. The 0:09:53.120 --> 0:09:55.920 first is back to school. That will be the next 0:09:55.960 --> 0:09:58.960 kind of signal of confidence that we're back into a 0:09:59.000 --> 0:10:01.280 cycle of normal. We didn't really have a back to 0:10:01.360 --> 0:10:04.280 school season last year. It was a very unusual back 0:10:04.320 --> 0:10:06.720 to school period. So this year we're looking for those 0:10:07.080 --> 0:10:10.280 signs that not only the youth are returning to the 0:10:10.360 --> 0:10:13.840 malls into apparel retail, but are really going through the 0:10:13.880 --> 0:10:16.959 motions of a back to school purchasing cycle. We're also 0:10:17.040 --> 0:10:19.360 keeping an eye on what's happening in fashion. We've been 0:10:19.360 --> 0:10:21.640 in a bit of a fashion ruts for a number 0:10:21.640 --> 0:10:25.160 of years. We've been living in leggings and fitness apparel, 0:10:25.880 --> 0:10:30.360 and we're now seeing indications that she's exploring fashion again, 0:10:30.400 --> 0:10:32.280 that we might be seeing the early signs of a 0:10:32.360 --> 0:10:35.360 fashion cycle. And then lastly, I think we're just looking 0:10:35.360 --> 0:10:37.559 at the strength and home. The home improvement has been 0:10:37.679 --> 0:10:40.000 so strong over the course of the last twelve to 0:10:40.120 --> 0:10:44.000 eighteen months, and home ownership is rising, So how durable 0:10:44.320 --> 0:10:45.960 is some of the investment in the home, and do 0:10:46.040 --> 0:10:49.040 we move from what we call hard home into stockholm 0:10:49.440 --> 0:10:50.960 as we get into the back half of the year 0:10:51.040 --> 0:10:53.120 as well, So all of those things are top of mind. 0:10:53.120 --> 0:10:56.840 For us looking at the consumer and how she is 0:10:56.880 --> 0:11:00.480 behaving and looking where she's prioritizing her dollars. Effany, can 0:11:00.480 --> 0:11:02.439 you give us a sense of whether some of these 0:11:02.440 --> 0:11:06.079 companies are gaining market share or whether they're just exploiting 0:11:06.120 --> 0:11:10.080 the reality of an incredible savings glut in American households 0:11:10.120 --> 0:11:12.640 from pandemic checks and other aspects and the fact I 0:11:12.679 --> 0:11:14.640 haven't got out to spend. I mean, can you give 0:11:14.720 --> 0:11:17.360 us a sense of which will be the winners out 0:11:17.400 --> 0:11:22.160 of this pandemic spending boom. Yeah, it's a really interesting 0:11:22.240 --> 0:11:24.520 question because I think there's there are two classes. There 0:11:24.559 --> 0:11:26.640 are going to be the survivors, those that make it 0:11:26.760 --> 0:11:29.440 through clearly, there are some that aren't going to make 0:11:29.480 --> 0:11:32.120 it through, and then there are these winners. And I 0:11:32.160 --> 0:11:35.160 think that the upper class of winners really has three 0:11:35.200 --> 0:11:38.599 basic characteristics. Number One, they've used the pandemic to accelerate 0:11:38.640 --> 0:11:42.880 their omni channel initiatives. They were already underway. They pressed 0:11:42.880 --> 0:11:45.880 the gas pedal down and they effectively trained the consumer 0:11:45.920 --> 0:11:50.000 to adopt some of these click and collect curbside pickup models, 0:11:50.040 --> 0:11:54.080 which is actually not beneficial to margins. The second characteristic 0:11:54.160 --> 0:11:57.320 is that they upgraded their merchandise assortments. So they looked 0:11:57.320 --> 0:12:00.240 at the categories where they have clear, definitive advantages and 0:12:00.280 --> 0:12:03.680 they pressed hard into those categories. And then third, and 0:12:03.720 --> 0:12:05.280 I think this is probably the one that's going to 0:12:05.320 --> 0:12:07.640 be the most curious to keep an eye on, is 0:12:07.720 --> 0:12:10.800 how they are engaging with their consumer. How are they 0:12:10.840 --> 0:12:15.200 going beyond this the transaction, collecting data, personalizing the experience, 0:12:15.240 --> 0:12:18.120 customizing it because we do know that it's come out 0:12:18.120 --> 0:12:21.320 of this pandemic, there is a cohort of shoppers that 0:12:21.360 --> 0:12:23.680 wants to go back into stores, that wants to feel 0:12:23.679 --> 0:12:27.960 welcomed and that the shopping experience is at an elevated level. 0:12:28.160 --> 0:12:30.679 Otherwise it's just easier to order online. So I think 0:12:30.720 --> 0:12:33.360 we're looking for those companies that have also spent time 0:12:33.400 --> 0:12:36.520 thinking about their store experience just as much as their 0:12:36.559 --> 0:12:39.640 digital experience. Raw materials, labor costs, solely the above has 0:12:39.679 --> 0:12:42.160 been a big concernfinitely. Just finally, just to come back 0:12:42.160 --> 0:12:44.120 to you and get a final comment on the price 0:12:44.160 --> 0:12:46.640 pressure that's coming through for some of these companies. What 0:12:46.679 --> 0:12:50.800 does that look like for the retailers. Every single company 0:12:50.800 --> 0:12:54.400 has talked about rising wages of costs, particularly wage in 0:12:54.440 --> 0:12:57.000 place and but also has signaled that there is some 0:12:57.280 --> 0:12:59.760 product price in place and that's likely to come through. 0:12:59.840 --> 0:13:02.040 So we're also monitoring the cp I as we get 0:13:02.080 --> 0:13:03.520 through the middle part of this year and into the 0:13:03.559 --> 0:13:05.400 back calf I do think we're going to see a 0:13:05.400 --> 0:13:08.840 step function in consumer pricing. Stephaniely gotta leave it there, 0:13:08.880 --> 0:13:12.080 Thank you, come back soon. Great cool on Macy's Ye today, 0:13:12.120 --> 0:13:15.199 what a rip that's been. Stephanie whistick there the Jeffreys 0:13:15.240 --> 0:13:24.079 equity analyst. You know there's some there's some interesting dynamics 0:13:24.080 --> 0:13:26.880 here on the inflation fears that are out there. We're 0:13:26.920 --> 0:13:28.719 gonna do that. John's gonna lead that off. But I 0:13:29.120 --> 0:13:31.880 to greet Michael Schoel and say good morning with market 0:13:31.880 --> 0:13:36.400 Field Asset Management. And Michael, we've had more emails on 0:13:36.520 --> 0:13:39.000 your love of new Tela than anything else. And we 0:13:39.080 --> 0:13:42.920 had an America in the sixties. In the sixties, Michael, 0:13:42.920 --> 0:13:47.480 we obtained and Sanca. We're in Europe, they had new 0:13:47.520 --> 0:13:51.680 Tela and that speaks volumes about the Transatlantic divide that's 0:13:51.679 --> 0:13:54.640 there at each and every moment. Well, you know, I 0:13:54.679 --> 0:13:57.520 grew up in England as a kid with Lyles Golden Suit, 0:13:57.840 --> 0:14:00.280 which I continue to get to my children today. We 0:14:00.320 --> 0:14:02.680 didn't have enough teller in England. I mean, John, you 0:14:02.679 --> 0:14:04.240 know they didn't have to tell in England. At the 0:14:04.240 --> 0:14:08.240 same time, John Ferroll that Transatlantic dividers there is measured 0:14:08.280 --> 0:14:12.760 by tang and I had golden syrup to Michael, I'm 0:14:12.760 --> 0:14:14.480 surprised you're giving that to your kids, though. I think 0:14:14.480 --> 0:14:16.400 we should probably move on and talk about this market. 