WEBVTT - Surveillance: Forecasts Have to Be Nimble With Trump's Unknowns 0:00:00.040 --> 0:00:02.640 Who you put your trust in matters. Investors have put 0:00:02.680 --> 0:00:07.000 their trust and independent registered investment advisors to the two 0:00:07.000 --> 0:00:10.680 and four trillion dollars. Why learn more and find your 0:00:10.760 --> 0:00:26.360 independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 0:00:26.760 --> 0:00:30.480 I'm Tom Keene with David Gura. Daily we bring you 0:00:30.520 --> 0:00:35.560 insight from the best in economics, finance, investment, and international relations. 0:00:35.960 --> 0:00:40.559 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 0:00:40.640 --> 0:00:48.800 of course, on the Bloomberg Chrispharron joins us head of 0:00:48.800 --> 0:00:52.000 Technical analysis at Fatiguous Research Partners. Chris, great to speak with, 0:00:52.040 --> 0:00:55.080 great to be here. Give us first the historical perspective here. 0:00:55.120 --> 0:00:57.640 We have watched the market since, watched the market especially 0:00:57.640 --> 0:01:00.480 closely here since the presidential election. How does it fit 0:01:00.520 --> 0:01:03.280 into history, the kind of rally that we've seen. Well, actually, 0:01:03.280 --> 0:01:05.160 it's not that extraordinary. If you look at four key 0:01:05.200 --> 0:01:08.400 returns thus far, they're about average for what would expect 0:01:08.520 --> 0:01:11.200 this time of year. So I would be hard pressed 0:01:11.200 --> 0:01:14.320 to call the market terribly extended at this point by 0:01:14.360 --> 0:01:17.240 our work. It just doesn't look at when you look 0:01:17.240 --> 0:01:20.200 at at correlations, what do you see at this point, Well, 0:01:20.280 --> 0:01:24.360 what we see is dispersion. We see correlations among stocks 0:01:24.360 --> 0:01:26.840 in the SMP right now the lowest they've been in 0:01:26.920 --> 0:01:29.880 about ten years. So your stock picking matters. Now. What 0:01:29.880 --> 0:01:33.360 we've learned historically is when correlations are moving lower, it's 0:01:33.400 --> 0:01:36.959 often consistent with a credit environment that is supportive. It's 0:01:36.959 --> 0:01:39.360 also consistent typically with the market that's going up, not 0:01:39.440 --> 0:01:42.319 a market that's going down. So lower correlations to us 0:01:43.160 --> 0:01:47.200 reflect normalcy. A line stood out to be in most 0:01:47.240 --> 0:01:48.680 recent note, you said the election has been the first 0:01:48.680 --> 0:01:51.640 macro event and eighteen months where correlations have actually declined. 0:01:51.680 --> 0:01:54.440 What's it? What's it play there? Yeah, Well, if we 0:01:54.480 --> 0:01:57.880 look at the last eighteen months of price history, we 0:01:58.000 --> 0:02:00.200 had a number of macro events. We had the kind 0:02:00.200 --> 0:02:05.240 of devaluation in August. We saw correlation spike when oil 0:02:05.320 --> 0:02:08.440 was at twenty six. We saw a correlation spike around Brexit. 0:02:08.760 --> 0:02:11.840 The same thing that tells us that investors were not 0:02:12.000 --> 0:02:15.200 distinguishing among stocks. They were not discriminating among stocks, they 0:02:15.200 --> 0:02:18.200 were treating them as an asset class. Uh. It seems 0:02:18.240 --> 0:02:22.119 like today, UH, investors are treating individual names on their 0:02:22.120 --> 0:02:26.240 own individual merit. UH. That is a healthier framework. It's 0:02:26.280 --> 0:02:29.239 often one that is consistent with lower volatility as well, 0:02:29.320 --> 0:02:31.720 so we welcome the change. I also think it's good 0:02:31.720 --> 0:02:35.440 news for active here in the act of verse passive debate, 0:02:35.760 --> 0:02:38.919 given that dispersion has widening, correlations have come in. We'll 0:02:38.960 --> 0:02:40.920 take into some of those those companies here in a moment. 0:02:40.919 --> 0:02:43.120 But when you look at, let's say the financial sector, 0:02:43.440 --> 0:02:47.120 the enthusiasm that that we've seen there, there's the enthusiasm, 0:02:47.160 --> 0:02:49.400 how about the technicals? What's that's saying about the financial sector? 