WEBVTT - Surveillance: Hollenhorst on the Fed 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.439 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.440 --> 0:00:32.800 They were different out at UCLA. And there was a 0:00:32.800 --> 0:00:36.480 guy who died at eighty eight last year, Excellanovud, who 0:00:36.520 --> 0:00:38.400 was a hero in my house. And as someone once 0:00:38.440 --> 0:00:41.519 said to me, he was the marine coming out of 0:00:41.560 --> 0:00:45.440 the trenches. Andrew Hollenhorst has been the marine in this 0:00:45.600 --> 0:00:50.319 odd on FED cycle. You have taken shrapnel for your 0:00:50.400 --> 0:00:51.320 high yield call. 0:00:51.440 --> 0:00:52.159 People are like. 0:00:52.720 --> 0:00:57.280 Not and yet you reaffirm the FED higher this morning, 0:00:57.320 --> 0:00:57.680 don't you. 0:00:58.280 --> 0:00:59.960 I think if you just look at this economic day, 0:01:00.240 --> 0:01:00.920 the MIC's over here. 0:01:00.920 --> 0:01:03.880 Come on, all right, I'm starting the first time on 0:01:03.920 --> 0:01:04.200 the show. 0:01:04.240 --> 0:01:06.759 Yeah, thanks to If you look at the economic data, 0:01:06.760 --> 0:01:09.160 I mean, it just keeps coming in showing a tight 0:01:09.240 --> 0:01:12.440 labor market. We keep getting these numbers strong spending. I 0:01:12.480 --> 0:01:14.119 agree with Mike, I don't think we're going to get 0:01:14.280 --> 0:01:16.600 five to six percent GDP this quarter, but we're probably 0:01:16.600 --> 0:01:18.520 going to get at least two percent GDP and maybe 0:01:18.520 --> 0:01:21.119 three percent GDP growth. And I think you did hear 0:01:21.240 --> 0:01:24.080 some of that coming out of Jackson Hole. You look 0:01:24.120 --> 0:01:26.559 at the core inflation numbers, they've slowed for a couple months. 0:01:26.800 --> 0:01:29.280 That's good news. Headline inflation has slowed, so there is 0:01:29.319 --> 0:01:31.920 some good news in terms of price pressure. That's a 0:01:31.959 --> 0:01:34.560 little bit more subdued now. But when you look at 0:01:34.600 --> 0:01:38.240 this economy, tight labor market, it's going to drive wages. 0:01:38.360 --> 0:01:39.720 Wages are going to drive harder. 0:01:39.720 --> 0:01:42.200 Your academics and frankly it goes to Catherine Mann now 0:01:42.200 --> 0:01:44.320 at the Bank of England as well, is a real 0:01:44.400 --> 0:01:48.280 humility about what we don't know. Olivier Blanchard calls it 0:01:48.400 --> 0:01:52.480 other factors. What are the other factors that the low 0:01:52.560 --> 0:01:54.920 yield people, the rate cut people get wrong. 0:01:55.760 --> 0:01:58.360 Yeah, So I think the other factors that we have 0:01:58.440 --> 0:02:02.080 at play here in the US economy includes some of 0:02:02.080 --> 0:02:03.960 the domestic strength that I was talking about, which is 0:02:04.000 --> 0:02:06.880 not just the tight labor market, but also the tight 0:02:07.000 --> 0:02:09.519 housing market. And this is an odd one, and I 0:02:09.560 --> 0:02:11.480 think you described the cycle as being odd, and it 0:02:11.480 --> 0:02:14.840 certainly is. Usually you would think mortgage rates move higher, 0:02:15.200 --> 0:02:16.799 we get to slow down in housing, and we get 0:02:16.800 --> 0:02:19.120 to slow down in house prices, and that happened. But 0:02:19.200 --> 0:02:21.520 the issue we have now is supply has actually become 0:02:21.560 --> 0:02:25.519 more constrained in the housing sector than demand. So those 0:02:26.080 --> 0:02:28.799 households that have an existing home that are paying a 0:02:28.840 --> 0:02:31.400 three percent mortgage rate, not a lot of incentive to 0:02:31.400 --> 0:02:33.240 put that home on the market. So that's applies being 0:02:33.320 --> 0:02:36.440 really constrained. Case Shiller Price index came out this week. 0:02:36.880 --> 0:02:40.800 We're up again close to double digit percentage increases on 0:02:40.840 --> 0:02:42.720 an annualized basis, and that's just not going to be 0:02:42.720 --> 0:02:44.120 consistent with two percent inflation. 