WEBVTT - Dot Plot Shocker 0:00:13.680 --> 0:00:17.040 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.200 --> 0:00:20.360 I'm my freaking a senior editor at Bloomberg, and this 0:00:20.400 --> 0:00:22.360 week on the show, I guess you could call it 0:00:22.400 --> 0:00:25.680 a dot plot bombshell, with the shifting of a few 0:00:25.720 --> 0:00:29.040 dots on a chart of what various Federal Reserve policymakers 0:00:29.160 --> 0:00:32.440 expect for their benchmark interest rate, as well as Chairman 0:00:32.479 --> 0:00:35.680 Pal's acknowledgement that it's time to at least start talking 0:00:35.680 --> 0:00:39.519 about talking about tapering outset purchases. Well, the markets are 0:00:39.560 --> 0:00:41.920 coming to grips with the idea that the Feds ultra 0:00:42.000 --> 0:00:45.519 loose monetary policy maybe tightening a little bit sooner than 0:00:45.600 --> 0:00:48.360 previously thought. What does that all mean for how you 0:00:48.360 --> 0:00:50.839 should allocate your investments? We'll get into it with a 0:00:50.920 --> 0:00:55.319 chief investment strategist in Milwaukee, but first, Charlie Pellett tell 0:00:55.360 --> 0:00:59.040 us who this week's mystery co host is. This week's 0:00:59.120 --> 0:01:03.200 mystery co host is Katie Greifeld. Katie is a cross 0:01:03.280 --> 0:01:07.039 asset reporter and co anchor of take Stock on Bloomberg 0:01:07.120 --> 0:01:10.880 Quick Take. She's an animal lover at heart and celebrates 0:01:11.000 --> 0:01:15.240 every Friday by tweeting a picture of a hairless cat 0:01:15.600 --> 0:01:19.160 in a milk bath. No need to rewind. You heard 0:01:19.200 --> 0:01:24.080 that right, A hairless cat in a milk bath? You know, Katie, 0:01:24.080 --> 0:01:26.280 would you actually say the words hairless cat in a 0:01:26.319 --> 0:01:29.720 milk bath? It makes it sound a lot more kind 0:01:29.720 --> 0:01:31.640 of weird than it really is, I think is I 0:01:31.680 --> 0:01:34.600 hope I would direct people to my sort of page. 0:01:34.600 --> 0:01:38.480 It's not as profane as it sounds. I promise. It's 0:01:38.520 --> 0:01:43.840 just a very relaxed cat enjoying some self care. It's 0:01:43.880 --> 0:01:46.280 some self care, some self as we all should on 0:01:46.319 --> 0:01:50.919 Friday nights. It's a very soothing image. Again express verbally 0:01:50.960 --> 0:01:53.040 it sounds a little weird, but it is a soothing image. 0:01:53.040 --> 0:01:55.720 It always makes me feel like Friday is here. As 0:01:55.720 --> 0:01:57.560 I know does the show for a lot of people, 0:01:57.560 --> 0:02:00.480 which publishes on Friday afternoons. But Katie talked to us 0:02:00.480 --> 0:02:02.880 a little bit about quick take. How's it going? You're 0:02:02.920 --> 0:02:06.520 answering what noon? So one pm these days noon to 0:02:06.680 --> 0:02:10.880 twelve thirty. We actually just had our one month anniversary 0:02:11.120 --> 0:02:14.560 launched on May seventeenth, so the last month has been 0:02:14.639 --> 0:02:16.919 kind of a blur. But it's a daily market show 0:02:17.080 --> 0:02:21.600 and we're really aimed at retail and individual investors. Um 0:02:21.639 --> 0:02:24.160 so a little bit of a different flavor from Bloomberg 0:02:24.160 --> 0:02:28.760 Television for any Bloomberg television watchers out there. We we 0:02:28.840 --> 0:02:32.240 definitely try to keep it more geared towards, you know, 0:02:32.320 --> 0:02:36.040 the individual rather than the institution. Hey, uh, well, those 0:02:36.080 --> 0:02:39.080 retail traders, as we all know, are the lords of 0:02:39.120 --> 0:02:42.440 the market now, so you can imagine what we've been 0:02:42.480 --> 0:02:44.560 spending our time on. It's a lot of a lot 0:02:44.639 --> 0:02:49.880 of memes, a lot of game games. The half hour 0:02:49.919 --> 0:02:51.799 of memes, it should just be all memes. I think 0:02:51.800 --> 0:02:54.000 that that would be. We should call it take stock. 