0:02:49.600 --> 0:02:52.320 What I think is a little bit ironic about the enthusiasm. 0:02:52.320 --> 0:02:55.000 If you look at the cell side, the Bank Group 0:02:55.080 --> 0:02:58.480 has the second fewest number of buy ratings among cell 0:02:58.520 --> 0:03:01.040 side analysts compared to any of the group, So I 0:03:01.120 --> 0:03:06.480 would hardly call the seuth side UM overwhelmingly enthusiastic. The 0:03:06.560 --> 0:03:10.400 number of downgrades to upgrade since the election has really 0:03:10.440 --> 0:03:12.440 been staggering for the group, and that's almost hard to 0:03:12.480 --> 0:03:15.280 believe when I look at the group UM. I think 0:03:15.360 --> 0:03:18.440 the most important chart of two thousand and sixteen has 0:03:18.480 --> 0:03:20.960 been the breakout in JP Morgan. This is a stock 0:03:21.000 --> 0:03:23.520 that went nowhere for seventeen years. It peaked in March 0:03:23.919 --> 0:03:27.600 of two thousand. It was in purgatory for almost two decades, 0:03:27.880 --> 0:03:31.000 then move through sixty five. The move to eighty I 0:03:31.040 --> 0:03:32.720 think is a game changer. I think it's the most 0:03:32.760 --> 0:03:35.080 important chart of two thousand and sixteen. Is there is 0:03:35.120 --> 0:03:36.760 there a room to run here yet? In other words, 0:03:36.800 --> 0:03:39.280 we've seen such advancement in the in the sector. Uh, 0:03:39.400 --> 0:03:42.280 is it oversold at this point? I don't think it's 0:03:42.320 --> 0:03:45.400 remotely done. In the context of the longer term story, UM, 0:03:45.480 --> 0:03:47.600 this is a regime change to These are stocks that 0:03:47.640 --> 0:03:50.280 you could not own, not just for the last six 0:03:50.320 --> 0:03:52.480 or seven years, but really for the last ten or 0:03:52.520 --> 0:03:55.600 twelve years. What we've seen historically is when a sector 0:03:55.720 --> 0:03:58.160 stays out of favor for that ten to twelve year 0:03:58.240 --> 0:04:01.600 period UM, the next number revers tend to be quite good. 0:04:01.640 --> 0:04:03.840 We saw it with tech. Tech was out of favor 0:04:03.880 --> 0:04:07.160 from two thousand and two really up to two thousand ten. 0:04:07.760 --> 0:04:11.760 We certainly saw with healthcare up through about two thousand nine, 0:04:12.000 --> 0:04:13.600 and we've seen it with banks the last ten to 0:04:13.600 --> 0:04:15.680 twelve years. We think this is the early endings of 0:04:15.680 --> 0:04:18.520 a new secular ble market in bank stocks, and we 0:04:18.640 --> 0:04:21.040 just want to be there. There is a bellweatherness to 0:04:21.440 --> 0:04:23.040 to black Rock. You've got a chart of that in 0:04:23.279 --> 0:04:25.040 your most recent Now, what's that telling you right now 0:04:25.040 --> 0:04:26.800 when you look at black Rock in particularly, Yeah, you know, 0:04:26.839 --> 0:04:30.239 I've always looked to black Rock as a barometer for 0:04:30.320 --> 0:04:33.040 the broader market. It's almost a leverage plan on stocks. 0:04:33.560 --> 0:04:36.159 When black Rock is going up, the SMP tends to 0:04:36.160 --> 0:04:38.640 be going up, and conversely, when black Rock is going down, 0:04:38.680 --> 0:04:41.400 the return environment tends to be more challenging. So black 0:04:41.480 --> 0:04:43.479 Rock is another stock where it's really spent the last 0:04:43.520 --> 0:04:46.880 twenty four months, uh, not making anyone any money, and 0:04:47.000 --> 0:04:49.440 the market really didn't make anyone any money for the 0:04:49.480 --> 0:04:52.480 last twenty four months. So we welcome the breakout there 0:04:52.480 --> 0:04:55.200 over the last several weeks. And I think importantly I 0:04:55.279 --> 0:04:58.359 welcome the breakout in the relative sense as well. I 0:04:58.400 --> 0:05:02.359 am getting paid to own this stock relative to something else. 0:05:02.800 --> 0:05:05.680 That is the other big change for financials. They've become 0:05:05.800 --> 0:05:08.200 relative plays for the first time in a decade. We're 0:05:08.200 --> 0:05:09.880 talking with Chris of her own, head of technical analysis 0:05:09.920 --> 0:05:13.600 at Fatiguous Research Partners. Let's pivot to energy. Now, if 0:05:13.600 --> 0:05:15.880 we could we see oil a bit softer this morning. 