WEBVTT - Infrastructure And The Markets 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.720 at Bloomberg dot com slash podcast. I want to bring 0:00:21.760 --> 0:00:24.400 in right now, she told Prasad, small and MidCap growth 0:00:24.400 --> 0:00:28.680 portfolio manager and research analysts at Jennison Associates. She tall 0:00:28.760 --> 0:00:31.360 here at Bloomberg Radio. All day, we've been focusing on 0:00:31.400 --> 0:00:34.600 what's going on down in Washington. Uh, you know, getting 0:00:34.680 --> 0:00:37.519 some of these bills passed. Do the good folks at 0:00:37.600 --> 0:00:40.760 Jennison do they care or you guys just focusing on 0:00:40.800 --> 0:00:43.640 what are earning? Is going to be next quarter, next year, 0:00:43.680 --> 0:00:47.159 that kind of thing. Hey, guys, it's it's good to 0:00:47.159 --> 0:00:49.520 be with you again. And it's actually a really funny 0:00:49.640 --> 0:00:52.560 question because I think for the most part, we aren't 0:00:52.600 --> 0:00:55.960 really as concerned with it, and I don't know if 0:00:56.040 --> 0:00:59.320 even the markets are, um, you know, admittedly on our 0:00:59.320 --> 0:01:01.520 team and we you know, we're on a morning meeting 0:01:01.560 --> 0:01:04.959 every single day. We're just not talking about uh the 0:01:05.000 --> 0:01:10.200 infrastructure package, the social package that the DC is talking about. UM. Instead, 0:01:10.240 --> 0:01:15.000 we're really focused on more immediate issues like UH inflation, 0:01:15.200 --> 0:01:19.200 interest rates, the supply chain disruptions, UH, COVID, and you 0:01:19.200 --> 0:01:21.800 know things even like China and the power shortages there. 0:01:21.880 --> 0:01:24.920 So so to your point, UM, I think we're focused 0:01:25.400 --> 0:01:29.240 more on immediate term issues that are affecting our investments 0:01:29.720 --> 0:01:33.080 UM and looking forward to what what companies will say 0:01:33.120 --> 0:01:35.640 on on third quarter earnings. Yeah, so she tells us, 0:01:35.640 --> 0:01:37.760 you look at kind of all of these media intern 0:01:37.920 --> 0:01:40.360 issues that you just listed out, especially the supply change 0:01:40.400 --> 0:01:43.480 as we approach earning season, how is that affecting your 0:01:43.560 --> 0:01:48.800 investment thesis at this point? It's a real challenge, UM. 0:01:48.840 --> 0:01:51.680 You know for pretty much all of our companies across 0:01:51.760 --> 0:01:54.240 all of the sectors. So you know, we at Jennison 0:01:54.320 --> 0:01:58.040 we invest in companies that broadly UM, you know, whether 0:01:58.120 --> 0:02:02.880 it's tech, healthcare, UM, industrials or work there and there 0:02:03.000 --> 0:02:05.920 is very few parts of the economy that have been 0:02:06.000 --> 0:02:09.040 untouched by the supply chain issues. And I think what 0:02:09.040 --> 0:02:12.440 we're trying to do on our team is really figure 0:02:12.440 --> 0:02:16.880 out is it really transitory? As the FED has suggested 0:02:16.919 --> 0:02:19.760 it or is it going to be more persistent? UM? 0:02:19.800 --> 0:02:23.120 I think what is clear is that UM that the 0:02:23.320 --> 0:02:27.080 alleviation in some of the the supply chain issues, whether 0:02:27.120 --> 0:02:30.519 it might be labor or UM, you know, products coming 0:02:30.560 --> 0:02:33.960 from China is going to persist for longer UM. And 0:02:34.000 --> 0:02:35.800 so what we're looking at with where regard to our 0:02:35.840 --> 0:02:40.280 investments is UM, is the demand environment still strong and 0:02:40.440 --> 0:02:44.399 can our companies mitigate some of these supply chain challenges 0:02:44.840 --> 0:02:48.320 