Speaker 1: Well, good to trilliance. I'm Joel Webber and I'm Eric Beltunas.
Speaker 1: So this thing has been happening in the markets, eric Um,
Speaker 1: things go up and suddenly things are going down and down, down, down, down, down, down,
Speaker 1: downtown down, like seven weeks in a row. Now that
Speaker 1: the SNP has comes a whole year basically, I mean
Speaker 1: this year has just been bad and that what's made
Speaker 1: this year can think unique is stocks and bonds down together,
Speaker 1: which is unusual, although and crypto and crypto Like basically
Speaker 1: everything is down. There's a couple of things doing okay.
Speaker 1: But I think that's a little scary for people. Although
Speaker 1: I try to remind people that, well, it went up
Speaker 1: together for a while based on the FED and how
Speaker 1: accommodative they were. But obviously if they're gonna pull back
Speaker 1: and not help, then it stands to reason that they
Speaker 1: might go down together for a little while. But anyway,
Speaker 1: people freaking out. That's the big story this year, and
Speaker 1: we need to address it. So to do so, we're
Speaker 1: gonna have John Mayer, chief investment officer of global x
Speaker 1: et F. He's actually been on the show before. Yeah,
Speaker 1: we did an episode called gate Keepers. I believe it
Speaker 1: was like I think we did. I think we played
Speaker 1: off of Ghostbusters. It was y masters and gatekeepers. So
Speaker 1: because they call people at the big wire houses like Meryl, Ubs, Wells,
Speaker 1: Fargo gatekeepers and all the E t F fishers want
Speaker 1: to get onto their shelves, so to speak, because they
Speaker 1: have massive advisors connected to them that have billions of dollars.
Speaker 1: So anyway, John was working at a gatekeeper, and so
Speaker 1: is Marianna and John. Now is an issue where so
Speaker 1: John not only was at Meryl, but he managed their
Speaker 1: model portfolio. Um and now he's a Global X, which
Speaker 1: is an E t F fisher, So he's going to
Speaker 1: have a real handle on how people are handling itself,
Speaker 1: the different player types, given you know, the E t
Speaker 1: F perspective he sits from now and then we're also
Speaker 1: going to have your boss on Gina Martin Adams, chief
Speaker 1: equity analyst at Bloomberg Intelligence. Now that there's something missing there,
Speaker 1: I want to say, macro strategist. You know, you just
Speaker 1: call me whatever you want, really, chief faculty strategist. Technically
Speaker 1: she is okay this time on trillions psychology of a
Speaker 1: sell off. John, Gina, welcome to Trillians. Thank you, thanks
Speaker 1: for having me. Good to be in person with you
Speaker 1: and have you both back on the show. Like it's
Speaker 1: been a little bit for for Gina and and it's
Speaker 1: really been a second for for you. John. Yeah, it's
Speaker 1: very two. It's very excited to just pinch yourself. Um,
Speaker 1: do you know I want to start with you because, um,
Speaker 1: we were just talking about how Eric um tends to
Speaker 1: make a lot of bold calls and sometimes those calls
Speaker 1: don't all go correctly, do they? And so I'm wondering
Speaker 1: as we approach this midyear evil uh kind of season?
Speaker 1: You know what kind of evil? Talk about? That? It
Speaker 1: is one season exactly, So I just want to ask
Speaker 1: you have to do my one eight maybe you know,
Speaker 1: we'll see, but um, it's all anonymous, Eric, Uh, this
Speaker 1: one won't be anonymous. But Eric got a FED call
Speaker 1: kind of wrong, right, Gina? So what did what was
Speaker 1: the call and how did it work out? You know?
Speaker 1: Thankfully Eric is not responsible for the FED call for
Speaker 1: Bloomberg intelligence, So we did we did call that one, right.
Speaker 1: I'll let Eric explain his interesting FED theory which we
Speaker 1: talked about the last time I was on here. I
Speaker 1: was out of my depths for sure, But My theory
Speaker 1: was the boomerati theory, which was that all of America's
Speaker 1: retirement money is in stocks and bonds, and the people
Speaker 1: who are in mutual funds to have the most money
Speaker 1: are the boomers. I think, like, what of the of
Speaker 1: all the stockhol otnership, I believe the boomers are seventy
Speaker 1: of it. And who's in control of all the wrongs
Speaker 1: of power in business in Walt Washington the boomers. So
Speaker 1: whether you have a Republican president, a Democrat, or the
Speaker 1: FED chief, they're all What they all share in common
Speaker 1: is their boomers. And I thought they would do it
Speaker 1: anything to protect their nest egg. Apparently inflations more important.