0:14:19.640 --> 0:14:21.640 What I give my kids with breakfast, carry on. Tell 0:14:21.680 --> 0:14:24.040 what you give them goes in the taler, the stuff 0:14:24.080 --> 0:14:25.920 that goes the waffle things that go in the toaster, 0:14:26.000 --> 0:14:30.960 and maybe put some the tanner on wif things. John, 0:14:31.360 --> 0:14:36.360 those waffles, those widerful things are egges, okay, I said, 0:14:37.800 --> 0:14:39.920 And then I was called the eggoes the waffle things, 0:14:39.960 --> 0:14:41.840 just in case anyone in your might think they were 0:14:41.840 --> 0:14:46.400 actually eggs. How about those markets? Markets were defensive this morning, Michael, Michael, 0:14:46.400 --> 0:14:48.400 just quickly your take on the price action this morning. 0:14:48.400 --> 0:14:53.560 You'll tire everything else, A lower crude euro equities you'll 0:14:53.560 --> 0:14:56.760 take this morning, please. I think we're in a bit 0:14:56.800 --> 0:14:59.680 of a corrector phase. I mean, it's obviously centered around 0:15:00.000 --> 0:15:02.600 you know that the sort of you know what we 0:15:02.680 --> 0:15:06.040 call hope, which stands for highly optimistic projected earnings, that 0:15:06.280 --> 0:15:09.320 sort of part of technology that everybody's sort of been 0:15:09.760 --> 0:15:12.640 banking on so so furiously. And I think that that 0:15:12.800 --> 0:15:14.840 really is in what I would call a major correction 0:15:14.840 --> 0:15:17.800 at this point. And I think the overall market, you know, 0:15:18.400 --> 0:15:20.920 is responding to that. And I think this is typical 0:15:21.280 --> 0:15:23.960 in a in a major transition of leadership, you know, 0:15:24.120 --> 0:15:27.200 which is I think, away from technology and towards cechnicality. 0:15:27.360 --> 0:15:29.920 So you know, we'll have periods when everything kind of 0:15:29.960 --> 0:15:32.560 goes up and periods when tech and the sort of 0:15:32.560 --> 0:15:35.240 hope stuff leads us lower. You know, we're in the 0:15:35.320 --> 0:15:38.520 latter right now. Why do you think that transition though, persists, Michael, 0:15:38.920 --> 0:15:41.800 that transition from leadership from the growth names big tech 0:15:42.160 --> 0:15:45.440 towards the most cyclical part of this market, you know, 0:15:45.480 --> 0:15:48.960 because I think the global economy post pandemic is radically 0:15:48.960 --> 0:15:51.680 different to the global economy pre pandemic. And some of 0:15:51.720 --> 0:15:55.000 that is the director fact effect of the disease um 0:15:55.280 --> 0:15:57.840 and some of it is the radical change in in 0:15:58.080 --> 0:16:01.440 fiscal and monetary policy global I mean, we're really not 0:16:01.520 --> 0:16:06.040 looking at the same set of circumstances in May one, 0:16:06.200 --> 0:16:10.440 but we were in January January, and I think the 0:16:10.520 --> 0:16:13.560 market is slowly starting, you know, to look about so 0:16:13.640 --> 0:16:16.120 I mean, one example of how things have changed is, 0:16:16.200 --> 0:16:19.080 you know, we have CPI over four percent right now. 0:16:19.560 --> 0:16:21.840 If you look about another way, you know, any price 0:16:21.960 --> 0:16:25.480 earnings above twenty five means that the earnings yield of 0:16:25.480 --> 0:16:28.760 that company is no longer keeping up with inflation, you know, 0:16:28.880 --> 0:16:31.840 tree pandemic. You know, with cp I in in the 0:16:31.880 --> 0:16:34.960 mid ones um, everything in the SMP had had a 0:16:35.000 --> 0:16:37.800 comfortable real earnings yield. So we have a very different 0:16:38.280 --> 0:16:42.280 set of both market and monetary circumstances and economics circumstances 0:16:42.360 --> 0:16:45.240 right now. When we talk about the market influences, I 0:16:45.240 --> 0:16:47.760 want to talk about the risk that has been introduced 0:16:47.760 --> 0:16:51.160 by bitcoin. Yes, we do