still put up decent earnings? And the hope is that UM, 0:02:48.360 --> 0:02:51.560 the economy just stays you know, stronger for longer. And 0:02:51.600 --> 0:02:54.239 she told you that's a big topic, that being the 0:02:54.240 --> 0:02:56.840 supply chain issues. That's a topic that Kaylee and I 0:02:57.280 --> 0:02:58.799 and Matt, you know, we spend a lot of time 0:02:58.800 --> 0:03:01.640 talking about, talked to is many in a diverse group 0:03:01.639 --> 0:03:03.560 of people's we kennel this issue. It just feels like 0:03:03.560 --> 0:03:06.400 a boy it's it's a global issue number one and 0:03:06.520 --> 0:03:10.239 number two, it doesn't seem to be abating at all. 0:03:10.360 --> 0:03:13.960 I mean, it's not just microchips and uh, it's everything 0:03:14.240 --> 0:03:18.120 UM and it includes logistics, transportation. How do you guys 0:03:18.160 --> 0:03:19.760 think about that? Are you are you discounting that this 0:03:19.800 --> 0:03:24.960 could be a longer a bigger issue for longer. It's 0:03:24.960 --> 0:03:27.359 a really tough question and and certainly at the top 0:03:27.400 --> 0:03:30.720 of mind for everybody. I do think that the pandemic 0:03:30.960 --> 0:03:37.000 has created uh, some near term and medium term challenges 0:03:37.200 --> 0:03:41.800 in that things shut down and our economy shifted from 0:03:41.800 --> 0:03:45.240 a service economy to a more product oriented economy, and 0:03:45.320 --> 0:03:48.560 the ability for so many manufacturers across the entire global 0:03:48.560 --> 0:03:52.680 supply chain just couldn't ramp up fast enough. Uh. Couple 0:03:52.760 --> 0:03:57.080 that with COVID related shutdowns, government stimulus that are that 0:03:57.160 --> 0:04:01.120 are impacting labor, we just have a real height crunch. Now. 0:04:01.560 --> 0:04:05.840 I think one by one some of these issues will resolve, UM, 0:04:05.880 --> 0:04:10.440 but it's not resolving at the speed and um at 0:04:10.440 --> 0:04:13.839 the pace at which I think most people expected. UM. 0:04:13.920 --> 0:04:16.160 So I do think that we are expecting that this 0:04:16.200 --> 0:04:18.920 is going to happen in the longer term. I do 0:04:19.040 --> 0:04:23.000 think that things that will resolve, you know, investments in automation, 0:04:23.120 --> 0:04:27.720 investments in um in you know, reasshoring, getting supply chains 0:04:27.760 --> 0:04:31.360 close sort of manufacturers, all of that will be deflationary 0:04:31.520 --> 0:04:33.600 at some point. But we just it's going to be 0:04:33.680 --> 0:04:35.719 a lot longer than we thought. We're also looking for 0:04:35.760 --> 0:04:38.640 resolution as Paul said at the top on Capitol Hill, 0:04:38.680 --> 0:04:40.479 and I just I just want to kind of pick 0:04:40.520 --> 0:04:43.640 apart why you aren't interested in infrastructure spending because coming 0:04:43.640 --> 0:04:47.200 into as we looked at those runoff elections in the 0:04:47.240 --> 0:04:49.160 Senate in January, the narrative was, if we get a 0:04:49.160 --> 0:04:51.680 blue sweep, we're gonna get a ton of fiscal stimulus. 0:04:51.680 --> 0:04:55.400 That's great for domestic stocks like the small caps. So 0:04:55.880 --> 0:04:58.680 is the small cap thesis not predicated on getting some 0:04:58.720 --> 0:05:03.159 of that longer term to stick orient and spending. You know, 0:05:03.560 --> 0:05:06.520 I would say to you that it is really the 0:05:06.560 --> 0:05:09.279 fact that we're very close to getting anything done in 0:05:09.320 --> 0:05:14.120 Washington is a really positive signal. Um. Having said that, um, 0:05:14.160 --> 0:05:16.320 you know, as we just talked about with supply chains, 0:05:16.360 --> 0:05:19.800 if we do see an infrastructure bill. Uh. First of all, 0:05:20.080 --> 0:05:22.200 you know a lot of times what happens with many 0:05:22.240 --> 0:05:25.240 of these funding packages, it takes a while for some 0:05:25.320 --> 0:05:29.320 of those moneys to actually flow down to the local municipalities. 