0:02:44.600 --> 0:02:46.920 Yeah, there's just no inventory in the existing home market 0:02:47.000 --> 0:02:48.639 at all, is in the new market, which is why 0:02:48.639 --> 0:02:51.200 you're seeing that bycation and housing. Just on the subject 0:02:51.200 --> 0:02:53.959 of demand outside of housing, and coming back to the 0:02:54.040 --> 0:02:56.160 data of this morning, with personal spending up eight tenths 0:02:56.200 --> 0:02:59.120 of one percent at the same time that personal income 0:02:59.520 --> 0:03:04.639 actually grew less than expected, how much longer realistically could 0:03:04.639 --> 0:03:07.079 the US consumer live above their means If we're talking 0:03:07.120 --> 0:03:09.400 about a savings pile that has dwindled, which is what 0:03:09.480 --> 0:03:12.760 was helping fuel this in the first place. And your 0:03:12.800 --> 0:03:15.160 income not growing as fast wea is barely keeping up 0:03:15.160 --> 0:03:17.400 with inflation. Isn't the spending going to have to come 0:03:17.400 --> 0:03:18.239 to a halt at some point? 0:03:18.400 --> 0:03:21.560 Yeah, and don't forget student loan repayments restarted yeah October. Yeah, 0:03:21.600 --> 0:03:24.000 so there are some headwinds that the consumer is facing here. 0:03:24.800 --> 0:03:27.200 I think what has happened, though, is we had such 0:03:27.240 --> 0:03:31.239 an extended period of low interest rates, such an extended 0:03:31.320 --> 0:03:35.160 period of ample liquidity. You saw credit card debt go 0:03:35.280 --> 0:03:38.120 down significantly during the pandemic, and now those levels have 0:03:38.160 --> 0:03:40.440 built back up. Now you're seeing delinquency rates that are 0:03:40.440 --> 0:03:43.360 getting back to more normal delinquency rates that we would 0:03:43.400 --> 0:03:46.720 expect and kind of a normally functioning economy. To your point, 0:03:46.960 --> 0:03:49.080 as the Fed leaves rates higher, we're going to see 0:03:49.080 --> 0:03:51.120 more tightening of credit. That's going to be a head 0:03:51.160 --> 0:03:54.240 wind for consumers eventually that will slow the economy. We 0:03:54.280 --> 0:03:56.640 still think we could see a significant economic slowdown in 0:03:56.680 --> 0:03:59.240 twenty twenty four, perhaps a recession in twenty twenty four. 0:03:59.760 --> 0:04:02.640 But you have to take seriously the data that are 0:04:02.640 --> 0:04:05.200 coming in, and we still see this really strong spending. 0:04:05.240 --> 0:04:07.840 Like you point, out eight tenths of a percentage point 0:04:08.000 --> 0:04:10.840 up on personal spending. I mean, it's just a really 0:04:10.880 --> 0:04:12.040 strong consumer right now. 0:04:12.280 --> 0:04:14.800 So if we do get that recession in twenty twenty four, 0:04:14.880 --> 0:04:17.479 but you still don't get two percent inflation, is the 0:04:17.520 --> 0:04:20.760 Federal Reserve going to tolerate the pain ultimately? Do you think? 0:04:21.000 --> 0:04:21.120 So? 0:04:21.160 --> 0:04:22.960 That's a really tough scenario for the Fed. I think 0:04:23.000 --> 0:04:25.600 if you get a significant enough slow down, you will 0:04:25.600 --> 0:04:28.920 see some deflationary pressure. But we could have a period 0:04:29.000 --> 0:04:30.640 of time, and maybe it's going to be an extended 0:04:30.640 --> 0:04:33.760 period of time where you see the economy slowing, and 0:04:33.800 --> 0:04:36.200 to some extent, you see this with the credit that 0:04:36.279 --> 0:04:38.640 is tightening already. Right we have some signs that things 0:04:38.640 --> 0:04:42.360 are going to slow down eventually. If inflation was stably 0:04:42.400 --> 0:04:44.880 at two percent, then the Fed might be a lot 0:04:44.920 --> 0:04:47.560 more comfortable