Speaker 1: What the hell I totally missed that? Um I didn't
Speaker 1: see it. Maybe the print I didn't. I just never
Speaker 1: saw it. It It was like a black swan for me.
Speaker 1: But now that's all that matters to them, and they're
Speaker 1: they've done yeah well. To be fair, we I think
Speaker 1: that the financial markets were somewhat conditioned on this notion
Speaker 1: that the FED would always swoop in and save the
Speaker 1: financial markets as well, especially once we get past fifteen.
Speaker 1: Kind of going towards corrections, the FEDS have become a
Speaker 1: very reliable player in the market over the course of
Speaker 1: the last decade, and change, always swooping in, always reversing
Speaker 1: policy at those nice loans. It's called the FED put
Speaker 1: for a reason. But the title of my current equity
Speaker 1: market outlook for the US is life without a pet
Speaker 1: FED put, because I do think things have changed. Things
Speaker 1: have changed pretty precipitously over the course of the last year,
Speaker 1: and your spot on the reason things have changed is
Speaker 1: because of inflation nary conditions. The inflationary conditions combined with
Speaker 1: something we talked about on a podcast not long ago,
Speaker 1: which is the FEDS sort of temporary shift to a
Speaker 1: mandate to achieve maximum employment not so long ago, that
Speaker 1: combination has created a really messy environment for the FED
Speaker 1: and they're now playing catch up to try to contain
Speaker 1: those inflate. The inflation, which many people are now worried,
Speaker 1: has gotten out of control and out of their grasp.
Speaker 1: And one thing that I really it's set home. You
Speaker 1: look at a graph I think it was on Nate
Speaker 1: silver Sight. Most important issues in the election Number one
Speaker 1: is inflation. Yeah, and I know the FEDS not political,
Speaker 1: but come on, I mean, this is a big deal.
Speaker 1: And do you think they might lighten up after mid terms. Um,
Speaker 1: I think they are very data dependent at this point.
Speaker 1: They may lighten up after mid terms if that coincides
Speaker 1: with the material deceleration in the inflation prints, which are
Speaker 1: definitely something they're worried about. But you know, it's no
Speaker 1: surprise that the midterms are coming into focus, particularly with
Speaker 1: inflationary conditions this fast, because it's the one thing that
Speaker 1: everyone feels is how much does it cost for me
Speaker 1: to go to the grocery store and how much does
Speaker 1: it cost for me to fill up my car or
Speaker 1: transport to and from where I need to go? And
Speaker 1: so when you have that kind of inflationary landscape, it
Speaker 1: usually impacts the president most. And then when things roll
Speaker 1: downhill from the President to other folks in Washington, the
Speaker 1: Fed can get a lot of pressure historically when we're
Speaker 1: in this kind of economic environment because the president suffers.
Speaker 1: I can't believe you're leaving the door cracked for Eric
Speaker 1: to Lake. I know, let's there's going to be a
Speaker 1: new theory here. Okay, So so John, I want to
Speaker 1: bring you in. We've talked a little bit about the
Speaker 1: inflationary environment. Markets doing what they do this this year, um,
Speaker 1: which is go down as well as up. UM. What
Speaker 1: has been something that sticks out to you and all
Speaker 1: of this, Well, first of all, when when a big
Speaker 1: self happens, it just never feels good, like you almost
Speaker 1: don't think it's going to happen. Don't root for a
Speaker 1: sell off. Nobody was for a shell so off. And
Speaker 1: inflation is very high and the FED has to act.
Speaker 1: We should have seen this coming. And all the FED
Speaker 1: really can do is uh, work on the demand side,
Speaker 1: and but they can't really work on the supply side.
Speaker 1: And we know there's a lot of issues on the
Speaker 1: supply side with respect to China and all the supply
Speaker 1: chain issues and semiconductors and whatnot. But with respect to
Speaker 1: what's going on is different market participants are acting differently. UM.
Speaker 1: I would first say that that the the professional investors
Speaker 1: hedge funds got it right earlier on. They were moving
Speaker 1: out of the market pretty quickly, and retail was still buying,
Speaker 1: and we saw a lot of flows into retail, and
Speaker 1: then that started to come off more recently and at
Speaker 1: the past few trading days, and this is the eighth
Speaker 1: week of a down week. I think some have said
Speaker 1: this is enough. I can't really handle the pain. As
Speaker 1: you mentioned earlier, that there's boomers who are going to
Speaker 1: retire um and I'm down. That's a lot, you know,
Speaker 1: and maybe let's let's cut our losses because we've had
Speaker 1: some pretty good years. But if you look at at
Speaker 1: flows on the e t F side, e t f
Speaker 1: s have been that flows has been pretty up, stable
Speaker 1: and even growing in some instances in certain areas of
Speaker 1: the market. Certainly in income we're seeing broad bar broad
Speaker 1: market indexes are are holding up. So the core is
Speaker 1: really holding up. And I do think that there's repositioning
Speaker 1: on the edges, and there should be there always should
Speaker 1: because of changing market conditions. But remarkably, at least on
Speaker 1: the e t F side and neerk as you mentioned,
Speaker 1: on the mutual fund fund side, there's a lot of outflows,
Speaker 1: but the et F side is fair. They're holding up
Speaker 1: well in terms of flows. I think this is somewhat generational.