0:05:29.839 --> 0:05:32.560 So you know, we might not see the money or 0:05:32.600 --> 0:05:35.159 the economic boost of that at least for some period 0:05:35.200 --> 0:05:38.000 of time. Um. The other thing I've mentioned is that 0:05:38.080 --> 0:05:40.320 some of the things that are actually in the infrastructure 0:05:40.360 --> 0:05:43.720 package are things that we at Jennison are already investing 0:05:43.760 --> 0:05:48.440 in be that five G, you know, the broadband, um, 0:05:48.640 --> 0:05:52.720 you know, electric vehicle charging stations and just you know, 0:05:52.760 --> 0:05:56.760 many different things to again bring back UH manufacturing and 0:05:56.800 --> 0:05:59.760 supply chains to our you know, to the U S 0:05:59.760 --> 0:06:02.920 show worth. UM. So I think what we'll expect us, 0:06:03.000 --> 0:06:06.360 what we expect to see is the infrastructure would be 0:06:06.600 --> 0:06:09.640 a would help sustain the economics thoth that we're seeing 0:06:09.680 --> 0:06:12.680 today rather than boost it because the truth is we 0:06:12.720 --> 0:06:17.279 don't have the labor or the materials fair enough. All right, Chantil, 0:06:17.360 --> 0:06:18.960 thank you so much for joining us as always should 0:06:18.960 --> 0:06:26.599 Teel Prossad small emit cap Growth PM at Jennison Associates. Alright, 0:06:26.640 --> 0:06:29.400 we had a ton of ECO data out this morning 0:06:29.440 --> 0:06:31.760 and one of the bigger numbers was the m manufacturing 0:06:32.279 --> 0:06:34.200 came in better than expected. Let's break it down with 0:06:34.200 --> 0:06:37.840 Tim Fury, chairman of of the Manufacturing Business Survey for 0:06:37.920 --> 0:06:41.880 the Institute for Supply Management based in Miami, Florida. So, Tim, 0:06:41.960 --> 0:06:44.760 good number, good gain from last month. What's your take 0:06:44.800 --> 0:06:49.240 on the ism manufacturing? Yeah, thanks, Paul. So another strong 0:06:49.320 --> 0:06:52.800 month of demand. Demand was really positive in all areas. 0:06:52.839 --> 0:06:55.960 New orders were good, new export orders are up, Customer 0:06:55.960 --> 0:06:59.840 inventory is still way too low, backlog still near record has. 0:07:00.160 --> 0:07:05.680 Demand just just continues to beat expectations. The production side 0:07:05.760 --> 0:07:08.640 saw very slight growth about a half a point if 0:07:08.680 --> 0:07:12.080 you combine production as well as employment. Uh. The issue 0:07:12.160 --> 0:07:16.400 there remains labor head count at the handless companies as 0:07:16.440 --> 0:07:18.800 well as their suppliers. So the big story again for 0:07:18.840 --> 0:07:22.600 the month is this is a supply restricted growth environment. 0:07:22.680 --> 0:07:26.760 We actually reverse some softening on the supply delivery side. Uh, 0:07:26.880 --> 0:07:29.560 and we also saw prices kind of go up again too. 0:07:29.600 --> 0:07:32.040 So yeah, demand has never been the problem, and on 0:07:32.080 --> 0:07:34.080 some of those kind of supply side constraints. I see 0:07:34.120 --> 0:07:37.680 the average lead time for materials rose to nine two 0:07:37.880 --> 0:07:43.360 days in September. That's the highest going back. Is that 0:07:43.440 --> 0:07:47.480 going to improve anytime soon? What's your sense? Well, I 0:07:47.480 --> 0:07:50.960 mean that's driving