0:05:15.920 --> 0:05:18.400 We had seen some some higher numbers earlier in the week. 0:05:18.440 --> 0:05:19.960 What do you say when you look at the energy set. 0:05:19.960 --> 0:05:21.800 When you look at oil in particular right now, Frankly, 0:05:21.800 --> 0:05:24.160 I think it's the most difficult on the street right now. 0:05:24.839 --> 0:05:28.120 As a chartist, it's not a bad picture, uh, And 0:05:28.200 --> 0:05:31.280 I could see it grinding towards sixty over the next 0:05:31.360 --> 0:05:35.160 number of months. But what tempers my enthusiasm is the history. 0:05:35.440 --> 0:05:37.960 And when I say the history, I mean, let's remember 0:05:38.040 --> 0:05:42.159 we're only a year removed from a seventy decline in oil, 0:05:42.279 --> 0:05:44.880 and when we've seen that in the past, the next 0:05:45.000 --> 0:05:47.560 number of years have looked a lot like a big 0:05:47.560 --> 0:05:50.039 trading range where you get some pretty vicious rallies and 0:05:50.040 --> 0:05:52.800 some pretty vicious declines. Now that's certainly been the case 0:05:52.880 --> 0:05:56.080 this year. We doubled off the low, but along the 0:05:56.080 --> 0:05:58.320 way we also had another thirty percent decline in the 0:05:58.320 --> 0:06:01.560 price of crude. So I think, in the context of 0:06:02.760 --> 0:06:06.080 how much volatility are you assuming to be long crude, 0:06:06.400 --> 0:06:08.640 that may be a bit higher than you're comfortable with. 0:06:08.720 --> 0:06:11.680 So I think mean reversion is still the name of 0:06:11.680 --> 0:06:14.520 the game when it comes to oil here, not unlike 0:06:14.640 --> 0:06:18.239 how crude behaved coming out of the six bearer market, 0:06:18.279 --> 0:06:21.040 where really the next decade was characterized by some pretty 0:06:21.120 --> 0:06:24.640 vicious trading ranges. So yes, we can grind towards sixty. 0:06:24.680 --> 0:06:29.360 I would temper my I would temper my return enthusiasm 0:06:29.720 --> 0:06:33.640 much above that. What it's part of the dumb question here, 0:06:33.680 --> 0:06:36.280 but what what is sentiment? When you're doing technical analysis? 0:06:36.320 --> 0:06:38.760 What is what is sentiment? Exactly? What's it telling you? Right? Yeah, 0:06:38.800 --> 0:06:41.440 you know that's a great question, and I often think 0:06:41.480 --> 0:06:43.799 it's a little misinterpreted. I think it's used too often, 0:06:43.920 --> 0:06:46.480 number one. But we like to think of sentiment in 0:06:46.680 --> 0:06:50.279 one of two ways. Number One, there is the data 0:06:50.360 --> 0:06:53.440 that tells us what people say they're doing with their money. 0:06:53.480 --> 0:06:56.040 And then secondly, there is the data that tells us 0:06:56.080 --> 0:06:59.680 what people actually are doing with their money. So surveys 0:07:00.279 --> 0:07:04.200 is positioning, and we always put a greater references on 0:07:04.279 --> 0:07:06.400 the ladder. And I think often there can be a 0:07:06.440 --> 0:07:09.680 dichotomy between what people are saying they're doing and what 0:07:09.720 --> 0:07:11.520 people are actually doing. I think we see that right 0:07:11.520 --> 0:07:13.720 now in the equity market. When I travel around and 0:07:13.760 --> 0:07:17.200 I talked to clients. There are certainly a return to 0:07:17.280 --> 0:07:20.360 animal spirits here. There is certainly, I think some sense 0:07:20.400 --> 0:07:23.240 that people are talking like they're more bullish. But for 0:07:23.320 --> 0:07:26.320 us it really hasn't shown up yet any great extent 0:07:26.840 --> 0:07:30.320 in positioning. The street is actually still running net short 0:07:30.520 --> 0:07:32.960 SMP futures right now if you can imagine that. Now, 0:07:33.200 --> 0:07:35.400 some of that is hedging, but by and large, I 0:07:35.400 --> 0:07:39.560 don't think that's reflective of a very euphoric um, of 0:07:39.600 --> 0:07:42.360 a very euphoric environment at the moment. We're talking about 0:07:42.360 --> 0:07:45.000 correlation a moment ago or those two things often correlated, 0:07:45.080 --> 0:07:46.400 or it is one lead the