Speaker 1: Boomers are mostly in mutual funds. Do you really want
Speaker 1: to watch this? You made so much money, might as
Speaker 1: well just get out. So there's been two fifty billion
Speaker 1: out of active mutual funds, but there's been about two
Speaker 1: seventy into e t f s and passive, so we
Speaker 1: see this every sell off, but inside the passive there
Speaker 1: is a lot of tactical repositioning. So I think you know,
Speaker 1: you guys have like thematic ETFs, right, that's something I
Speaker 1: think people bought maybe in the bullmarket as you've seen
Speaker 1: pullback there or the people hanging in there. That is
Speaker 1: also I just wanted to ask, like, I mean, you
Speaker 1: have this interesting thing at global X where you have
Speaker 1: thematics but then also some really broad based products, right,
Speaker 1: so how how does your portfolio perform during a sell
Speaker 1: off like this? So you know, we if you look
Speaker 1: at our assets, we have income or ETFs, income and thematics,
Speaker 1: as well as country access on a few others. What
Speaker 1: you're seeing is some outflows on the thematic side, but
Speaker 1: not as much as you would expect because these are
Speaker 1: e t f s and e t s or a
Speaker 1: collection of companies, and not every company performs exactly the
Speaker 1: same way. You know, you look back to the dot
Speaker 1: com bubble and many of the companies just went away.
Speaker 1: A few existed of Amazon and eBay and price line,
Speaker 1: but you didn't know which one was gonna make it.
Speaker 1: So not pets dot com not that's like not mail
Speaker 1: dot com BOO or like all all sorts of news,
Speaker 1: but you didn't know what was gonna make it. But
Speaker 1: in eat, whether it be a cloud or cybersecurity, which
Speaker 1: actually has some legs right now, you're putting a lot
Speaker 1: of different companies and so there's actually some inherent diversification there.
Speaker 1: But overall on the kind of the disruptive technology you're seeing,
Speaker 1: you've seen some outflows for sure, but we're actually capturing
Speaker 1: them on the income side. So when you're moving towards
Speaker 1: more towards the value tilter, a covered call fund which
Speaker 1: still providing you a twelve percent yield if it follows
Speaker 1: the nastack or the SMP five less than that, but
Speaker 1: a good yield, investors are saying, wow, yields are still
Speaker 1: pretty low, even though short term rates are going up,
Speaker 1: not necessarily long term rates. It depends, Uh, so we're
Speaker 1: capturing some on the income side. So flows have been
Speaker 1: pretty good, remarkably, Yeah, there, there's It depends where it's
Speaker 1: been a certain sectors. Cash short dation bond et has
Speaker 1: done pretty well. It reminds me of a typical sell
Speaker 1: off here, to be honest, and I do think that
Speaker 1: thematic ETFs probably have a little more tolerance these days,
Speaker 1: because if you're in a cheap index fun of your
Speaker 1: core and you have a thematic, you kind of have
Speaker 1: your basis covered. You don't have to worry about your
Speaker 1: kids retirement being in like the cybersecurity ETF, because it's
Speaker 1: a small allocation. Gina, how much of this stuff, these flows?
Speaker 1: How much does that UM work into the intel for
Speaker 1: when you come up with sort of your overarching take
Speaker 1: on the markets. Well, I view it as a sentiment
Speaker 1: indicator more than anything. So equity markets UM certainly move
Speaker 1: very quickly, but at lows, what you tend to find
Speaker 1: is lows are formed by an outright capitulation and sentiment.
Speaker 1: And so what you want to see to frame a
Speaker 1: low in the equity market is nobody wants to own
Speaker 1: any stocks anymore at all, and they generally just sell everything.
Speaker 1: They sell not only the losers in their portfolio, but
Speaker 1: the winners too. They just go to cash because they're terrified.
Speaker 1: That usually is what happened set lows. So I use
Speaker 1: it as a sentiment indicator. UM. Certainly, no one likes
Speaker 1: to see flows out of the equity market, but when
Speaker 1: we start to see those week after week after week, outflows.