0:02:54.200 --> 0:02:59.120 We've joked about that stock. Well, let's get into it 0:02:59.639 --> 0:03:02.680 with the markets, uh discussion here with our guests. Actually, 0:03:02.680 --> 0:03:04.639 before we do that, one more thing, I've been very 0:03:04.680 --> 0:03:08.080 remiss in reminding people that we love to hear from you. 0:03:08.160 --> 0:03:10.120 If you want to give us a call on the 0:03:10.120 --> 0:03:14.640 Bloomberg Podcast hotline and leave us a voicemail, the number 0:03:14.680 --> 0:03:17.919 is six four six three to four three four nine 0:03:17.960 --> 0:03:19.960 oh and by all means, call in and tell us 0:03:19.960 --> 0:03:22.360 what the craziest thing you saw in markets this week was, 0:03:22.400 --> 0:03:24.520 and maybe we will play your voicemail on the show. 0:03:25.240 --> 0:03:27.280 But let's get to that market's talk. We're very happy 0:03:27.320 --> 0:03:29.240 to have on the show this week. He is the 0:03:29.320 --> 0:03:34.320 chief investment strategist at Northwestern Mutual Wealth Management. As I said, 0:03:34.320 --> 0:03:37.560 he's in Milwaukee City, running pretty hot with the bucks 0:03:37.600 --> 0:03:40.200 these days. Uh don't don't add me if you're a 0:03:40.200 --> 0:03:43.600 Brooklyn Nets fan, but but they're looking pretty good anyway. 0:03:43.640 --> 0:03:47.000 His name is Brent. Shoot you, Brent, Welcome to the show. Well, 0:03:47.040 --> 0:03:49.480 thanks for having me. Yeah, Brent. I wanted to get 0:03:49.520 --> 0:03:52.040 into it a little bit at first with this FED 0:03:52.120 --> 0:03:57.920 meeting that we saw on Wednesday. UM, and I reflecting 0:03:58.000 --> 0:04:00.160 back to a note you guys had out I think 0:04:00.200 --> 0:04:02.080 it was a month or two ago that sort of 0:04:02.120 --> 0:04:06.200 details your your asset allocations, some some changes you made. Um. 0:04:06.280 --> 0:04:09.160 Still bullish on equities, but a little bit less bullish 0:04:09.200 --> 0:04:11.880 than than say the double fisted buying. Uh, you might 0:04:11.920 --> 0:04:14.480 have recommended that at this time last year. But I 0:04:14.520 --> 0:04:16.440 want to read just one quote from this because I 0:04:16.480 --> 0:04:19.200 think it's it's pretty pertinent this week. Uh, you're in 0:04:19.240 --> 0:04:22.839 your colleagues wrote, you know, while we believe there's ample 0:04:22.880 --> 0:04:25.839 time left in the economic cycle, we must also be 0:04:25.880 --> 0:04:29.120 aware that we are progressing at a quick pace, especially 0:04:29.160 --> 0:04:31.719 in the US. And here's the important part. While the 0:04:31.720 --> 0:04:35.159 Federal Reserve will have a high tolerance for rising inflation. 0:04:35.680 --> 0:04:38.480 Their comfort could wear thin. And boy, I can't help 0:04:38.520 --> 0:04:40.960 but look at the dot plot this week and see 0:04:41.000 --> 0:04:45.360 now the medium projection for two rate increases in three 0:04:45.839 --> 0:04:50.039 and UH greater likelihood not yet the median projection, but 0:04:50.240 --> 0:04:53.800 a higher likelihood of perhaps a rate increase UH next 0:04:53.880 --> 0:04:58.040 year in twenty two. UM. But to me, I think 0:04:58.160 --> 0:05:02.080 what the dots really signify. UM, I'm not sure the 0:05:02.120 --> 0:05:05.560 market is freaking out so much about two hikes in 0:05:06.320 --> 0:05:08.680 three instead of one, but rather the idea that the 0:05:08.760 --> 0:05:12.479 tapering UH might come a little bit sooner than what 0:05:13.040 --> 0:05:16.000 people were expecting. That perhaps, you know, this Jackson Hole 0:05:16.080 --> 0:05:18.080 meeting in August will be a sort of a live 0:05:18.080 --> 0:05:19.760 event where we're gonna have to be on the lookout 0:05:19.800 --> 0:05:23.480 for possible a a greater signal that tapering is coming. 0:05:23.520 --> 0:05:25.080 I don't know by the end of the year. We're 0:05:25.120 --> 0:05:27.160 the beginning of the year. But I'm curious what your 0:05:27.160 --> 0:05:31.720 takeaway is from the statement and from Chairman Pal's press conference. 