other. Other words, a 0:07:46.440 --> 0:07:50.840 sentiment lead positioning. Usually you know, typically UM, it can 0:07:50.840 --> 0:07:53.560 actually be the other way around, And you know what's 0:07:53.600 --> 0:07:57.360 been I think the most surprising part um really of 0:07:57.520 --> 0:08:01.080 all my conversations the last four or five weeks with 0:08:01.160 --> 0:08:04.800 investors really around the world is UM. I think there's 0:08:04.800 --> 0:08:07.640 been this tendency to look to November eighth or November 0:08:07.720 --> 0:08:11.400 nine as just the game changing week of the year. 0:08:11.840 --> 0:08:14.440 I disagree to some extent. I think this market really 0:08:14.440 --> 0:08:16.960 started to change over the course of the summer. Um 0:08:17.120 --> 0:08:20.320 leadership began to change before bond yields started to go up. 0:08:20.400 --> 0:08:23.480 We saw financial start to improve by July, we saw 0:08:23.560 --> 0:08:27.360 industrial leadership all year. So in context of sentiment, I 0:08:27.400 --> 0:08:31.680 have often found it trails actual price action. I think 0:08:31.720 --> 0:08:35.160 there's a tendency in our business to feel uncomfortable with 0:08:35.200 --> 0:08:37.800 an investment idea unless you have a story to go 0:08:37.840 --> 0:08:40.680 along with it, And we actually take the other approach 0:08:40.679 --> 0:08:43.040 in our work. We think the story will follow. We 0:08:43.040 --> 0:08:45.199 don't want to ignore price action. That to us is 0:08:45.240 --> 0:08:48.280 always more important sentiment When you look at at at 0:08:48.320 --> 0:08:50.480 sentiment of the risks that that poses for the new year. 0:08:50.480 --> 0:08:53.640 What are you seeing? Well, I think at some point, um, 0:08:54.520 --> 0:08:57.760 there's gonna be a story to tell in the first 0:08:57.840 --> 0:09:00.880 quarter where perhaps sentiment is getting a little bit too aggressive. 0:09:00.920 --> 0:09:03.679 Now it's hard enough to forecast price, it's even harder 0:09:03.720 --> 0:09:06.120 to forecast sent to me. So we'll let that develop 0:09:06.559 --> 0:09:09.280 over the course of January and February. It's something to 0:09:09.320 --> 0:09:12.320 be on guard four as we move later into the 0:09:12.320 --> 0:09:15.280 first quarter, particularly when the seasonal backdrop gets a little 0:09:15.280 --> 0:09:18.160 bit more supportive later in the spring. All right, Christopher 0:09:18.160 --> 0:09:19.600 and stay with us if you that's Christopher own, their 0:09:19.640 --> 0:09:22.440 head of technical analysis of Fatiguous Research partners joining us 0:09:22.440 --> 0:09:24.120 here in New York. Tom and I are at the 0:09:24.160 --> 0:09:38.680 Power Breakfast of the Pier Hotels there with Morgan Stanley. 0:09:39.120 --> 0:09:41.240 I mentioned all the economic data rattled it off here 0:09:41.280 --> 0:09:43.360 a moment ago. What are you looking forward to most 0:09:43.440 --> 0:09:44.839 this morning? What's going to tell us that the most 0:09:44.880 --> 0:09:48.760 about the state of the US economy? Drible goods GDP. 0:09:49.040 --> 0:09:51.160 What's what's the focus for you this morning? You know, GDP, 0:09:51.640 --> 0:09:55.160 it's a revised number, right, We're already looking ahead towards 0:09:55.160 --> 0:09:58.360 what the fourth quarter is tracking. Fourth quarter is tracking 0:09:59.280 --> 0:10:01.280 not that great, right, And so that's what I'm more 0:10:01.320 --> 0:10:04.280 focused on, rather than how close to three percent did 0:10:04.280 --> 0:10:07.920 we grow in the third quarter? UM, durable goods. I 0:10:07.920 --> 0:10:10.880 don't think any data there is going to turn around, uh, 0:10:11.000 --> 0:10:13.600 the trend until we get well into what might be 0:10:13.679 --> 0:10:16.240 delivered from Trump next year, if if corporates decide to 0:10:16.320 --> 0:10:19.160 change their behavior. UM, it's just not been a good 0:10:19.160 --> 0:10:22.720 trajectory for business investment. So really it comes down to 0:10:22.960 --> 0:10:25.760 that high frequency data of weekly jobless claims. You know, 0:10:25.840 --> 0:10:30.000 when do we start and do we start seeing layoffs