Speaker 1: It's one indicator we definitely would consider in the arsenal
Speaker 1: of indicators. How close to that moment are we We're
Speaker 1: getting closer. I can't say that we're there yet. I mean,
Speaker 1: you know, we use a whole laundry list of indicators,
Speaker 1: but just a couple that are really getting close. It's like, oh,
Speaker 1: things are falling and they're still falling, but like the
Speaker 1: sky hasn't fallen yet. They haven't, right. So, just over
Speaker 1: the last week, we started to sign finally see some
Speaker 1: signs of capitulation in the income oriented stocks and the
Speaker 1: low volatility stocks, the stocks that everyone flees to saying, Okay,
Speaker 1: this is just a short term correction and I'm going
Speaker 1: to get defensive. They finally started selling those off, mostly
Speaker 1: because Walmart missed earnings expectations and really just kind of
Speaker 1: obliterated everyone's confidence in the retail sector. But we have
Speaker 1: not seen it as much in energy stocks. For example,
Speaker 1: one percent to the constituents of the spenergy sector are
Speaker 1: up this year. That's extremely anomalous. So instead, investors seem
Speaker 1: to still be rotating into inflation hedges. Within the equity market.
Speaker 1: It's a teeny tiny space within the stock market, but
Speaker 1: it's nonetheless an area where investors are hanging on. And
Speaker 1: you know, frankly, at lows, you very consistently see less
Speaker 1: than five percent of the stocks in the SNP five
Speaker 1: trading above their fifty day moving average. You see momentum
Speaker 1: among the entire market crash, and we haven't seen that yet,
Speaker 1: so it's very anomalous. It doesn't feel like a true
Speaker 1: capitulation Low. That said, the bond market may be the
Speaker 1: ultimate indicator here, and bond yields do appear to have
Speaker 1: peaked potentially in the short run, and that may be
Speaker 1: enough to relieve investors concerns because, first and foremost, this
Speaker 1: equity market correction is a correction because of the volatility
Speaker 1: that we're experiencing in the bond market, which reflects that
Speaker 1: inflation outlook. It's a very different type of correction than
Speaker 1: we've had in the past, and typically the corrections we've
Speaker 1: had over the last decade and change, the bond market
Speaker 1: rallies when the equity market is selling off. And I
Speaker 1: think this is a really important point that Eric made
Speaker 1: earlier this year. That's what's truly different about this correction
Speaker 1: is the bond market is selling off and that's the
Speaker 1: that's the creator of risk for the equity market right now.
Speaker 1: And just to go on mutual funds, bond mutual funds
Speaker 1: are it's a total blood bath over there. I mean,
Speaker 1: we're talking a hundred and seven billion dollars out this year,
Speaker 1: thirteen straight weeks of inflows. And they these funds always
Speaker 1: taken money, but they've had the life of Riley over
Speaker 1: the past fifteen years because rates have been low and lower.
Speaker 1: But it's looking bad and I don't see how this
Speaker 1: ends because again they're owned by boomers. That's a constant
Speaker 1: selling pressure on bonds. So until I see that charco
Speaker 1: from red to green, Um, I'm pretty skittish on everything.
Speaker 1: I just feel like that's the constant selling pressure on
Speaker 1: bonds will just sort of permeate into everything else, like
Speaker 1: almost like a wet blanket. Um. And on, let's talk
Speaker 1: about if you were let's say you're running Meryl's model, Um,
Speaker 1: what are you doing this year? Like what what theoretically
Speaker 1: would you be doing? Because I only see the flows,
Speaker 1: but models are a big part of the flows now,
Speaker 1: so what what what would you do? Yeah, that's a
Speaker 1: good question. And what I I, Well, we're actually you know,
Speaker 1: we have modeled portfolios at Ovalex as well, and I'm
Speaker 1: sure they're not doing anything vastly different on the acid
Speaker 1: allocation models is increasing quality uh companies with strong cash
Speaker 1: flows that are less relied on the capital markets as
Speaker 1: short term rates rise. Uh So funding costs could be
Speaker 1: a problem for uh more growthier companies, but an Apple
Speaker 1: or Microsoft which they don't necessarily have to borrow. Um.
Speaker 1: So you're looking for those stable companies. So although those
Speaker 1: are not necessarily value, but companies with strong cash flow,
Speaker 1: stable dividends, potentially rising dividends. It's an area that you
Speaker 1: certainly want to be in in this market. Um. And
Speaker 1: with regards to on the fixed stincom side shorter duration,
Speaker 1: I mean, we don't know exactly where long rates are
Speaker 1: gonna end up, so hold on time out now here.