0:05:31.839 --> 0:05:35.160 UM didn't move the needle at all for you as 0:05:35.200 --> 0:05:38.039 far as what you're expected, and given what I read 0:05:38.279 --> 0:05:41.520 from your your note, you kind of were expecting a 0:05:41.600 --> 0:05:44.039 little bit of sort of cold feet from the FED 0:05:44.160 --> 0:05:46.839 at least some FED members as we watch these inflation 0:05:46.920 --> 0:05:51.360 numbers go higher. Um, a little bit of uh, concerned 0:05:51.400 --> 0:05:54.640 that maybe transitory isn't as transitory as we thought. We'll 0:05:54.680 --> 0:05:58.000 walk us through your reaction to the FED this week. Yeah, So, 0:05:58.160 --> 0:06:00.240 I mean, in many ways, UM, this was right along 0:06:00.600 --> 0:06:02.440 why we've actually made the change that we made, because 0:06:02.440 --> 0:06:04.280 we knew this was coming at some point. And no 0:06:04.320 --> 0:06:06.919 matter how many times people tell you the market looks 0:06:06.960 --> 0:06:10.680 forward and expects things, I think traders still react. Uh. 0:06:10.680 --> 0:06:14.360 And so our base case is that this doesn't change anything. Um, 0:06:14.440 --> 0:06:16.799 So I will say that the Federal Reserve, I believe 0:06:16.880 --> 0:06:18.920 is still who I think they are. That famous quote 0:06:18.960 --> 0:06:21.520 I think from Dennis Screen if I recall correctly, Um, 0:06:21.560 --> 0:06:24.240 they are going to let the cycle run hot. But 0:06:24.440 --> 0:06:26.080 people are going to worry more and more about the 0:06:26.080 --> 0:06:28.000 comment that you made that the cycle is going to 0:06:28.200 --> 0:06:30.880 end prematurely. And I still believe it won't. But that 0:06:30.920 --> 0:06:32.760 doesn't mean that it won't have an impact on markets. 0:06:32.760 --> 0:06:34.480 And certainly the other reason we took down the equity 0:06:34.560 --> 0:06:37.560 ratio is because we actually had some pretty explosive returns 0:06:38.080 --> 0:06:40.120 and just going forward to expect those to moderate quite 0:06:40.120 --> 0:06:42.640 a bit more. The Federal deserved it something Wednesday, which 0:06:42.640 --> 0:06:44.400 I'm not for sure they planned to, but it looks 0:06:44.400 --> 0:06:47.039 pretty brilliant. And so what they did is they really 0:06:47.240 --> 0:06:50.760 didn't change anything with taper expectations. They bought themselves time 0:06:50.800 --> 0:06:53.560 and flexibility actually to keep the pedal to the metal, 0:06:53.600 --> 0:06:57.160 so to speak. But they tamp down inflation expectations, which 0:06:57.160 --> 0:07:00.719 are a big determinant of intermediate to long term inflation. 0:07:01.360 --> 0:07:03.960 So think about it this way. They're gonna keep a 0:07:04.160 --> 0:07:09.160 policy accommodative. They bought themselves flexibility to stay accommodative even 0:07:09.240 --> 0:07:12.400 as inflation rises in the near term because guess what 0:07:12.680 --> 0:07:14.960 the market believes now that they're still worried about longer 0:07:15.080 --> 0:07:17.840 term inflation. And so that actually tamped those down. You saw, 0:07:17.960 --> 0:07:21.160 you've seen the break even curve come down. But they 0:07:21.240 --> 0:07:24.920 didn't say anything with regards to tapering, so to speak. Droom, 0:07:25.120 --> 0:07:28.360 Jerome pal actually said that there's still a long way 0:07:28.440 --> 0:07:33.160 away from their labor market goals. And so you know, 0:07:33.240 --> 0:07:35.040 I'm not for sure anything changes. And if you look 0:07:35.080 --> 0:07:37.520 back at the dot plot um, when Jerome Palace says, 0:07:37.560 --> 0:07:39.160 take it with a grain of salt. I encourage you 0:07:39.200 --> 0:07:41.360 to look back on your Bloomberg terminal at the old 0:07:41.440 --> 0:07:43.920 dot plots in two twelve and thirteen and see what 0:07:43.920 --> 0:07:46.200 they thought rates would be by now, or see when 0:07:46.200 --> 0:07:48.440 they thought with liftoff was going to be. They missed 0:07:48.600 --> 0:07:51.680 the mark on more than one occasion. And I keep 0:07:51.720 --> 0:07:54.480 coming back to the Fed is still outcome based, not 0:07:54.600 --> 0:07:57.840 outlook based. And so take the dot plot with a 0:07:57.840 --> 0:08:01.360 grain of salt um. And right now the taper is 0:08:01.400 --> 0:08:04.600 