a lot of other activity too, So 0:07:51.320 --> 0:07:52.880 you know some of the things that that is probably 0:07:52.880 --> 0:07:55.440 doing is probably having having an impact on the new 0:07:55.520 --> 0:07:58.560 order levels. Because the price is continuing to go up, 0:07:58.680 --> 0:08:01.360 you're going to try to capture the rice today, especially 0:08:01.400 --> 0:08:03.560 if you're not so confident what's gonna happen three months 0:08:03.560 --> 0:08:06.080 from now, A couple of months from now, there was 0:08:06.080 --> 0:08:08.120 a belief that Okay, prices are going to soften a 0:08:08.160 --> 0:08:10.440 little bit, so hold back on your orders until you 0:08:10.480 --> 0:08:13.200 see it happening. But I think it's a reversal here 0:08:13.840 --> 0:08:16.680 on on the prices side. People are jumping back in 0:08:16.720 --> 0:08:19.320 and placing orders extended lead times. You know, I'm here 0:08:19.360 --> 0:08:22.640 in stories of fifty two weeks on semi conductors, six 0:08:22.680 --> 0:08:25.560 months on steel, and you know, who really knows what's 0:08:25.560 --> 0:08:28.320 going to happen one year from now. So that's the 0:08:28.400 --> 0:08:31.120 risk to the manufacting environment, is that if things start 0:08:31.160 --> 0:08:33.679 to soften and you have all these extended orders out 0:08:33.720 --> 0:08:36.400 there at higher prices, you know what's going to happen. 0:08:36.440 --> 0:08:38.800 But none of that's going to happen in the short 0:08:38.920 --> 0:08:41.880 term here, I because everybody's really positive that things are 0:08:41.880 --> 0:08:44.440 going to continue. As we close the year, Q one 0:08:44.480 --> 0:08:47.280 is going to be a strong period Q two most 0:08:47.320 --> 0:08:51.480 likely to the questions that remains on Q on half two. 0:08:51.920 --> 0:08:53.840 But I don't think anybody sees a falling off the 0:08:53.840 --> 0:08:56.960 clip of that, So Tim. It's interesting though the labor issue. 0:08:57.000 --> 0:08:59.400 We we hear that in so many different industries, but 0:08:59.400 --> 0:09:02.160 it's one thing finding it difficult to find people to 0:09:02.160 --> 0:09:04.719 come in and wait tables and flip burgers. But I'm 0:09:04.720 --> 0:09:08.040 thinking these manufacturing jobs are are highly paid, you know, 0:09:08.120 --> 0:09:13.319 good benefits, um some unit unionization. I'm kind of surprised that, 0:09:13.400 --> 0:09:18.120 you know, manufacturing America is having a labor problem. Yeah, 0:09:18.120 --> 0:09:19.960 it's a mix. I mean, it's it's a mix. There's 0:09:20.000 --> 0:09:23.360 there's definitely a cadre of direct labor who have long 0:09:23.400 --> 0:09:26.040 tenure with the company, a lot of knowledge, highly skilled. 0:09:26.480 --> 0:09:29.360 They're most likely not going to jump for a five 0:09:29.400 --> 0:09:32.840 percent increase down the street. Um. And that's that's probably 0:09:32.880 --> 0:09:34.840 not the issue. But there is quite a bit of 0:09:34.880 --> 0:09:39.240 load of moderate level, skill level labor. We had of 0:09:39.240 --> 0:09:42.360 our comments were higher. Comments again for the month of 0:09:42.520 --> 0:09:46.640 September of those indicated that they were having difficulty, which 0:09:46.679 --> 0:09:48.679 is up twelve points from August, which was a bit 0:09:48.720 --> 0:09:52.840 of a surprise. Of those companies claimed. Of all the 0:09:52.880 --> 0:09:57.280 companies claimed high levels of turnover being a significant challenge. 