thinking about cutting rates. I think what we 0:04:47.640 --> 0:04:50.440 heard from Chair Powell last week at Jackson Hole was 0:04:50.480 --> 0:04:53.320 that although they'll be attentive to both growth and inflation 0:04:54.000 --> 0:04:55.760 right now, they really do have to concentrate on those 0:04:55.800 --> 0:04:58.200 upside risks to inflation. That's where you're coming from. We 0:04:58.240 --> 0:05:01.520 still have various measures of col or underlying inflation that 0:05:01.560 --> 0:05:03.800 are running too high, and that means that there could 0:05:03.800 --> 0:05:05.799 be a period of time when you see somewhat weaker 0:05:05.839 --> 0:05:08.240 growth data, but the FED is still holding rates higher. 0:05:08.560 --> 0:05:12.520 Richard Clarita is identified with this thing DSGE. All you 0:05:12.600 --> 0:05:14.800 need to know on a Labor Day Thursday is we're 0:05:14.800 --> 0:05:16.359 not going to do the math either. 0:05:16.520 --> 0:05:18.240 I can't do the math. It's that fancy. 0:05:18.640 --> 0:05:20.960 But the bottom line is I mentioned actually on of 0:05:21.000 --> 0:05:24.800 it earlier, that article from years ago beyond DSG models, 0:05:25.160 --> 0:05:27.760 where he and a team really go after the math, 0:05:28.320 --> 0:05:32.640 the math certitude, the mathiness of the Andrew Hollenhorst world. 0:05:33.120 --> 0:05:35.680 Do we have operative models right now? Do we in 0:05:35.800 --> 0:05:37.280 God's name know what we're doing? 0:05:37.760 --> 0:05:40.480 So I think that is one of the big challenges here. 0:05:41.080 --> 0:05:44.080 What is the theoretical framework that we're using to assess 0:05:44.080 --> 0:05:47.480 the economy and to assess monetary policy. And you heard 0:05:47.560 --> 0:05:50.960 Powell point to that uncertainty in his comments there's a 0:05:51.000 --> 0:05:53.560 non economist as a non economist, Yeah, and so he 0:05:54.080 --> 0:05:57.400 talked about this, you're navigating according to the stars under 0:05:57.440 --> 0:05:59.760 a cloudy sky. And what does he mean by the 0:05:59.800 --> 0:06:04.160 star the underlying neutral rate of interest that would neither 0:06:04.240 --> 0:06:10.080 be restrictive nor stimulative. The underlying natural rate of unemployment. 0:06:10.279 --> 0:06:13.520 These are important theoretical concepts, but we really don't have 0:06:13.560 --> 0:06:15.520 a good way of evaluating them in real time. We 0:06:15.560 --> 0:06:17.120 don't know where they are, so it is going to 0:06:17.120 --> 0:06:19.280 be this kind of responding to the data just comes 0:06:19.320 --> 0:06:21.400 back to data dependency. If you don't have a strong 0:06:21.440 --> 0:06:23.600 theoretical framework, then you follow the data. 0:06:23.720 --> 0:06:26.479 Yeah, setting monetary policy can be a tricky business in 0:06:26.520 --> 0:06:28.600 an environment like this one. Can I just quickly ask 0:06:28.600 --> 0:06:30.480 you about fiscal policy as well, because we hear a 0:06:30.480 --> 0:06:32.719 lot about we have not yet seen things like the 0:06:32.760 --> 0:06:35.479 Chips Act, Inflation Reduction Act that actually being realized in 0:06:35.520 --> 0:06:38.080 the economy and making a difference. At what point does 0:06:38.320 --> 0:06:41.680 what theoretically could be a driver actually become a drive 0:06:41.720 --> 0:06:44.640 because the FED might have to respond to those new injections. 0:06:44.640 --> 0:06:45.640 How are you thinking about that? 0:06:45.760 --> 0:06:47.400 Yeah, it's a great point. We're starting to see some 0:06:47.440 --> 0:06:49.400 things in the data that are at least suggestive. Then 0:06:49.440 --> 0:06:51.800 maybe you're seeing some of this showing up. We did 0:06:51.839 --> 0:06:55.160 see stronger investment in manufacturing. Maybe that's related to the 0:06:55.279 --> 0:06:57.359 Chips Act. But you're right, these things are going to 0:06:57.360 --> 0:06:59.000 take a long time to actually play out. Is going 0:06:59.040 --> 0:07:01.159 to take time for that money to come into the economy. 