Speaker 1: I don't get the shorter I mean I get it
Speaker 1: because oh, you know cash is safe, right, But is
Speaker 1: it safe if inflation is what eight nine percent? Aren't
Speaker 1: you immediately losing that? And isn't that where the Fed
Speaker 1: is raising rates? So I don't is it or is
Speaker 1: it that bad? That's that's actually the best spot is
Speaker 1: to sit there and lose eight percent. Well, I mean, yes,
Speaker 1: there's the inflation argument, but you don't want to lose money, right,
Speaker 1: So like if you're could be worth space treasure this
Speaker 1: year and I would you rather be in cash or down.
Speaker 1: So that's why for now short duration. At some point
Speaker 1: we'll go alonger on duration. But you know, if we
Speaker 1: are not at the bottom on the equity markets and
Speaker 1: volatility is pretty low, Um, there's a lot of volatility
Speaker 1: with respect to equities on the right side, it's high,
Speaker 1: So there's I think there is some room to run
Speaker 1: on the equity side. But if that happens, then they're
Speaker 1: gonna play. Everyone's gonna plow on a treasuries. You mentioned
Speaker 1: how the professional investor sort of saw this coming and
Speaker 1: sold off already and it was retailed that was a
Speaker 1: little a little late to that, And I'm wondering, like
Speaker 1: when what are the professionals watching right now, and especially
Speaker 1: you know, the global X kind of institutional clients, Like
Speaker 1: when does this become a buying opportunity again? Yeah, I
Speaker 1: mean it's it's I don't think we're there yet. Um,
Speaker 1: today you're getting a little bit of a bounce because
Speaker 1: that's you know, just what happens when you have eight
Speaker 1: straight weeks of declines. But when you see for more capitulation,
Speaker 1: that's when I think there'll be some bottom fishing. I think,
Speaker 1: you know, when you see some bell weathers go down further,
Speaker 1: then I think there'll be some buying in the market
Speaker 1: and that will kind of lift all boats. Capitulation. It
Speaker 1: is the word of the year, and people on Twitter
Speaker 1: us it all the times, like, oh, capitulation told you,
Speaker 1: Like the bears are loving this. They're like, oh, not enough.
Speaker 1: Like I. Sometimes I show ARC and sometimes that's it's,
Speaker 1: you know, inflow week here and there, like see they
Speaker 1: haven't capitulated yet. Anyway. You know what's worsky about that, though,
Speaker 1: is that everybody's talking about it. Because I can remember
Speaker 1: in at the Lows and when we were talking about
Speaker 1: our capitulation indicators, and we were talking about the fact
Speaker 1: that at that point only two two percent of stocks
Speaker 1: were trading above their fifty day moving average and rs
Speaker 1: I had just crashed through the floor and no stocks
Speaker 1: were rising, And we're putting notes out talking about we're here,
Speaker 1: this is a capitulation moment. The FED is swooping in.
Speaker 1: The FED and the fiscal policy makers are swooping in
Speaker 1: at the same time, now is the time to buy,
Speaker 1: And everyone told me I was crazy. Now everybody's on
Speaker 1: this train of look for the capitulation. This worries me
Speaker 1: because it means to me that people are hoping for
Speaker 1: a bottom to form, and you have to get to
Speaker 1: a point to have a true sentiment wash out. You
Speaker 1: have to get to a point where there's no hope
Speaker 1: for a bottom left. That's that's how you find a
Speaker 1: low in the equity market. I know this is so dull,
Speaker 1: but that's realistic. Like that's where you were. That's where
Speaker 1: you were in People were telling me when I was
Speaker 1: at Wells Fargo, this is the next financial crisis, right,
Speaker 1: that's the darkness is overwhelming, and people who get bullish
Speaker 1: at that moment are completely villainous. So basically, we need
Speaker 1: to find Twitter mentions of the word capitulation and if
Speaker 1: when it starts to go down, that's in the moment
Speaker 1: that word is used, the more it's actually not capitulation.
Speaker 1: Do I have that right? Yeah, because they're looking for it.
Speaker 1: This is the other thing I get. So many questions
Speaker 1: come my way right now, saying, well, when is the
Speaker 1: FED put Finally, everybody has given up and said there
Speaker 1: is no FED put anymore. That's the time to move.
Speaker 1: You have to get this outright existential crisis. Yeah, complete,
Speaker 1: I give up. I can't make any money in stocks anymore.
Speaker 1: But there's so many fundamental things that we just haven't
Speaker 1: fully lived through yet. There's inflation, has it peaked? Um?