0:09:57.280 --> 0:10:00.040 And and that's that's people jumping for a way it 0:10:00.160 --> 0:10:03.000 increases down the street, as well as what's becoming clear 0:10:03.160 --> 0:10:06.480 is a lot more retirements than we normally see. And 0:10:06.480 --> 0:10:08.640 and finally, just quickly, we know that there's an energy 0:10:08.720 --> 0:10:11.400 crisis on going in many parts of the world. China 0:10:11.640 --> 0:10:13.760 factories are getting hit by it in Europe as well. 0:10:13.800 --> 0:10:16.000 Is there any sign of that becoming problematic here in 0:10:16.040 --> 0:10:19.319 the US? Well, here we go right, controlling and products 0:10:19.320 --> 0:10:21.600 and natural gas feed into pretty much everything you can't 0:10:21.600 --> 0:10:26.240 make steal without energy. Probably the cost of steelers energy, cement, 0:10:26.600 --> 0:10:29.880 I mean, classics is all natural gas. We we we 0:10:30.000 --> 0:10:31.960 never we haven't seen crew this high in a long time. 0:10:32.080 --> 0:10:34.680 Eighty I think it's like eighty bucks for uh less 0:10:34.760 --> 0:10:38.160 less touchas intermediate. What concerns me more is natural gas 0:10:38.200 --> 0:10:41.800 is five fifty to six dollars. That's that stars limited 0:10:41.800 --> 0:10:44.240 our competitive advantage around the world. Part of that is 0:10:44.280 --> 0:10:45.920 being driven now by the fact that we don't have 0:10:46.000 --> 0:10:49.120 enough wells injecting, and we're also exploring quite a bit 0:10:49.160 --> 0:10:52.280 of energy to the Southeast Asia that the places three 0:10:52.320 --> 0:10:55.040 acts so not very good. I think longer too. We 0:10:55.120 --> 0:10:58.280 gotta fix that because that's what makes America really competitive. 0:10:58.280 --> 0:11:01.600 It is it's very competitive of dos. Hey, tim thanks 0:11:01.640 --> 0:11:03.920 so much for joining us. Always a love of conversation 0:11:03.960 --> 0:11:07.200 that includes cement and steel and all that good stuff. 0:11:07.640 --> 0:11:11.480 Good manufacturing talk for Friday. Timothy Fury, Chairman of the 0:11:11.480 --> 0:11:15.280 Manufacturing Business survey at the Institute for Supply Management. They're 0:11:15.320 --> 0:11:18.200 based in uh wash, Miami. And but we've had some 0:11:18.240 --> 0:11:21.480 good manufacturing data pretty much all throughout the pandemic. Uh, 0:11:21.720 --> 0:11:24.080 you know, kind of Middle America has been cranking it through, 0:11:24.280 --> 0:11:29.360 so some good data there. So kayleie, this is day 0:11:29.360 --> 0:11:33.080 one of the fourth quarter. A lot of folks are saying, 0:11:33.080 --> 0:11:34.719 I got a sprint to the dash here to put 0:11:34.760 --> 0:11:37.000 up some numbers. I'll hate DESPONDI joins us. He's founder 0:11:37.000 --> 0:11:39.880 and chief investment officer of Centerstone Investors on the phone 0:11:39.880 --> 0:11:42.920 from New York City. So I'll pay if I'm a PM. 0:11:42.960 --> 0:11:45.679 I'm sitting here October one. I got three months left 0:11:45.720 --> 0:11:48.080 to the year. Maybe I'm a little bit behind my 0:11:48.520 --> 0:11:53.880 my index. What do I do today? Uh, what's a 0:11:53.880 --> 0:11:55.960 good question. I mean, there's there's so many cross currents. 0:11:55.960 --> 0:11:59.600 I mean, at center Stone Investors, we're running the marathon, 0:11:59.760 --> 0:12:03.280 not the sprint, so you know, we're kind of um 0:12:03.280 --> 0:12:06.200 taking a longer view of things. But you know, for 0:12:06.240 --> 0:12:09.280 those people who are focused on more of the short term, 0:12:09.720 --> 0:12:12.160 short term, there's plenty of cross ones. I mean, the 0:12:12.160 --> 0:12:15.080 main thing I think that people are struggling with is 0:12:15.360 --> 0:12:16.920 um you know, are we are you? Are we about 0:12:16.960 --> 