not yet coming. And the FED bought themselves time to 0:08:04.680 --> 0:08:08.960 not taper even if inflation rises, because the market actually 0:08:09.000 --> 0:08:14.760 took down their inflation expectations. I mean, you mentioned that 0:08:14.800 --> 0:08:18.360 they were able to actually tamp down inflation expectations, and 0:08:18.440 --> 0:08:21.320 you did see a big move lower and break evens 0:08:21.400 --> 0:08:24.560 on Thursday, And you also saw a huge flattening in 0:08:24.640 --> 0:08:28.360 the yield curve, particularly the five dirties curve. I think 0:08:28.400 --> 0:08:31.360 at one point, I mean, it's it's the biggest move 0:08:31.440 --> 0:08:36.640 since late February. Could you walk me through that market reaction, 0:08:36.679 --> 0:08:39.000 I mean, does that just go hand in hand with 0:08:39.000 --> 0:08:41.840 what you're saying that you're seeing such a big rally 0:08:42.040 --> 0:08:45.160 in the long end of the treasury curve just because 0:08:45.559 --> 0:08:48.320 the FED was able to do some fantasy footwork and 0:08:48.360 --> 0:08:52.079 managed to bring down those inflation expectations. Yeah. So, I 0:08:52.080 --> 0:08:53.480 mean the crazy thing to me, and I know you're 0:08:53.480 --> 0:08:54.679 gonna ask me that at the end of the show, 0:08:54.880 --> 0:08:56.600 but the crazy thing to me is that traders are 0:08:56.600 --> 0:08:58.080 trading as if this is the end of the cycle. 0:08:58.840 --> 0:09:01.200 And we're talking about two thousand and twenty three for 0:09:01.200 --> 0:09:05.360 the first rate hike. Consider that two years away. This 0:09:05.440 --> 0:09:07.880 is much much different than the FED tightening the economic 0:09:08.320 --> 0:09:11.720 environment into a recession. We're just talking about taper, talking 0:09:11.720 --> 0:09:14.560 about talking about tapering, uh, and we're not talking about 0:09:14.600 --> 0:09:17.480 the first rate hike to two three uh. And So 0:09:17.880 --> 0:09:21.200 to me, um, you know, the Fed um got what 0:09:21.240 --> 0:09:23.560 they wanted. They brought inflation expectations down, but they're able 0:09:23.600 --> 0:09:26.559 to keep policy extremely accommodative. And the crazy thing is 0:09:26.559 --> 0:09:28.640 that traders are trading it as if we are now 0:09:28.679 --> 0:09:30.240 at the end of the cycle, which kind of back 0:09:30.280 --> 0:09:32.320 to Mike's comments in the opening. I don't think we're 0:09:32.320 --> 0:09:34.880 there yet, um, but the traders are reading the playbook, 0:09:34.920 --> 0:09:36.719 and that says by long bonds, I think this will 0:09:36.760 --> 0:09:38.840 be long forgotten in a couple of months. I do 0:09:38.920 --> 0:09:42.840 think you'll see UH rates move higher. I do think 0:09:42.840 --> 0:09:45.360 you will see cyclical stocks move higher. And I think 0:09:45.360 --> 0:09:47.960 the defensive stocks that are rallying are that rallied in 0:09:47.960 --> 0:09:51.679 the past week based upon the fed perceived U turn 0:09:52.520 --> 0:09:56.320 will actually um uh not be the market leaders. Yeah, 0:09:56.320 --> 0:09:59.080 it's interesting. I think the most traumatic reaction, at least 0:09:59.080 --> 0:10:01.000 on Thursday, the day for the FED, was just this 0:10:01.080 --> 0:10:04.240 massive flattening of the of the yield curve, which you know, 0:10:04.640 --> 0:10:07.080 in theory should take some of the wind out of 0:10:07.120 --> 0:10:10.920 the sales of the stars of the cyclical trade, the financials. 0:10:10.920 --> 0:10:12.959 But it sounds to me like, do you think it 0:10:13.040 --> 0:10:17.320 was just a sort of a positioning washout that we 0:10:17.360 --> 0:10:20.040 saw this week and and we'll, like you said, we'll 0:10:20.080 --> 0:10:21.960 forget about it in a few weeks. Or is it 0:10:22.360 --> 0:10:24.800 an overreaction where how do you make sense of what 0:10:24.800 --> 0:10:27.760 we've seen this week? Both of the above. I think 0:10:27.760 --> 0:10:30.600 it's a positioning wash out as well as UH an overreaction. 