Speaker 1: What's going on with China and slower growth in China? Um,
Speaker 1: We've just started on the interest rate cycle seventy five
Speaker 1: basis points, you know, I think we could go to
Speaker 1: three even four, and they're gonna go that high to
Speaker 1: stop inflation because they obviously this is not the seventies
Speaker 1: when you had inflation for ten years. But Howell does
Speaker 1: not want to be known as the inflation guy, so
Speaker 1: he's gonna squash inflation. There's a war, But what if
Speaker 1: that doesn't happen, dude, Like, there's the case that, you know,
Speaker 1: we raise interest rates and inflation doesn't get tamed, and
Speaker 1: then the bottom then they raise the war. Yeah, I
Speaker 1: mean they crushed demands. Yeah, so I mean, and then
Speaker 1: you have potentially like a vocal moment in all of this, right, Like,
Speaker 1: it does make you feel like this could be a long, long,
Speaker 1: long year it does. I think a lot of things
Speaker 1: have been priced into the equity market frankly, but there
Speaker 1: is this lingering degree of hope. Um And you know,
Speaker 1: I get a lot of people tell me about Russia
Speaker 1: and China and the fundamentals are terrible, even though the
Speaker 1: fundamentals are fine, you know. So there's a lot. There
Speaker 1: is a lot of capitulation out there. The equity market
Speaker 1: recognizes a tremendous amount of risk, but there's that lingering
Speaker 1: amount of hope that just needs to be wiped out
Speaker 1: of the market and then you finally have your sentiment
Speaker 1: wash out. So here's a question I have. So in
Speaker 1: past sell offs, the role of passive hasn't been as big,
Speaker 1: especially in two thousand eight. So take someone like me, Okay,
Speaker 1: I've got a mortgage, two kids saving for college. Where
Speaker 1: the money that matters I have. I'm in low cost
Speaker 1: index funds, right, And I think it's a lot of
Speaker 1: people now, um am I part of the capitulation because
Speaker 1: I am resigned to this being the best deal I
Speaker 1: want to be in stocks. I believe over the long
Speaker 1: term they work for me. I'm not selling. Do I
Speaker 1: need to sell for capitulation to happen? Or are you
Speaker 1: looking at more of the active players. I'm looking more
Speaker 1: of the active players because I actually don't see that
Speaker 1: the institutions have capitulated. I think the retail universe has,
Speaker 1: so I see it a little bit differently, say retail
Speaker 1: universal again we are talking about the non sort of vanguardian. Yeah,
Speaker 1: now I'm looking at more the traders. Right, So, if
Speaker 1: if I'm looking at retail and retails impact on the
Speaker 1: day to day movements in the equity market, it's the traders,
Speaker 1: and the traders left the market starting a year ago
Speaker 1: and they haven't come back. They've just you know, they
Speaker 1: got wiped out with the meme craze, they got further
Speaker 1: wiped out through the through the contraction in the first
Speaker 1: quarter of this year, and they've largely just left the building.
Speaker 1: But when we look when we actually analyzed buys and
Speaker 1: cells and the flows of the institutional accounts, there's a
Speaker 1: survey that State Street actually does which is quite good
Speaker 1: at this and that survey of UM institutional sentiment has
Speaker 1: historically reached the level of about seventy. It is currently
Speaker 1: at ninety above a hundred. As a risk to the
Speaker 1: market for you know, tops forming, So we're ninety. Now
Speaker 1: we've come down below hundred, but we haven't gotten to seventy,
Speaker 1: which is the typical low point. So I think you've
Speaker 1: got more institutional selling that actually needs to happen to
Speaker 1: really create that big, long term low. I think the
Speaker 1: retail investors that are going to leave have left. The
Speaker 1: rest just stick around, and they always stick around like
Speaker 1: I too, don't sell my exposure because I've got to
Speaker 1: work for the next forty years to get my kids
Speaker 1: through college. So I'm just going to hang on. And
Speaker 1: I do think that's somewhat different than the back in
Speaker 1: the day you're in an active fund that's under performing
Speaker 1: and your thought as well, I should go to a
Speaker 1: manager who's outperforming. Now in an index fund, you never
Speaker 1: have that thought. You're like, man, I'm not going to
Speaker 1: go chase something. I'm fine. I again, as you know,
Speaker 1: I study this topic all the time. I don't know
Speaker 1: if that effect will create a more stable base, which
Speaker 1: could have the effect of drawing this out longer, because
Speaker 1: there won't be that total vomit moment because there are
Speaker 1: going to be the vanguard flows always coming in and
Speaker 1: having some sort of bit on the market and maybe
Speaker 1: making hope stay alive for longer. It's very difficult to
Speaker 1: get the whole sentiment for the retail universe in one number. Right.
Speaker 1: I think the retail trader feels terrible about the market.