0:07:02.480 --> 0:07:04.359 At the end of the day, the FED is not 0:07:04.480 --> 0:07:06.680 going to kind of look at fiscal policy and then 0:07:06.960 --> 0:07:09.800 try to directly offset fiscal policy with monetary policy. Not 0:07:09.840 --> 0:07:12.160 their business, exactly. The FED doesn't want to be in 0:07:12.160 --> 0:07:13.440 that business. So what the FED is going to do 0:07:13.480 --> 0:07:15.120 is just look at the data. Look at the data 0:07:15.160 --> 0:07:17.840 like we got today. If inflation stays cooler, then that's 0:07:17.880 --> 0:07:20.480 great news, and that's more reason to think that the 0:07:20.480 --> 0:07:22.480 FED can be a little bit more dubbish here. I 0:07:22.480 --> 0:07:25.320 think they're pretty comfortable with the level of policy rates. 0:07:25.840 --> 0:07:27.440 We still think they're probably going to hike one more 0:07:27.480 --> 0:07:29.080 time in November, but that's probably going to be the 0:07:29.160 --> 0:07:30.800 end of the cycle. And then it really comes back 0:07:30.840 --> 0:07:33.240 to this question of when do they make that first cut. 0:07:33.640 --> 0:07:34.680 Andrew honor. 0:07:38.760 --> 0:07:42.360 John stelfhis chief Investment Strategies to Oppenheimer Asset Management Joints 0:07:42.400 --> 0:07:44.680 us Now, John, wonderful to have a bull on the program. 0:07:44.800 --> 0:07:47.520 Let's talk about why you're still so bullish and reflect 0:07:47.520 --> 0:07:49.240 on the economic take of the week, sir, if we can. 0:07:49.520 --> 0:07:52.600 There is a feeling that bad news is somewhat good news. 0:07:52.800 --> 0:07:55.280 Is there a tipping point when bad news just becomes 0:07:55.520 --> 0:07:56.120 bad news. 0:07:56.800 --> 0:08:00.240 Well, thanks for having me on the show. John, It's 0:08:00.240 --> 0:08:03.320 always great to be on surveillance. Have to say, you know, 0:08:03.400 --> 0:08:04.320 when we look at. 0:08:04.200 --> 0:08:09.200 It, things are to continue to get better, offsetting negativity. 0:08:09.280 --> 0:08:11.760 That's why bad Nudes has been good news. 0:08:11.760 --> 0:08:15.040 In essence, we're seeing the economy is genuinely slowing some, 0:08:15.760 --> 0:08:18.800 but it's not falling off the cliff, whether it's the consumer, 0:08:18.920 --> 0:08:23.800 whether it's jobs, whether it's it's our Q two earnings, 0:08:23.840 --> 0:08:25.560 even though you had to drop in earnings for the 0:08:25.640 --> 0:08:27.800 S and P five hundred least. I looked at my 0:08:27.840 --> 0:08:31.720 Bloomberg a few minutes ago, but negative six percent on 0:08:31.760 --> 0:08:36.800 the quarter. It's three sectors have the negative earnings growth. 0:08:36.840 --> 0:08:40.600 Y're double digit and its energy, materials, and healthcare. It's 0:08:40.679 --> 0:08:43.959 not tech or consumer discretionary or industrial. 0:08:44.960 --> 0:08:46.840 John, you've been one of the great bulls. You've been 0:08:46.880 --> 0:08:48.679 one of the great great bulls. Where are you right now? 0:08:48.760 --> 0:08:52.559 For four thousand and one, forty nine hundred for the 0:08:52.679 --> 0:08:54.400 end of the year remains our target. 0:08:54.840 --> 0:08:59.160 We did lower our projection to what earnings will look 0:08:59.280 --> 0:09:02.240 like for this year from two thirty down to two twenty, 0:09:03.080 --> 0:09:07.120 but overall we're looking more support to the S and p. 0:09:07.280 --> 0:09:09.920 Five hundred to remain remarkably strong. 0:09:10.080 --> 0:09:12.960 What do you need to do to get to five thousand? 0:09:13.080 --> 0:09:14.760 I mean, I got to make some news here today. 