rise? 0:10:30.040 --> 0:10:34.320 I mean they're at extraordinarily low levels UM, and you 0:10:34.360 --> 0:10:37.360 know how much lower can they go if say Trump's 0:10:37.400 --> 0:10:40.000 policies kick off another wave of of hiring. I mean, 0:10:40.040 --> 0:10:42.200 this is what the Fed is worried about. We've already 0:10:42.200 --> 0:10:45.959 got a tightish labor market UM and so watching those 0:10:46.040 --> 0:10:48.880 jobless claims are very important. Are we able to actually 0:10:48.880 --> 0:10:53.000 push them even lower below record historical lows or do 0:10:53.040 --> 0:10:56.040 they start to rise? Uh? You beg the question there 0:10:56.960 --> 0:10:59.679 Until we get Donald Trump in office, there is the 0:10:59.679 --> 0:11:01.960 pros of the promise of so much change or how 0:11:02.040 --> 0:11:03.839 much do the data, like the data we're gonna get 0:11:03.840 --> 0:11:06.600 today mean and light of that, you know, things could 0:11:06.679 --> 0:11:09.240 change so radically, it seems well, I think that that's 0:11:09.280 --> 0:11:11.720 that's one thing that that worries me. No, economists are 0:11:11.760 --> 0:11:15.240 the dismal scientists, So I have to inject some sort 0:11:15.240 --> 0:11:19.600 of you know, dismal comments here already have the Nickel reference. Yeah, yeah, 0:11:19.760 --> 0:11:22.760 I might, I might take it even darker. Um No, 0:11:22.880 --> 0:11:25.880 But what worries me is that, um, you know we 0:11:25.880 --> 0:11:29.280 we are markets are trading like it's a new day. Um. 0:11:29.320 --> 0:11:31.720 And if that new day doesn't come, what are we 0:11:31.760 --> 0:11:35.920 stuck with? We've been on a slowing trajectory for the economy. Um. 0:11:36.000 --> 0:11:39.480 You know, wage growth has not picked up meaningfully. Real 0:11:39.559 --> 0:11:46.240 disposable income on the household side is slowing pretty noticeably. Um. 0:11:46.280 --> 0:11:48.439 And that's the world that you're left with. A business 0:11:48.480 --> 0:11:50.960 investment has been declining, that's the world you're left with 0:11:51.120 --> 0:11:53.800 if that new day doesn't come, UM, And so it 0:11:53.840 --> 0:11:58.280 worries me how willing how patient will markets be in 0:11:58.360 --> 0:12:00.960 waiting for that new day to come when you're forecasting 0:12:00.960 --> 0:12:02.920 out And again, we've heard so much about what could 0:12:03.000 --> 0:12:06.280 happen here. What could contribute most to growth? Is a 0:12:06.280 --> 0:12:09.840 tax reform, is repatriation holiday? Is it changes to regulation 0:12:09.920 --> 0:12:12.719 and sort of gaming that out. What do you see 0:12:12.760 --> 0:12:15.440 as having potentially the most influence on on the health 0:12:15.480 --> 0:12:17.880 of the U. S economy? Well, Corporate tax reform if 0:12:17.880 --> 0:12:21.680 it's done in a way that incentivizes businesses to invest 0:12:21.760 --> 0:12:26.680 put more capex in place. UM. Personal income tax reform UH, 0:12:26.720 --> 0:12:30.800 if it's UH at the very least more fair and balance, 0:12:30.880 --> 0:12:33.480 but at least if there's enough targeted towards the lower 0:12:33.520 --> 0:12:36.520 income groups because they do spend more of those tax dollars. 0:12:36.840 --> 0:12:39.560 You know, those are the things that get the bigger impact. UM. 0:12:39.800 --> 0:12:44.120 The The unknown here, of course, is on trade policy UM. 0:12:44.120 --> 0:12:46.160 And what I find when I talked to investors is 0:12:46.200 --> 0:12:49.520 that many of them are cherry picking Trump's policies um 0:12:49.920 --> 0:12:53.240 uh to fit into whatever desired outcome they want for 0:12:53.280 --> 0:12:57.040 the economy. And and so many are focused on the 0:12:57.080 --> 0:13:00.600 positives from tax reform and not the possible negatives from 0:13:00.640 --> 0:13:04.439 an unknown trade policy. Uh. And so with so many unknowns, 0:13:04.679 --> 0:13:07.920 you know, we do our best to forecast what the 0:13:07.960 --> 0:13:10.240 economy might look like under Trump, but know that those 0:13:10.280 --> 0:13:12.880 forecasts have to be nimble, and it's a it's a 0:13:12.920 --> 0:13:16.360 moving timeline. It is the power breakfast at the Pier Hotel. 