Speaker 1: I think the long term investor is just going to
Speaker 1: hang on. And you do have I think, yeah, yeah
Speaker 1: it is. It's pretty bad, right, but you have you
Speaker 1: bring up the generational divides all the time. So I'll
Speaker 1: get on that bandwagon and talk about the boomers who
Speaker 1: are retiring, who are more accustomed to calling up their
Speaker 1: broker when they want to buy and sell in any
Speaker 1: any individual stock. Those people are just getting their first
Speaker 1: quarter statements, absorbing those statements now, and we might be
Speaker 1: at that moment where they say, oh wow, this is
Speaker 1: actually happening. You know, the doctors and lawyers and people
Speaker 1: that have better things to do than to look at
Speaker 1: the financial market on a daily basis. They're feeling it
Speaker 1: at the pump, and they're feeling it at the grocery store,
Speaker 1: and they're feeling it when they go out to restaurants.
Speaker 1: But they probably really haven't paid that much attention to
Speaker 1: financial markets because they don't have to like we do.
Speaker 1: So they're just now starting to absorb the first quarter losses,
Speaker 1: and we may see that dump in some of those
Speaker 1: positions yet to come. I totally agree. You talk to
Speaker 1: friends who are not in the financial business and yeah,
Speaker 1: there you're aware of what's going on in terms, but
Speaker 1: they haven't looked at their statements. They don't often look
Speaker 1: at their statements and they're like, oh, I don't come back.
Speaker 1: We've lived through this before. But when you see down
Speaker 1: and who knows what some people have, it could be
Speaker 1: it could be more than that. That could be, you know,
Speaker 1: caused for further selling. What about this idea if you
Speaker 1: go back and look at the past five years, even
Speaker 1: with this year, the S and P is up eleven annualized,
Speaker 1: but you're historically you're only supposed to get like eight
Speaker 1: or nine percent. So I mean, isn't shouldn't we like,
Speaker 1: are we a little coddled and spoiled here with the markets?
Speaker 1: Shouldn't we just be like, look, this year should suck um,
Speaker 1: and that's gonna get us back to the nine percent average.
Speaker 1: That's what I was promised, and the volatilities the price
Speaker 1: of admission. Um. Do you think more people are kind
Speaker 1: of mentally getting to that space or do you think
Speaker 1: it's the same old thing where it's like, oh my god,
Speaker 1: the numbers read, let me sell. I think there there's
Speaker 1: a lot of fomo. You know, during the pandemic we're
Speaker 1: sitting at home. Many people had extra money because of
Speaker 1: all the stimulus programs. They're investing in meme stocks. There,
Speaker 1: things were going out you wanted to get in. I
Speaker 1: think a lot of that is being wiped out, realizing
Speaker 1: that yeah, with cryptos, I'm not people who are in
Speaker 1: cryptos are not making money at this point, so maybe
Speaker 1: I'm not going to go that route. Um and some
Speaker 1: of the meme stocks, well that was kind of fun.
Speaker 1: But now I'm back to work and I have to
Speaker 1: commute and I have to whatnot. So I think more
Speaker 1: normalized returns are coming back into people's mind, but again
Speaker 1: still painful that when it happens, you know, you go
Speaker 1: to a certain level on on your you look at
Speaker 1: your statement, and then you lose. You don't you think
Speaker 1: you lost? You know, you don't. You don't put into
Speaker 1: annualized ten year return. Now it's like it's I do,
Speaker 1: but what happened yesterday? What's what am I gonna get tomorrow?
Speaker 1: I play ment psychological games with myself. You know, I'm
Speaker 1: I'm glad you brought up bit coiner crypto John, because
Speaker 1: I think that that has a really firm place in
Speaker 1: today's psychology and today's sentiments. And I do worry that
Speaker 1: the crypto fanatic do watch daily prices and they do
Speaker 1: feel the pain because they're they're fanatical about their positions.
Speaker 1: They're not like the long only sm investor like you
Speaker 1: and I, Eric, who are just going to hold on
Speaker 1: into perpetuity under the guys that it will eventually come back.
Speaker 1: They're much more emotionally invested in this as an idea.
Speaker 1: And I do worry about the psychological impact of losses
Speaker 1: in that market following onto or feeding into losses in
Speaker 1: the equity market, because they might have exposure in the
Speaker 1: equity market, Their parents might have exposure in the equity market.