have Bitcoin down significantly, and 0:16:51.200 --> 0:16:53.960 people are talking about how that's indicative of a risk 0:16:54.000 --> 0:16:58.440 off move. And yet I've been looking this morning at PayPal, MasterCard, 0:16:58.480 --> 0:17:03.360 Tesla Square, some pretty big companies that have significant bitcoin exposure, 0:17:03.600 --> 0:17:06.440 and I'm wondering, at what point does a real draw 0:17:06.440 --> 0:17:09.880 down and bitcoin becomes something more systemic that a portfolio 0:17:09.920 --> 0:17:12.320 manager invested in U S equities has to pay attention to. 0:17:14.200 --> 0:17:16.280 You know, there is some crossover. I mean you know, 0:17:16.640 --> 0:17:18.720 three years ago when bit kind blew up, it really 0:17:18.720 --> 0:17:22.080 didn't matter. But right now there is some real institutional 0:17:22.080 --> 0:17:25.120 money and some real wealth management money in in bitcoin, 0:17:25.200 --> 0:17:28.040 and of course there's a significant amount of market cap. 0:17:28.160 --> 0:17:30.439 As I said, I I think the Hope trade, you 0:17:30.440 --> 0:17:33.280 know it, which covers things like Tesla, uh, you know, 0:17:33.520 --> 0:17:36.040 is already in a in a a in a significant 0:17:36.040 --> 0:17:40.080 correction um and I think these stocks still have much 0:17:40.119 --> 0:17:42.840 further to fall over over a period of time. And 0:17:42.880 --> 0:17:45.840 I think we you know, you know, it does have 0:17:45.920 --> 0:17:48.640 the potential to have sort of waves of panic attached, 0:17:48.840 --> 0:17:51.359 you know, waves of panic attached to it, But I 0:17:51.440 --> 0:17:55.560 don't think it's gonna undermine the cyclical forces which are 0:17:55.680 --> 0:17:57.760 also you know, which are also in place at this 0:17:57.800 --> 0:17:59.640 point in you know, at this point in time. So 0:18:00.040 --> 0:18:02.879 I look ahead several months, I think there's quite a 0:18:02.880 --> 0:18:06.600 lot of cyclical equities in the US and global indexes 0:18:06.640 --> 0:18:09.920 like Australia and the UK which are very cycnically focused, 0:18:09.920 --> 0:18:12.959 which I think can be significantly higher, and there's scope 0:18:13.000 --> 0:18:15.440 for significantly lower places and a lot of the high 0:18:15.560 --> 0:18:19.399 multiple portions of the US and global equity market. What 0:18:19.560 --> 0:18:22.760 is the profile of a panic in markets right now 0:18:22.800 --> 0:18:25.200 at a time when the Fed is keeping policies very 0:18:25.240 --> 0:18:30.120 easy and at a time of such incredible growth and earnings, well, 0:18:30.440 --> 0:18:33.199 you know, it's a it's a significant draw down in 0:18:33.480 --> 0:18:36.560 you know, in in prices, and you know it has 0:18:36.600 --> 0:18:40.320 been a fairly severe correction so far in these high 0:18:40.359 --> 0:18:42.600 multiple names. You know, the good thing is you're losing 0:18:42.600 --> 0:18:45.040 money you only just made so you know, a lot 0:18:45.040 --> 0:18:47.240 of this stuff is still higher than it was towards 0:18:47.320 --> 0:18:50.240 the end of the fourth quarter twenty but the declines 0:18:50.280 --> 0:18:54.000 from one high is significant. But there's a lot of 0:18:54.000 --> 0:18:58.080 stuff down plus um in a couple of months, which 0:18:58.080 --> 0:19:01.360 which by any definition is is is a severe correction. 