0:10:31.640 --> 0:10:33.480 I don't think much change with the FED. To me, 0:10:33.600 --> 0:10:36.360 there's still outcome based, not outlook based. I think they 0:10:36.360 --> 0:10:39.240 want to keep monetary policy as easy as possible UH 0:10:39.440 --> 0:10:41.640 as long as they can. I think they bought themselves 0:10:41.679 --> 0:10:44.280 some time with this in an ironic way. But to me, 0:10:44.320 --> 0:10:46.560 the FED shifted last year. Um, the Fed that I 0:10:46.640 --> 0:10:49.480 knew for the prior years of my career was lurching 0:10:49.480 --> 0:10:50.960 in that way, and last year they put it more 0:10:50.960 --> 0:10:54.320 in stone, um, where they're actually going to target inflation 0:10:54.360 --> 0:10:59.120 above two pc. The mandate post was one mandate that 0:10:59.160 --> 0:11:04.520 was inflation. Employment was secondary. Now we've swapped those. Employment 0:11:04.600 --> 0:11:07.599 is first, inflation is secondary, and the Federal Reserve is 0:11:07.640 --> 0:11:10.079 not going to stop until they get everything they possibly 0:11:10.120 --> 0:11:12.280 can out of the labor market, even if that means 0:11:12.360 --> 0:11:15.280 risking higher inflation. And so to me, the backdrop from 0:11:15.360 --> 0:11:18.679 both monetary and fiscal policy is still highly accommodtive in 0:11:18.720 --> 0:11:21.320 the future. Uh, And that meeting didn't shift that in 0:11:21.360 --> 0:11:31.840 my belief that. So I want to dig in more 0:11:32.000 --> 0:11:35.520 on um, what the read through for equities is. I mean, 0:11:35.559 --> 0:11:39.800 you mentioned that you know, you're still optimistic on cyclical stocks. Uh. 0:11:39.880 --> 0:11:43.320 You know this move into defensives that we're seeing maybe 0:11:43.440 --> 0:11:46.920 is overblown. Where do tech stocks fit into all this? 0:11:47.080 --> 0:11:50.839 And particularly the things I mean I read a lot 0:11:50.880 --> 0:11:55.160 of commentary on Wednesday after the FED meeting that this 0:11:55.240 --> 0:11:58.480 isn't good for you know, the speculative corners of tech. 0:11:59.400 --> 0:12:04.520 But what about just those you know, cash cow companies Apple, Amazon, 0:12:04.600 --> 0:12:06.960 What does it mean for those blue chip companies that 0:12:06.960 --> 0:12:10.440 are probably going to make money in any environment. Yeah, 0:12:10.600 --> 0:12:13.000 I think there's still opportunities there. I agree with you. 0:12:13.000 --> 0:12:15.080 And one of the ironic things last week was that 0:12:15.200 --> 0:12:17.720 those hope streams and themes tech stocks actually did rally 0:12:17.760 --> 0:12:20.440 post the FED meeting based upon I guess the view 0:12:20.440 --> 0:12:21.880 that lower rates are going to help them and that 0:12:22.080 --> 0:12:24.559 that's where you have to go for potential or earnings growth, 0:12:24.840 --> 0:12:27.520 which I still think the cyclicals if you believe my 0:12:27.559 --> 0:12:30.000 story that we're still in a cyclical upswing, that the 0:12:30.040 --> 0:12:34.240 economy hasn't even peaked yet, um, and that it still 0:12:34.320 --> 0:12:36.160 has time to run for some time. I still think 0:12:36.160 --> 0:12:38.840 cyclicals have room to run. Now. The thang stocks, the 0:12:38.920 --> 0:12:41.760 older technology stocks, um, you know, there's probably still some 0:12:41.840 --> 0:12:43.920 value there, But I think, you know, from the standpoint 0:12:43.920 --> 0:12:46.680 of where we're focused, it's more towards the value segments 0:12:46.679 --> 0:12:49.560 of the market, the cyclical segments, and increasingly more so 0:12:49.880 --> 0:12:53.200 places like the Eurozone, which benefit from a cyclical growth 0:12:53.520 --> 0:12:56.920 upswing around the globe, which I think is occurring as 0:12:57.000 --> 0:13:01.560 COVID restrictions come off in some of those economies. Also interesting, Brent, 0:13:01.720 --> 0:13:05.440 you guys, you're only overweight in the US recommendation? Is 0:13:05.559 --> 0:13:07.840 is US small caps? Which you know, I assume it's 0:13:07.840 --> 0:13:09.920 it's part of the makeup of the indexes, A lot 0:13:10.000 --> 0:13:12.839 of banks, a lot of uh, sort of more