0:13:16.640 --> 0:13:19.360 David Gurr and I really love to attend here on 0:13:19.480 --> 0:13:22.439 Fifth Avenue. It is, of course the storied hotel part 0:13:22.480 --> 0:13:24.920 of the TAJ group. And uh, they do it right. 0:13:25.000 --> 0:13:28.000 It is. It is a quieter breakfast, which is very cool. 0:13:28.440 --> 0:13:31.120 Can be on Twitter. They have a difficulty ignoring us, 0:13:31.160 --> 0:13:33.360 we know, but every table's taken, and even with every 0:13:33.400 --> 0:13:35.520 table taken, it's still quiet. What I would notice a 0:13:35.559 --> 0:13:38.720 coffee is off the church. It's the only reason we 0:13:38.800 --> 0:13:44.120 got Ellen Center here Stanley empowered by Bacon. When you 0:13:44.240 --> 0:13:48.320 talk to Mr Gorman of Morgan Stanley or Mr Rhddecker 0:13:48.520 --> 0:13:51.320 of your foreign exchange shop, how do you death tail 0:13:51.400 --> 0:13:55.400 in a subpar g d P vector with Hans Rhdecker's 0:13:55.480 --> 0:13:59.640 call for a strong dollar policy from the Trump Well, 0:13:59.640 --> 0:14:03.000 I think a strong dollar, called, you know, dampens growth. 0:14:03.080 --> 0:14:06.640 So it's a tempering catcher. Uh So, for every ten 0:14:06.679 --> 0:14:09.520 percent sustained to increase in the trade weighted dollar, it 0:14:09.559 --> 0:14:13.280 can dampen GDP growth by about half a percentage point um. 0:14:13.320 --> 0:14:16.720 And so I think what what might be missed in 0:14:16.800 --> 0:14:19.600 some of the more lofty forecasts in a post Trump 0:14:19.600 --> 0:14:22.920 world is that those forecasts should also be accompanied by 0:14:22.920 --> 0:14:27.080 a stronger dollar, which dampens overall business investment to some 0:14:27.200 --> 0:14:32.200 extent and dampens UH inflation to some extent a well 0:14:32.240 --> 0:14:34.520 as well, or limits the upside, let's say. And so 0:14:34.600 --> 0:14:38.760 I think that that has missed UH, at least in 0:14:38.840 --> 0:14:41.240 some of the more lofty forecasts I see in a 0:14:41.280 --> 0:14:44.200 post Trump world, but it plays very importantly into our 0:14:44.640 --> 0:14:48.600 post Trump forecasts. What does the US consumer look like 0:14:48.720 --> 0:14:50.680 to you? Right now here, we are nearing the holidays, 0:14:50.680 --> 0:14:54.240 Thomas heading out afterward to buy his his satchel of gifts. 0:14:54.520 --> 0:14:58.120 I'm buying the entire a Rule Levine catalog and support 0:14:58.120 --> 0:15:02.040 of nickelback. It's going all Canadians. I'm all Canadian today. Wow, 0:15:02.080 --> 0:15:08.840 that's great. More power to a swipeho a swife of 0:15:08.880 --> 0:15:11.640 the finger on Amazon and you're done. You're there. I'm 0:15:11.640 --> 0:15:14.360 sure they're on the deep discount anyhow, I think I 0:15:14.360 --> 0:15:16.640 think what we've seen with the U S consumer, especially 0:15:16.640 --> 0:15:19.280 this holiday season, is that they are buying more, but 0:15:19.400 --> 0:15:25.120 it deeper discounts, and so in nominal terms, sales are okay, right. 0:15:25.160 --> 0:15:28.280 And then of course, you know, you have to differentiate 0:15:28.320 --> 0:15:31.600 between big box retailers that continue to lose share UM 0:15:31.600 --> 0:15:36.680 two companies like Amazon, the the Internet retailers. I think overall, UM, 0:15:36.720 --> 0:15:38.880 it continues to be a cautious consumer. Some of that 0:15:38.960 --> 0:15:41.680 is driven by the growing share of the population that 0:15:41.840 --> 0:15:44.520 is aging and moving into the age cohorts associated with 0:15:44.560 --> 0:15:47.520 lower rates of spending UM. But overall, in terms of 0:15:47.560 --> 0:15:51.000 the household balance sheet, I'm encouraged. It's unprecedented. You know. 0:15:51.080 --> 0:15:54.760 One of the worries is when interest rates start rising 0:15:54.800 --> 0:15:58.360 more quickly, what does that do to the household balance sheet? 