0:19:02.119 --> 0:19:04.000 Now it's too early to say what what we end 0:19:04.040 --> 0:19:06.520 of today looks like, but you know, the sup you 0:19:06.600 --> 0:19:08.879 re sponding by going down one and a half two percent, 0:19:10.000 --> 0:19:12.879 there's a degree of panick in the market at that point. Michael, 0:19:12.880 --> 0:19:15.480 what's the opportunity in equities when you look at you know, 0:19:15.640 --> 0:19:18.560 sectors and the different factors that are out there, between 0:19:18.600 --> 0:19:22.800 small cap, MidCap international and a beleaguered e M. Where's 0:19:22.800 --> 0:19:27.240 the opportunity, As I said, I think in the cynical parts. 0:19:27.240 --> 0:19:29.320 And you know e M is a good example, I 0:19:29.359 --> 0:19:32.080 don't like the MSc I Emerging market indexes a place 0:19:32.119 --> 0:19:34.120 to put money. But the reason is is because it's 0:19:34.119 --> 0:19:37.800 now dominated by Asian technology companies, which is not really 0:19:37.840 --> 0:19:39.560 what I want to own right now, but that some 0:19:39.640 --> 0:19:43.840 of the cyclical emerging market indexes still look just fine. 0:19:43.880 --> 0:19:47.440 Becauzil looks cheap, Mexico looks fine, Russia looks fine. They 0:19:47.480 --> 0:19:49.159 just don't have a lot of market cap. As far 0:19:49.200 --> 0:19:51.520 as the overall index is concerned. You could say the 0:19:51.560 --> 0:19:53.880 same about the S and P. I don't think it's 0:19:53.880 --> 0:19:56.920 the best benchmark to be in, but the cyclical portions 0:19:56.960 --> 0:20:00.560 of it energy, materials, some of the financials, you know, 0:20:00.640 --> 0:20:03.840 I think looked just fine and and and Globally, I 0:20:03.840 --> 0:20:06.320 think the two developed markets would really stand out are 0:20:06.359 --> 0:20:09.639 the UK and Australia simply because of the makeup of 0:20:09.680 --> 0:20:11.760 their indexes. You know, the UK gives you a lot 0:20:11.800 --> 0:20:14.480 of materials and a lot of energy. Australia gives you 0:20:14.520 --> 0:20:17.359 a lot of financials and a lot of materials. And 0:20:17.400 --> 0:20:20.119 I think the underlying efex is also going to battle. 0:20:20.280 --> 0:20:22.840 You know, the Aussie dollar looks very very cheap versus 0:20:22.840 --> 0:20:26.280 global commodity devices, and sterling is just coming out of 0:20:26.320 --> 0:20:28.840 its exit funk. I mean, Sterling is exactly where it 0:20:29.000 --> 0:20:32.159 was when the exit vote went the long way for 0:20:32.240 --> 0:20:37.479 most people in Jueen two thousand and sixtifty six. Michael, 0:20:37.520 --> 0:20:40.200 Thank you, sir Michael Shell, Market Ferness and Management c 0:20:40.720 --> 0:20:49.920 e O. I think most Asians have this sense of otherness, 0:20:50.000 --> 0:20:52.320 and of course I felt that especially here on the 0:20:52.359 --> 0:20:55.199 mainland US. I mean I've had people Americans come up 0:20:55.200 --> 0:20:57.800 to me and say things to me like who are 0:20:57.800 --> 0:21:01.120 you really from, even while I was wearing our nation's 0:21:01.240 --> 0:21:04.879 uniform with American flag on my shoulder and US Army 0:21:05.040 --> 0:21:09.080 on my chest over my heart. Lieutenant Colonel from Illinois. 0:21:09.359 --> 0:21:13.639 An important interview David ruben Stein with another wonderful and 0:21:13.720 --> 0:21:17.520 important peer to peer conversation. Look for that at nine 0:21:17.600 --> 0:21:21.560 pm tonight and Mr Rubinstein joins us right now on 0:21:21.800 --> 0:21:26.320 Tammy Duckworth. She is a politician, but far far more 0:21:26.520 --> 0:21:30.359 than that. It is a long, it's exceptional story, David 0:21:30.400 --> 0:21:34.959 Rubinstein from the Singapore School, the uh the Bangkok School. 0:21:35.000 --> 0:21:37.680 A father that moved around and moved around and moved around, 0:21:37.720 --> 0:21:41.919 and really there were some tough times to her war duty. 0:21:42.119 --> 0:21:45.320 What did she say to you about the war duty 0:21:45.480 --> 0:21:49.320