0:09:14.800 --> 0:09:16.440 What do you need to do to up that the 0:09:16.480 --> 0:09:18.000 five thousand time? 0:09:18.080 --> 0:09:21.760 You're egging me on, you know, I think we need 0:09:21.800 --> 0:09:27.200 to do to have some remarkable news related to the 0:09:27.240 --> 0:09:32.960 feds achievements against inflation and a real clear signal that 0:09:33.080 --> 0:09:35.760 it's the end of the cycle with a pause, not 0:09:35.880 --> 0:09:38.840 because the economy is falling apart, but rather than it's 0:09:38.960 --> 0:09:39.960 achieved its goal. 0:09:40.320 --> 0:09:42.280 I don't think that happens this year. I think that 0:09:42.400 --> 0:09:44.080 happens twenty twenty four. 0:09:44.760 --> 0:09:46.800 Well, And in twenty twenty four is when this market 0:09:46.880 --> 0:09:50.439 increasingly and earlier is expecting the FED to start cutting rates. 0:09:50.440 --> 0:09:52.240 So if we do get to forty nine hundred or 0:09:52.240 --> 0:09:55.320 potentially even five thousand, John, can we stay up there? 0:09:55.600 --> 0:09:58.200 If the reason they're cutting is because things have turned 0:09:58.240 --> 0:10:01.240 south and the tightening has taken perhaps more effect than 0:10:01.280 --> 0:10:03.600 they would have wanted to if they overshoot. 0:10:03.679 --> 0:10:06.400 Well, I think the key word there, the awkward word, 0:10:06.480 --> 0:10:08.840 is if things have turned south. It's if things have 0:10:09.040 --> 0:10:11.840 basically gone so that we really are are entering a 0:10:11.880 --> 0:10:16.920 period of sustainable economic growth at a at a slow 0:10:17.040 --> 0:10:21.400 or moderate case, I don't think that we'll be seen 0:10:21.559 --> 0:10:26.200 the FED cut drastically, and this might be one of those, 0:10:26.520 --> 0:10:28.800 just because when we look at it, the inflation is 0:10:28.840 --> 0:10:32.319 caused by overstimulation and fiscal policies. What we look at 0:10:32.960 --> 0:10:36.000 we think of two administrations, and they did that. 0:10:36.040 --> 0:10:37.360 They were concerned. 0:10:36.880 --> 0:10:40.080 About the effects of COVID on the economy, and likely 0:10:40.160 --> 0:10:43.199 all that stimulation is what is enabling us to get 0:10:43.200 --> 0:10:45.760 through this period of a FED fund's hip cycle as 0:10:45.760 --> 0:10:48.640 well as we are. So we think at this point, 0:10:49.040 --> 0:10:51.840 we think this is it continues to be a workout market, 0:10:52.240 --> 0:10:56.480 and a workout market is always has considerable uncertainty to 0:10:56.559 --> 0:10:59.280 it in terms of its outcome. But we wouldn't bet 0:10:59.320 --> 0:11:03.400 against the American consumer, and we wouldn't bet against American business, 0:11:03.480 --> 0:11:04.600 the American economy. 0:11:04.880 --> 0:11:05.560 We think we're. 0:11:07.120 --> 0:11:09.520 The sunlight is at the end of the tunnel, not 0:11:09.600 --> 0:11:10.920 an oncoming locomotive. 0:11:11.120 --> 0:11:13.360 Well, John's hope that's the case. The colodiale will for 0:11:13.520 --> 0:11:15.920 the same way he said the consumer. Don't bet against 0:11:15.960 --> 0:11:19.080 the American consumer. Plenty of retailers have flaked up plenty 0:11:19.120 --> 0:11:21.480 of issues over the last couple of weeks. What you 0:11:21.520 --> 0:11:22.280 read into that. 0:11:22.880 --> 0:11:26.199 Most certainly, and yet consumer discretionary as the sector is 0:11:26.559 --> 0:11:29.400 doing very well. I think it reflects the services end 0:11:29.480 --> 0:11:33.319 of the economy versus the goods. A lot of that 0:11:33.559 --> 0:11:36.920 is related to at this period in the cycle and 0:11:37.040 --> 0:11:40.319 still the experiential adventure for the consumer. 0:11:40.360 --> 0:11:43.160 In many ways the consumer has slowed. 0:11:43.200 --> 0:11:46.840 And then if you look at the individual retailers, it 0:11:46.880 --> 0:11:50.760 really has to do it. Who is balancing e commerce 0:11:51.040 --> 0:11:54.080 and bricks and mortar or ecarmas and some kind of 0:11:54.280 --> 0:11:58.600 touch with their consumer and meeting the consumers. 