0:12:20.040 to do this again? The economy's running hot, so there 0:12:20.080 --> 0:12:23.320 was some inflation. So the sitting forward looking numbers are 0:12:23.360 --> 0:12:25.080 that the economy is going to slow down. You can't 0:12:25.080 --> 0:12:28.199 absorb the inflation, so it's slowing down. But the Federal 0:12:28.240 --> 0:12:30.600 Reserve are they looking in the rear view or not 0:12:31.080 --> 0:12:33.280 in the past. This is basically every single cycle, right, 0:12:33.280 --> 0:12:35.000 you have the inflation numbers go up, and then the 0:12:35.000 --> 0:12:37.000 Fed kind of panics a little bit racist race, but 0:12:37.160 --> 0:12:39.200 by then the economy is already flowing down. They turn 0:12:39.320 --> 0:12:42.240 something that should be routine into something more, you know, 0:12:42.240 --> 0:12:45.480 they create the Frankenstein that ruins the village. So it's 0:12:45.480 --> 0:12:47.560 a lot to process. If you're focused on the short term, 0:12:47.559 --> 0:12:49.480 that's for sure, okay, But as you say, but you're 0:12:49.480 --> 0:12:51.560 focused on the long term. So if you're running a marathon, 0:12:52.280 --> 0:12:55.400 what are your biggest hurdles? Is it, you know, the 0:12:55.520 --> 0:12:58.600 pulling back of fiscal and monetary support, is it these 0:12:58.679 --> 0:13:01.960 kind of supply side issue? Is is it just valuations? 0:13:02.080 --> 0:13:05.640 More broadly, what makes you nervous? You know, it's it's 0:13:05.679 --> 0:13:09.559 continues to be the unpredictable sort of unknowns, right, And 0:13:10.120 --> 0:13:13.160 part of I mean the main, uh sort driver of 0:13:13.200 --> 0:13:16.680 these unknowns is that policy makers feel the need to 0:13:16.720 --> 0:13:20.720 be you know, constantly involved. You they just do not 0:13:21.320 --> 0:13:25.320 economies that cover Yeah, I mean in some ways, the 0:13:25.400 --> 0:13:28.040 unpredictable part of it is what are they gonna do next, right, 0:13:28.360 --> 0:13:31.360 another couple of trillion or shut down the entire world economy? 0:13:31.440 --> 0:13:33.720 And things are recovering. So if you, if you, if you, 0:13:33.840 --> 0:13:36.480 if we, you know, we look at things from the 0:13:36.480 --> 0:13:39.240 longer term perspective I mentioned at center Stone, and from 0:13:39.240 --> 0:13:42.160 a longer term perspective, I mean from a value investors 0:13:42.720 --> 0:13:47.280 you know, perch uh, there's plenty of value and uh, 0:13:47.320 --> 0:13:50.320 you know, plenty of reasons to be optimistic. Um, you know, 0:13:50.360 --> 0:13:54.400 provided that you can sort of assume that there's going 0:13:54.400 --> 0:13:56.679 to be interference in the in the market economies for 0:13:56.800 --> 0:13:59.680 some time. But the economies seem to be strong enough 0:13:59.720 --> 0:14:03.200 to the standard, all right. So with a longer term 0:14:03.200 --> 0:14:07.600 perspective of a are you guys at center uh center Stone, 0:14:07.640 --> 0:14:10.240 are you more thinking I'm sticking with the long term 0:14:10.400 --> 0:14:14.360 top line growth stories tech, healthcare things like that, or 0:14:14.800 --> 0:14:17.400 are you playing maybe maybe a little bit longer reopening 0:14:17.400 --> 0:14:20.240 trade on from a global perspective, Yeah, I'd say it. 0:14:20.560 --> 0:14:22.280 I mean if you had a bucket iss, it's definitely 0:14:22.280 --> 0:14:24.840 not in technology. UM, I think that area of the 0:14:24.880 --> 0:14:28.920 market is very expensive, maybe justifiably. So it's not really 0:14:29.000 --> 0:14:31.600 what we do. It's not our expert piece, but um 0:14:31.680 --> 0:14:34.880 for for for us, you know, the last eighteen months 0:14:34.920 --> 0:14:38.360 allowed many many businesses around the world that we're in 0:14:38.480 --> 0:14:44.120 more industrial and cyclical areas to address some glaring cost inefficiencies, 0:14:44.680 --> 0:14:47.600 something that would have taken years. I took a few 0:14:47.600 --> 0:14:50.040 months that were able to just cut massive amounts of costs. 