0:15:58.840 --> 0:16:01.880 UM And very little of it is exposed to a 0:16:01.960 --> 0:16:04.400 variable rate, and that's good news. It means it is 0:16:04.480 --> 0:16:06.800 interest rates rise, the interest expense on the balance sheet 0:16:06.800 --> 0:16:09.000 does not eat into disposable income in a way that 0:16:09.080 --> 0:16:11.640 it has in the past, and that can stretch the 0:16:11.680 --> 0:16:15.760 consumer cycle longer because they have more cushion to absorb 0:16:16.080 --> 0:16:19.480 a faster economy with higher interest rates or absorb a 0:16:19.520 --> 0:16:24.240 softening of the economy is financial repression. Over with all 0:16:24.280 --> 0:16:27.320 the enthusiasm we're seeing here at the Pierre Hotel four 0:16:27.360 --> 0:16:31.080 blocks down, folks were four blocks north of the Trump Tower, 0:16:31.440 --> 0:16:34.600 we're just out of reach of the insanity. Well, I 0:16:34.640 --> 0:16:38.400 think that that uh one thing that helps, UM, but 0:16:38.520 --> 0:16:42.440 it's it's a precarious It can be a precarious situation, right. 0:16:42.880 --> 0:16:46.240 One thing that helps is that as stock markets rise UM, 0:16:46.280 --> 0:16:51.080 that's higher net worth, higher financial net worth specifically, and 0:16:51.120 --> 0:16:53.560 if you think about the upper income household in the 0:16:53.680 --> 0:17:00.000 US UM, the top income quentile represents of all consumer 0:17:00.000 --> 0:17:02.360 we're spending. And you can pretty much tie everything that 0:17:02.440 --> 0:17:07.160 they do two asset prices to the stock market UM. 0:17:07.400 --> 0:17:10.440 And so you know, to the extent that that we're 0:17:10.480 --> 0:17:13.800 able to extend those gains or hold on to those gains, 0:17:13.840 --> 0:17:18.199 that could be a boost to consumer spending. But then 0:17:18.240 --> 0:17:21.600 when I say precarious, I mean something has to be delivered, 0:17:22.040 --> 0:17:24.960 right for markets to hang onto these gains, because the 0:17:25.000 --> 0:17:28.600 gains are built on hope with nothing being delivered. Yet, 0:17:28.640 --> 0:17:30.960 how long does that hope last? How much time do 0:17:30.960 --> 0:17:35.400 does Congress, does the president elect have to affect something well. Now, 0:17:35.440 --> 0:17:37.520 markets are like a two year old, right, they want 0:17:37.560 --> 0:17:41.920 everything like yesterday. Um. Now, Congress can hit the ground 0:17:42.000 --> 0:17:44.640 running on January three. There is a an eight year 0:17:44.680 --> 0:17:48.280 pent up demand for a conservative Republican agenda um that 0:17:48.359 --> 0:17:50.800 they want to deliver, and they don't have to wait 0:17:50.840 --> 0:17:55.199 for Donald Trump to be inaugurated on January twenty. If 0:17:55.240 --> 0:17:57.280 they can hit the ground running, and that can at 0:17:57.320 --> 0:18:01.320 least move the rhetoric for word um and show that 0:18:01.359 --> 0:18:04.119 they're moving in the right direction. Um. You know the 0:18:04.840 --> 0:18:08.439 fact that mid term elections, you know, politicians start to 0:18:08.480 --> 0:18:11.639 shut down in the fall of seen to get ready 0:18:11.680 --> 0:18:16.240 for the midterm elections. So that is good news because 0:18:16.240 --> 0:18:19.480 it pushes the timeline up even further to try and 0:18:19.560 --> 0:18:23.080 get things done as quickly as possible. You don't want 0:18:23.080 --> 0:18:25.680 to lose this opportunity of having a Republican sweep with 0:18:25.720 --> 0:18:29.320 a Republican president. Uh, you know if you're a Republican 0:18:29.359 --> 0:18:32.400 in Congress, because it doesn't come around that often. Uh. 0:18:32.400 --> 0:18:34.359 And so there are some powerful incentives for things to 0:18:34.400 --> 0:18:37.359 get done. The risk there is if things just simply 0:18:37.400 --> 0:18:39.680 don't move fast enough right off the bat for markets, 0:18:39.680 --> 0:18:42.639 and there starts to be come down your hands like 0:18:42.760 --> 0:18:44.840 Mr Trump does when he's certainly what he's talking. There 0:18:44.880 --> 0:18:47.240 you go, Ellen's got the Trump. You know, the fingers 0:18:47.320 --> 0:18:49.080 up in the air and this is this is the 0:18:49.119 --> 0:18:51.840 simbol for bread and drink. So I know which side 0:18:51.960 --> 0:18:54.679 my glass and my plate is on the tables. Ye 0:18:55.119 --> 0:18:58.199 give me your confidence, your