0:11:58.920 --> 0:12:00.800 And so you know that's John. 0:12:00.840 --> 0:12:02.520 What do you do with big Tech? I mean, let's 0:12:02.520 --> 0:12:04.720 say I own shares have got a big gain. I mean, 0:12:05.080 --> 0:12:08.200 do you have a a rationalization of owning those big 0:12:08.240 --> 0:12:12.040 seven stocks where you just take a terminal value three years, 0:12:12.040 --> 0:12:14.000 five years, hold your nose and say let's go. 0:12:15.080 --> 0:12:18.280 I think you know it's not quite hold hold your nose. 0:12:18.480 --> 0:12:20.920 It's take a look at look at the companies and 0:12:21.080 --> 0:12:24.880 consider what businesses they have that are deeply embedded in 0:12:24.920 --> 0:12:28.640 the lives and both the consumer as well as in business. 0:12:28.880 --> 0:12:30.720 And amongst those Big seven. 0:12:30.960 --> 0:12:34.760 It's a fairly recurring trend that you see or a 0:12:34.880 --> 0:12:39.040 trend that keeps rolling forward in an upward direction. They 0:12:39.200 --> 0:12:42.920 remain companies that are very deeply embedded in our lives, 0:12:42.960 --> 0:12:46.319 both as consumers and as business people, and so revenue 0:12:46.320 --> 0:12:50.280 growth is likely to continue. It'll ebb and flow at 0:12:50.280 --> 0:12:52.800 different points that you know, it's trees don't grow to 0:12:52.840 --> 0:12:55.199 the sky at all, but a general. 0:12:54.840 --> 0:12:58.319 Trend looks like this is parallel. 0:12:57.840 --> 0:13:00.559 To where the automobile was in the early twentieth century 0:13:00.960 --> 0:13:09.599 after Ford had, you know, essentially improved. 0:13:05.040 --> 0:13:10.400 The manufacturing process to. 0:13:12.400 --> 0:13:16.160 Increase the ability of the automobile in terms of quality 0:13:16.480 --> 0:13:17.560 and lower the price. 0:13:17.960 --> 0:13:19.720 Technology easily accessible. 0:13:20.480 --> 0:13:23.760 That makes it deeply embedded in our lives, and it's profitable. 0:13:24.160 --> 0:13:26.840 So, John, what role does that small group of stocks 0:13:26.840 --> 0:13:28.920 play in the four hundred point gap between where we 0:13:29.000 --> 0:13:30.960 are now and where you think we're going to get 0:13:31.000 --> 0:13:33.439 in forty nine hundred. Considering that they have been the 0:13:33.440 --> 0:13:36.560 biggest point contributors to the games we've seen this year, 0:13:36.600 --> 0:13:38.599 can they continue to provide that leadership? 0:13:39.080 --> 0:13:43.160 Well, you know, I think in essence, when we look 0:13:43.200 --> 0:13:47.120 at it, you've got to realize that technology is not 0:13:47.360 --> 0:13:52.320 unto itself. Rather, it contributes to all eleven sectors. So 0:13:52.440 --> 0:13:56.320 within the eleven sectors. I mean, we own some industrial stocks. 0:13:56.320 --> 0:13:58.320 I can't mention the name. The firm doesn't allow me 0:13:58.360 --> 0:14:02.559 to pitch one. Got that, but but but we own 0:14:03.120 --> 0:14:09.000 stocks in the industrial sector, in consumer discretionary, uh and uh, 0:14:09.640 --> 0:14:12.720 within within the space of other sectors that have done 0:14:12.760 --> 0:14:13.640 remarkably well. 0:14:14.320 --> 0:14:14.400 Uh. 0:14:14.480 --> 0:14:16.120 And it just has to do with UH. 0:14:16.720 --> 0:14:20.800 It's it's a combination of alpha generation as well as 0:14:20.880 --> 0:14:22.480 as playing the broader sectors. 0:14:22.640 --> 0:14:24.360 John, I get you can't do single names, but can 0:14:24.400 --> 0:14:28.160 you just describe in great detail what's within consumer discretionary, 0:14:28.480 --> 0:14:32.000 given that it's such a broad space within. 