Speaker 1: They have to cover their children's positions, and there's a
Speaker 1: lot of risk taking that's gone on in that market
Speaker 1: that I think we're really struggling to totally capture. And
Speaker 1: it certainly has a great potential to have psychological impacts,
Speaker 1: behavioral impacts. You can get up in the middle of
Speaker 1: the night and check. The people used to like that,
Speaker 1: now they don't like it, but isn't there are there
Speaker 1: is the hope here actually returned to normal and those
Speaker 1: traders that you mentioned that are on the sidelines, and
Speaker 1: I've been on the sidelines forever, like I'm out for
Speaker 1: a while, but like, is there a version of this, Yeah,
Speaker 1: that normal emerges again. Yeah, that's the one shining sort
Speaker 1: of silver lining of any corrective process, in particular, this
Speaker 1: one is I do believe it is deflating any mini
Speaker 1: bubbles that may have developed during the pandemic. I mean,
Speaker 1: we have a lot of concentration risks that developed in
Speaker 1: the SMP five. Really everybody wanted to own a handful
Speaker 1: of stocks and that's it. We had retail investors that
Speaker 1: were dabbling in a market that they've never even touched before,
Speaker 1: got burned and probably won't dabble so much. May become
Speaker 1: longer term investors really sort of rationalize their exposure a
Speaker 1: little bit. You probably had, you know, a whole group
Speaker 1: of people jump into the crypto markets one after the
Speaker 1: magnificent gains, have now suffered losses and are learning, you know,
Speaker 1: investment lessons that will hopefully last a lifetime and lead
Speaker 1: to a degree of rationality that didn't exist for the
Speaker 1: last two years, but there were certainly some mini bubbles
Speaker 1: that developed during that pandemic experience that are now being deflated,
Speaker 1: which leaves us at a position of more equilibrium, if
Speaker 1: you will, when we're all when this is all said
Speaker 1: and done. But you also have a situation where we're
Speaker 1: not likely not going to be reliant on the FED
Speaker 1: going forward. So with the FED removing liquidity, rolling off
Speaker 1: their balance sheet, um just in a few weeks, raising
Speaker 1: rates and likely there's there's not gonna be monetary policy,
Speaker 1: uh and fiscal policy that will support the consumer, and
Speaker 1: the consumer is going to be stretched. So we're gonna
Speaker 1: go into a period of adjustment, and I think over
Speaker 1: the long term we'll have much lower returns than we've
Speaker 1: had even since two thou because the Fed's been there.
Speaker 1: The SNP was flat during the two thousand's right about. Oh,
Speaker 1: it had a great run from two thousand two to
Speaker 1: two thousand seven. You gotta you can, like you you
Speaker 1: could have a decade where it just doesn't go up.
Speaker 1: You can you can have a very volatile decade. It
Speaker 1: could work, could just be a nice not nice, but
Speaker 1: a long slow normal. Yeah, a lot of people you know,
Speaker 1: it's like the patient doesn't have the drug anymore and
Speaker 1: it has to like going through withdrawal. It's got to
Speaker 1: live to like work without that FED hit, which I
Speaker 1: think is probably the moral of the story. So other
Speaker 1: regular things matter now, which is probably good, right clash flow, Yeah,
Speaker 1: I mean, look the alternative, the alternative here. I think
Speaker 1: that the alternative is it could be a lot worse
Speaker 1: if the FED warrant addressing the inflationary scenario. But they
Speaker 1: are addressing it. They are committed to it. They need
Speaker 1: to remain committed to it to get it as you know,
Speaker 1: right size and normalized policy to the degree possible because
Speaker 1: they were behind the curve. They have to do this
Speaker 1: or we risk having a much more volatile long term
Speaker 1: economic climate than we've ever faced. But to the degree
Speaker 1: that they can write as policy and remove some of
Speaker 1: this sort of sugar high that we had developed in
Speaker 1: this you know, bubbly market. The faster we can get
Speaker 1: that done and sort of cleanse the access and move on,
Speaker 1: the better. But if they were to delay it, it
Speaker 1: would be much more painful a year, two years, three
Speaker 1: years from now. There there's some other things that get
Speaker 1: in the shot in the short term that I think
Speaker 1: could help the market. Um, perhaps if the Biden administration
Speaker 1: removes the Towers of China, that certainly could be helpful.
Speaker 1: Maybe a gas tax holiday. That's those are short term things,
Speaker 1: not speaking to your your long term thesis. But in
Speaker 1: the short run there's there's some events that that could
Speaker 1: make the stock market pop. And the end of the war. Yeah,
Speaker 1: end of the war could be a huge catalyst. I
Speaker 1: totally agree. Not for energy. All right, we'll leave it there,
Speaker 1: John Gina, thanks so much for joining us in Trillian.
Speaker 1: Thank you, thanks for listening to Trilliance. Until next time.
Speaker 1: You can find us on the Bomberg terminal, Bloomberg dot com,
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Speaker 1: We'd love to hear from you. We're on Twitter, I'm
Speaker 1: at Joel Webber Show. He's at aerb faltrainess. This episode
Speaker 1: of Trillions was produced by Stacy Wong. Francesca Leed is
Speaker 1: the head of Boomberg Podcast. Bye