Trump's certitude on the strength 0:18:58.240 --> 0:19:02.920 of the American consumer, giving your subpart gdpqual So I 0:19:02.920 --> 0:19:07.400 think that the Americans consumer is strong. But let's talk 0:19:07.440 --> 0:19:10.040 about what a strong American consumer looks like. It's not 0:19:10.080 --> 0:19:13.959 three to four spending, which was debt field spending prior 0:19:14.040 --> 0:19:17.119 to the financial crisis that was also fueled by a 0:19:17.119 --> 0:19:20.440 lot of equity withdrawal from homes. You know, you take 0:19:20.480 --> 0:19:24.080 off that layer, and a strong consumer is a two 0:19:24.080 --> 0:19:26.800 percent growth rate. Now we've been running above that, and 0:19:26.840 --> 0:19:30.560 we ran above that in because a lot of that 0:19:30.640 --> 0:19:35.280 was fueled by falling gas prices moving into seventeen. Though 0:19:35.320 --> 0:19:40.040 gas prices are not falling below their levels, and that's 0:19:40.080 --> 0:19:43.640 going to be headwind two households. Um believe it or not. 0:19:44.119 --> 0:19:47.040 But but I'm I've been constructive on the consumer for 0:19:47.080 --> 0:19:50.159 a long time. I remain constructive on the consumer UM 0:19:50.240 --> 0:19:54.320 and I and I like, so where are chief US 0:19:54.359 --> 0:19:57.720 equity strategist Adam Parker is positioned for the consumer going 0:19:57.760 --> 0:20:02.119 into twenty well liking credit cards because it's not a 0:20:02.119 --> 0:20:05.280 retail specific play, but it's a play on households becoming 0:20:05.280 --> 0:20:09.520 more confident, more income. You know, the tax brigs coming through, 0:20:09.840 --> 0:20:13.639 tax cuts coming through that fuels credit demand. UM and 0:20:13.680 --> 0:20:17.320 so credit cards. I like his overweight on credit cards. UM. 0:20:17.400 --> 0:20:20.280 When we look at where tax dollars are spent, UM, 0:20:20.600 --> 0:20:23.840 think about stretching out the consumer durable good cycle longer. People. 0:20:24.080 --> 0:20:26.399 You know, Tom and I talked about this earlier on 0:20:26.400 --> 0:20:32.520 on UH surveillance UM that UH new autos UM tend 0:20:32.520 --> 0:20:35.480 to garner those tax dollars. Uh. And so that stretches 0:20:35.480 --> 0:20:38.000 out that cycle longer because we've seen auto sales slowing, 0:20:38.480 --> 0:20:41.960 you know, so perhaps the stems that slowing. UM. Furniture 0:20:41.960 --> 0:20:44.359 and home furnishings is also a category that gets the 0:20:44.359 --> 0:20:47.760 benefit of tax dollars. You know. So, so UM are 0:20:47.800 --> 0:20:53.080 our strategists are are overweight specific home builders UM and 0:20:53.080 --> 0:20:58.240 and home improvement. Right now, housing looks more mid cycle, UM. 0:20:58.280 --> 0:21:00.560 I mean part of the you know, we've been elliaching 0:21:00.640 --> 0:21:02.919 over the lack of a more robust recovery and housing 0:21:02.920 --> 0:21:05.800 for a long time, and much of that is the 0:21:05.800 --> 0:21:10.120 the onerous regulatory overlay UM. But the good news there 0:21:10.119 --> 0:21:12.440 is that we're far from overheating, and overheating at the 0:21:12.480 --> 0:21:14.240 end of the day is really what ends a business 0:21:14.280 --> 0:21:17.080 expansion UM. And so the fact that we look more 0:21:17.119 --> 0:21:21.640 mid cycle in housing is encouraging. And b if home 0:21:21.680 --> 0:21:25.240 price growth continues along this track, we will have finally 0:21:25.240 --> 0:21:28.359 whittled away negative equity and that's been a big impediment 0:21:28.400 --> 0:21:33.359 to middle income households. Muhammadlarian just emailed in and says 0:21:33.359 --> 0:21:37.080 good morning to Ellen Setner, Morgan Stanley dr Alarian's acclaimed 0:21:37.080 --> 0:21:40.000 phrases those unknown unknowns. What's your unknown unknown for two 0:21:40.080 --> 0:21:42.840 thousand seventeen. I think it's on what happens on trade? 0:21:42.920 --> 0:21:45.280 How far do they want to push trade? Yeah, because 0:21:45.280 --> 0:21:48.520 I think that that the zero sum presidency. Are we 0:21:48.560 --> 0:21:51.639 going to a neo merk until is America? You know? 0:21:51.760 --> 0:21:56.520