0:14:31.880 --> 0:14:34.840 Consumer discretionary, you know, it has to do again with 0:14:34.960 --> 0:14:39.640 leisure stocks. It has to do with stocks related to 0:14:41.240 --> 0:14:47.320 gaming to travel, has to do with the the electrification 0:14:47.440 --> 0:14:51.400 of the automobile and the process of that transition that's 0:14:51.480 --> 0:14:54.800 reflected within all kinds of products that are sold in stores. 0:14:55.240 --> 0:14:55.600 Uh. 0:14:55.640 --> 0:14:58.240 And it also has to do there's there's a certain 0:14:58.280 --> 0:15:01.040 element here coming up where there is a back to 0:15:01.080 --> 0:15:03.880 the office trend that is not back to the office 0:15:03.960 --> 0:15:07.240 like we used to be, but certainly where people are 0:15:07.240 --> 0:15:11.080 coming out of the caves, going back to going back 0:15:11.120 --> 0:15:15.920 to a more normalized environment where they show up at 0:15:15.920 --> 0:15:17.240 the office three days a week. 0:15:17.480 --> 0:15:19.400 Hey, John, get to hear from you as it wise. 0:15:19.520 --> 0:15:21.359 John stelf Is of Oppenheimen. 0:15:31.840 --> 0:15:35.400 Cameron Dawson joining a cio at Red Bull Formula one Racing, 0:15:35.960 --> 0:15:37.800 joins us this morning. Thank you so much for your 0:15:37.800 --> 0:15:41.160 patience with Max for stepping greatly appreciate it. You've got 0:15:41.200 --> 0:15:43.560 one single sentence and you go right to the heart 0:15:43.600 --> 0:15:47.280 of it. September is the worst month, and yet you're 0:15:47.400 --> 0:15:48.960 hardwired optimistic. 0:15:49.040 --> 0:15:50.320 You got to be in the market. 0:15:50.600 --> 0:15:52.760 Do you go to cash in September? 0:15:52.880 --> 0:15:55.800 No, because September being the worst month is just because 0:15:55.800 --> 0:15:59.160 it's below average returns. It's not necessarily that it's all 0:15:59.200 --> 0:16:02.320 going to employ. And even the correction that we had 0:16:02.360 --> 0:16:05.720 in August was below average, meaning it was so small 0:16:05.760 --> 0:16:08.800 in its magnitudes, so it doesn't really warrant making big 0:16:08.840 --> 0:16:11.400 portfolio changes. I think at the end of the day, 0:16:11.440 --> 0:16:14.480 this correction has not been about growth, and in fact, 0:16:14.520 --> 0:16:18.520 we've actually seen EPs growth estimates going up in recent weeks, 0:16:18.720 --> 0:16:20.720 and I think that's one of the reasons for these shorter, 0:16:20.800 --> 0:16:24.240 shallow corrections. It's when the revision cycle turns down that 0:16:24.320 --> 0:16:26.240 you should be more concerned of a deeper correction. 0:16:26.480 --> 0:16:28.960 Ian lingn Be months ago, we just played the clip 0:16:29.000 --> 0:16:31.440 he said, screaming by ten years. It's actually my words 0:16:31.480 --> 0:16:33.240 that I put in his math, but we agreed with it. 0:16:33.280 --> 0:16:34.720 Do you agree it's a screaming by. 0:16:34.720 --> 0:16:37.200 Well, if the ten years are screaming by, then credit 0:16:37.360 --> 0:16:40.960 is a screaming cell, and equities, at least the riskiest 0:16:40.960 --> 0:16:43.520 parts of equities would be a screaming cell. Because we 0:16:43.560 --> 0:16:46.400 think that for the tenure to go back to three percent, 0:16:46.840 --> 0:16:50.240 you would actually have to see much weaker economic environment. 0:16:50.320 --> 0:16:52.640 You'd need to see the whites of the eyes of 0:16:52.680 --> 0:16:56.280 a recession, and that likely means then that those economic 0:16:56.520 --> 0:16:59.400 or those earning productions for twenty twenty four, which have 0:16:59.520 --> 0:17:03.720 about double digit growth are way too high. So if 0:17:03.880 --> 0:17:05.879 the tenure goes back to three percent, we think it 0:17:05.880 --> 0:17:07.440 would be bad for risk assets. 