cyclical 0:13:13.240 --> 0:13:17.840 UM type of companies less obviously no megacap tech, but 0:13:17.840 --> 0:13:21.440 but even less you know, tech in general. You know, 0:13:21.679 --> 0:13:25.120 is it all sort of the industry makeup? Or is 0:13:25.160 --> 0:13:28.560 that the primary driver of where you're finding value around 0:13:28.559 --> 0:13:31.920 the world? Um? But or is it for say, US 0:13:31.960 --> 0:13:34.600 small caps? Is is there embedded in that sort of 0:13:34.600 --> 0:13:38.560 a call on risk tolerance? Um? And with Europe too, 0:13:38.600 --> 0:13:43.920 I mean obviously European banks, uh, you know, famously sort 0:13:43.960 --> 0:13:46.679 of risky. Um. You know, is is it kind of 0:13:46.760 --> 0:13:50.440 an animal spirits call as much as it is cyclical 0:13:50.679 --> 0:13:53.280 and and sort of what is it makes up the 0:13:53.280 --> 0:13:56.040 majority of the weights and these indexes, absolutely, I mean, 0:13:56.040 --> 0:13:58.240 there is something about what makes up the what weight 0:13:58.360 --> 0:14:00.240 makes up the weights in these indexes. But you know, 0:14:00.280 --> 0:14:02.719 typically small caps do well in the beginning to mid 0:14:02.760 --> 0:14:04.760 part of an economic cycle. And I think we're still 0:14:04.760 --> 0:14:06.920 there even though, as you mentioned, the question that we 0:14:06.960 --> 0:14:09.360 have is how quickly do we progress? Um. I still 0:14:09.400 --> 0:14:12.240 think we have time. We're early on. Valuations are cheaper 0:14:12.280 --> 0:14:15.679 relative to large cap from the standpoint of real interest rates. 0:14:16.240 --> 0:14:19.520 Small cap stocks really like negative interest rates and I 0:14:19.560 --> 0:14:21.120 think we're going to continue to have those for some 0:14:21.160 --> 0:14:25.000 period of time. Uh. And uh, you know, I think 0:14:25.040 --> 0:14:27.440 everybody wants to run back to the safety of large 0:14:27.480 --> 0:14:29.800 cap growth, or the perceived safety of large cap growth, 0:14:30.000 --> 0:14:31.720 because they did feel well for the past couple of 0:14:31.800 --> 0:14:34.440 years and maybe even longer than that. But I just 0:14:34.440 --> 0:14:36.600 think this economic cycle is gonna be different in the past, 0:14:36.880 --> 0:14:39.600 and then this one you're gonna worry more about upside 0:14:39.680 --> 0:14:43.440 risk to growth, upside risk to inflation, not downside. And 0:14:43.480 --> 0:14:46.160 I think you have you know, go back to risk tolrens. Um, 0:14:46.240 --> 0:14:49.400 you have a federal reserve that you know, I know 0:14:49.440 --> 0:14:52.080 what happened the other day, But the stutter reserve needs 0:14:52.080 --> 0:14:54.360 the market to move higher. The markets in the economy 0:14:54.360 --> 0:14:57.920 are connected. They've done that by doing quee. Uh. And 0:14:57.960 --> 0:15:00.400 I just think you have a risk backdrop that aporable 0:15:00.400 --> 0:15:02.800 first small caps for some period of time. You know. 0:15:02.840 --> 0:15:05.920 I think if you look back historically, Um, the explosive 0:15:05.960 --> 0:15:09.760 move is probably over in small caps, cyclicals and value. UM. 0:15:09.800 --> 0:15:12.640 But I think everyone gets it wrong about how long 0:15:12.680 --> 0:15:15.680 this typically last. If I look historically, those types of 0:15:15.680 --> 0:15:20.240 things continue to outperform until the FED starts aggressively raising 0:15:20.320 --> 0:15:24.280 rates or the yield curb inverts. And I don't think 0:15:24.320 --> 0:15:27.000 we're anywhere near that yet, and so I think you 0:15:27.040 --> 0:15:29.800 still have time to run in that trade. Now. We 0:15:29.800 --> 0:15:31.400 did take a bit of it off because I could 0:15:31.440 --> 0:15:33.480 be wrong, and part of this job is realizing that 0:15:33.520 --> 0:15:35.320 you have to have be humble and that you're playing 0:15:35.360 --> 0:15:38.040 trade offs. UM. But UM, I still think it has 0:15:38.040 --> 0:15:39.280 time to run. And I think if you look at 0:15:39.280 --> 0:15:42.200 Europe and where Europe is, they're a bit behind the curve. 0:15:42.240 --> 0:15:45.440 They had negative GDP in the first quarter, UM, and 0:15:45.480 --> 0:15:49.040 they're just emerging from COVID lockdowns. And that back to 0:15:49.040 --> 0:15:52.720 your index composition. Their indexes are really cyclical in nature, 0:15:53.000 --> 0:15:55.720 and they really benefit when global growth ticks higher, which 0:15:55.760 --> 0:15:57.640 I think we're moving from more of a US centric 0:15:57.840 --> 0:16:00.680 to now the globe being much more in the growth 0:16:00.680 --> 0:16:03.040 mode and that should favor international equities. And I think 0:16:03.040 --> 0:16:05.520 the euro Zone is primed UH to be a part 0:16:05.520 --> 0:16:09.600 of that. Right, you brought up index composition, and uh, 0:16:09.760 --> 0:16:12.160 this is one of my favorite topics, and I have 0:16:12.320 --> 0:16:15.520 to bring in the meme stocks at some point. And 0:16:15.560 --> 0:16:17.600 when you look at the Russell two thousand, the small 0:16:17.640 --> 0:16:21.760 cap index, it's biggest weights are a MC and game 0:16:21.840 --> 0:16:24.760 stop right up there. And I mean, if you really 0:16:24.800 --> 0:16:28.040 dissect a lot of the performance, I think both of 0:16:28.080 --> 0:16:33.520 those stocks are still the biggest contributors to the indexes. Game. 0:16:34.080 --> 0:16:38.560 I mean, as a manager, how do you invest around 0:16:38.640 --> 0:16:43.040 that that you you do have these stocks totally disconnected 0:16:43.040 --> 0:16:47.280 from fundamentals sort of just ballooning in these indexes. I mean, 0:16:47.320 --> 0:16:49.760 do you just try to ignore it or how do 0:16:49.800 --> 0:16:52.320 you factor that in? No, so I think you tear 0:16:52.320 --> 0:16:53.760 apart the performance and you look and you see that 0:16:53.800 --> 0:16:55.440 there's a lot of other things in the indexes. And 0:16:55.680 --> 0:16:57.880 we use the SNP six so it's a bit different 0:16:57.880 --> 0:17:00.360 of the composition than Russell two thousand. But look and 0:17:00.400 --> 0:17:03.120 you realize that that is a decent sized part of it, 0:17:03.320 --> 0:17:05.560 but there certainly are other parts to it. The other 0:17:05.600 --> 0:17:08.639 thing that I'd say is that active management could have 0:17:08.800 --> 0:17:12.080 the ability to add value above and beyond, just because 0:17:12.400 --> 0:17:15.919 sometimes performance is created by avoiding certain things, not just 0:17:16.000 --> 0:17:18.560 what you buy, um and so I think there's a 0:17:18.600 --> 0:17:21.440 couple of messages there, and I've made reference this in 0:17:21.760 --> 0:17:24.520 prior interviews that I do think this reminds me a 0:17:24.520 --> 0:17:27.080 lot of late nine uh. And I should add that 0:17:27.119 --> 0:17:31.480 postd uh that a lot of stocks that hadn't done 0:17:31.480 --> 0:17:34.080 well or that weren't overbid actually did very well during 0:17:34.080 --> 0:17:37.600 that supposed last decade. Uh. And active management also did 0:17:37.720 --> 0:17:40.560 very well during that time period because the market broadened 0:17:40.600 --> 0:17:42.359 out beyond just a few names moving each and every 0:17:42.359 --> 0:17:43.640 one of the indussy is kind of what we've seen 0:17:43.640 --> 0:17:46.840 over the past couple of years, you know, Brett, I'm curious, 0:17:46.880 --> 0:17:50.280 just anecdotally, what it's like working for a firm like 0:17:50.440 --> 0:17:53.880 yours in this era of the meme stock craziness. I mean, 0:17:54.040 --> 0:17:56.360 you guys have a lot of advisors out there who were, 0:17:56.840 --> 0:18:01.000 you know, in in contact with individual retail investors, you 0:18:01.000 --> 0:18:04.119 know daily. You know, it's it's the phone ringing off 0:18:04.160 --> 0:18:06.920 the hook with people asking about why can't I get 0:18:06.920 --> 0:18:09.439 dose coin or should I but you know, should I 0:18:09.480 --> 0:18:12.720 buy AMC calls? That does it change the mindset of 0:18:12.720 --> 0:18:15.280 of your clients when all this stuff is going on? 0:18:16.600 --> 0:18:19.040 You