0:17:07.560 --> 0:17:10.600 Do you see that recession not wives of the eyes? 0:17:10.760 --> 0:17:13.600 No, not yet, though you know there's all this discussion 0:17:13.640 --> 0:17:17.400 about GDP versus GDI and if GDP will catch down 0:17:17.480 --> 0:17:20.240 and really what is the underlying growth rate. But for 0:17:20.320 --> 0:17:23.160 right now, we don't see enough evidence that a recession 0:17:23.200 --> 0:17:25.520 is emminent, and there's still our calls that will enter 0:17:25.560 --> 0:17:27.760 one in the fourth quarter. We think if we do 0:17:27.840 --> 0:17:30.400 have one, it's much more of a twenty twenty four scenario, 0:17:30.440 --> 0:17:32.800 which just means that it's not being priced in yet. 0:17:33.119 --> 0:17:35.240 If we don't have one, though, couldn't that also be 0:17:35.320 --> 0:17:37.800 bad news if the landing is too soft, couldn't that 0:17:37.840 --> 0:17:40.840 mean the FED has to do more and then eventually 0:17:40.880 --> 0:17:41.560 has to force it. 0:17:41.600 --> 0:17:44.800 Anyway, Yeah, it is very peculiar because that is actually 0:17:44.880 --> 0:17:47.560 what's happened in twenty twenty three. The Fed has had 0:17:47.560 --> 0:17:50.160 to do more than what was projected. The bond market 0:17:50.200 --> 0:17:52.800 has had to price in more hikes less cuts. You've 0:17:52.840 --> 0:17:55.720 seen yields go up. Yields since or the pricing of 0:17:55.760 --> 0:17:59.520 the December twenty twenty three FED rate has gone up 0:17:59.520 --> 0:18:02.800 one hundred seventy basis points since the March low. Since 0:18:02.840 --> 0:18:07.440 that time, the Nasdaq PE multiple is up thirty six percent. 0:18:07.960 --> 0:18:11.560 So I don't know going forward if the path of 0:18:11.600 --> 0:18:15.000 the FED matters as much for equity valuations as it did, 0:18:15.119 --> 0:18:16.560 let's say in twenty one or twenty two. 0:18:16.720 --> 0:18:19.919 We talked a few days ago about the cost of 0:18:19.960 --> 0:18:23.760 real estate renting, the struggle for a huge body of 0:18:23.800 --> 0:18:26.800 America to find a down payment for real estate We 0:18:26.880 --> 0:18:30.640 had a huge response on that discussion. Do you advocate 0:18:31.440 --> 0:18:35.560 margin here within this bull market? This question doesn't come 0:18:35.640 --> 0:18:38.399 up enough. I think everybody's out there selling the idea 0:18:38.400 --> 0:18:43.120 of leverage up margin, options, margin, future's margin, margin margin. 0:18:43.520 --> 0:18:47.520 Do you advocate using margin within the growth sphere? 0:18:47.840 --> 0:18:49.960 Well, margin is a heck of a lot more expensive 0:18:50.040 --> 0:18:52.440 than it was just a few years ago, given rates 0:18:52.440 --> 0:18:54.880 are higher, So you have to factor that into the equation. 0:18:55.400 --> 0:18:58.200 We have seen. You can see measures in finrid data 0:18:58.240 --> 0:19:00.760 about the usage of margin debt and that's come off 0:19:00.800 --> 0:19:03.359 of the twenty twenty win peaks, which is not surprising. 0:19:03.720 --> 0:19:06.000 But the real question is how much of that is 0:19:06.040 --> 0:19:10.840 being replaced by options, which are a form of margins roughly, 0:19:11.000 --> 0:19:14.679 and so you've seen so much option activities, surging call options, 0:19:14.720 --> 0:19:18.160 through zero data expiration options. So margin is always something 0:19:18.160 --> 0:19:20.879 that you have to play with very very carefully because it, 0:19:20.960 --> 0:19:23.400 of course can work against you very quickly. 0:19:23.640 --> 0:19:25.080 Memories sometimes that can go back. 0:19:25.920 --> 0:19:26.840 Cameras just nailed them. 0:19:26.920 --> 0:19:29.200 Can we talk about a different kind of margin? Profit margins? 0:19:29.400 --> 0:19:32.399 At Dollar General, they've come out and basically said earnings 0:19:32.400 --> 0:19:34.159 are going to tumble as much as thirty four percent 0:19:34.480 --> 0:19:36.760 on a share basis during the current fiscal year. It's 0:19:36.800 --> 0:19:39.639 pretty brutal stuff. They're not alone. Are you taking what 0:19:39.680 --> 0:19:43.199