know, I certainly have heard a lot about cryptocurrency, 0:18:19.720 --> 0:18:24.239 So that's been although a lot less lately. UM. Not surprisingly. UM. 0:18:24.280 --> 0:18:26.280 The meat stocks I haven't heard too much about, although 0:18:26.280 --> 0:18:28.600 I'm sure the advisors are answering questions. You know, I 0:18:28.880 --> 0:18:31.199 think we're we're a firm that's focused much more on 0:18:31.440 --> 0:18:33.960 blocking and tackling and overall asset allocation and the importance 0:18:34.000 --> 0:18:36.560 of planning in that aspect rather than what's the hot 0:18:36.560 --> 0:18:38.760 stock of the day. UM, and our advisors do a 0:18:38.760 --> 0:18:41.879 great job of planning, combining insurance and investments. Uh. And 0:18:41.920 --> 0:18:45.000 so I'm sure those conversations are happening, but they certainly 0:18:45.040 --> 0:18:48.479 haven't filtered through too much to me, although you know, 0:18:49.040 --> 0:18:53.359 I do. I suppose here a bit about cryptocurrencies, and 0:18:53.400 --> 0:18:57.240 certainly we've heard a bit about AMC and and GameStop, 0:18:57.520 --> 0:19:01.240 but more from the perplexing common terry not necessary, I 0:19:01.280 --> 0:19:04.119 want to buy this. They're trying to make sense of it, 0:19:04.200 --> 0:19:06.200 and and is this something they need to be doing? 0:19:06.280 --> 0:19:08.960 And I think the answer has been for the most 0:19:08.960 --> 0:19:11.919 part no, uh. And I think that's acceptable for our clients, 0:19:11.920 --> 0:19:13.840 just because they're more ground in the fundamentals of how 0:19:13.880 --> 0:19:16.399 you actually grow well, which is more along the blocking 0:19:16.400 --> 0:19:20.280 and tackling of saving investing in a diverse, bied portfolio. Uh, 0:19:20.560 --> 0:19:23.440 and protecting your assets. Um, you know from the bad 0:19:23.440 --> 0:19:25.960 things that happen in life, you know, Brent. One thing 0:19:26.080 --> 0:19:30.159 I found interesting in your allocation note, uh that was 0:19:30.200 --> 0:19:34.199 out recently, Um is the discussion of emerging markets. Um. 0:19:34.280 --> 0:19:37.240 Because at first, Blush, I think, well, if if you're 0:19:37.240 --> 0:19:41.520 bullish on inflation, uh, if you're bullish on cyclical and 0:19:41.680 --> 0:19:44.879 value stocks, that you'd probably be bullish on EM. I mean, 0:19:44.920 --> 0:19:47.280 just looking at the the E M E T F 0:19:47.320 --> 0:19:49.960 A is a proxy real heavy waiting to banks and 0:19:50.000 --> 0:19:55.000 financial services, decent sides, waiting to energy commodities, that sort 0:19:55.000 --> 0:19:57.800 of thing. And as far as tech, a big waiting 0:19:57.840 --> 0:20:01.080 to two chip makers. UM. You know obviously Korean and 0:20:01.400 --> 0:20:04.639 Shine and whatnot. Um. But you're you guys are a 0:20:04.680 --> 0:20:08.880 bit more cautious about emerging markets, um. Uh in an 0:20:08.880 --> 0:20:12.760 inflationary environment. So walk us through why that is why? Um, 0:20:12.880 --> 0:20:15.119 is this not really the best place to be in 0:20:15.480 --> 0:20:19.680 this type of cyclical possibly inflationary environment. Yeah, And that's 0:20:19.680 --> 0:20:21.840 it's it's it's kind of a base case discussion versus 0:20:22.200 --> 0:20:25.760 what I discussion. Uh. And so UM, if you think 0:20:25.800 --> 0:20:28.560 about emerging markets of inflation were to be more persistent, 0:20:28.600 --> 0:20:32.440 they would probably be hit hardest and first just because 0:20:32.440 --> 0:20:34.840 a lot of those countries don't control their monetary policy 0:20:34.840 --> 0:20:37.440 per se, and they often times have to raise rates 0:20:38.000 --> 0:20:41.040 uh when inflation rises and money starts flowing out of 0:20:41.080 --> 0:20:43.480 their economies, and that actually harms them. You can actually 0:20:43.480 --> 0:20:46.080 have a currency crisis. And so you know, we still 0:20:46.119 --> 0:20:48.359 do have a modest overweight, a very minor overweight t 0:20:48.440 --> 0:20:50.840 e M. It's much less um So I guess that 0:20:50.960 --> 0:20:53.280