0:14:50.440 --> 0:14:53.640 Frankford Airport, for instance, reduced their expense structure by three 0:14:53.720 --> 0:14:56.440 hundred million euros, something they would never have been able 0:14:56.480 --> 0:15:00.320 to do without the kind of the cover of uh 0:15:00.360 --> 0:15:03.320 you know, quote unquote cover of this past eighty months. 0:15:03.320 --> 0:15:06.360 So what we're looking at is a whole host of 0:15:06.400 --> 0:15:08.680 companies that have reduced their cost structures and that have 0:15:08.720 --> 0:15:11.960 massive amounts of operating coverage. So as there is a recovery, 0:15:12.640 --> 0:15:14.480 whether it's six months from now or a year from now, 0:15:14.600 --> 0:15:17.440 the operating leverage means that the earnings growth potentials is 0:15:17.480 --> 0:15:20.440 just tremendous and the stock prices do not reflect that. 0:15:20.560 --> 0:15:23.080 So that's kind of where you know, we find a 0:15:23.120 --> 0:15:26.000 lot of opportunity, but it does require patients. As I said, 0:15:26.040 --> 0:15:28.840 there's so much interference by you know, by sort of 0:15:28.880 --> 0:15:32.920 the authorities that it's you know, pushes the timeframe a 0:15:32.920 --> 0:15:36.120 little bit further beyond beyond work. Yeah, so let's let's 0:15:36.120 --> 0:15:39.400 talk about some of those authorities, the fiscal authorities. I 0:15:39.600 --> 0:15:42.320 who knows what's going to happen with the infrastructure and 0:15:42.360 --> 0:15:45.520 social spending package down on Capitol Hill, what ultimately look like, 0:15:45.960 --> 0:15:49.200 what the pay force will involve in terms of higher taxes. 0:15:50.360 --> 0:15:54.080 How are you operating with that uncertainty of what corporate 0:15:54.080 --> 0:15:56.760 tax rates are going to look like going forward into 0:15:56.800 --> 0:15:58.720 the future, and how that affects some of the companies 0:15:58.760 --> 0:16:03.320 you want to invest in. Well, we're US investors only partly, um, 0:16:03.440 --> 0:16:06.600 we are global investors. The majority of our exposures a 0:16:06.680 --> 0:16:09.040 global and we don't have these tax issues like this 0:16:09.280 --> 0:16:11.880 kind of nonsense going around from most of the countries 0:16:11.880 --> 0:16:16.200 were investing. Um, So it only really affects our US names, 0:16:16.320 --> 0:16:19.160 and in particular those US names that are only US focused. 0:16:19.200 --> 0:16:21.640 So the tax cuts that they had put in place 0:16:21.640 --> 0:16:26.760 many years years ago really benefited local US companies. So ironically, 0:16:27.360 --> 0:16:32.080 you know this will affect domestic you know, companies have 0:16:32.120 --> 0:16:36.520 predominantly or domestically oriented the United States. But that the 0:16:36.920 --> 0:16:40.280 you know, it's not going from it's going from twenty 0:16:40.440 --> 0:16:43.800 maybe twenty five or six, and you know, we'll see 0:16:43.800 --> 0:16:46.280 it exactly as you mentioned, Kay, there's we don't know yet, 0:16:46.360 --> 0:16:48.480 but um, that's kind of the scale of it. I 0:16:48.480 --> 0:16:52.440 don't think that's enough to really destroy uh, you know, 0:16:52.600 --> 0:16:56.640 a business. On the margin. It will impact what they 0:16:56.680 --> 0:17:00.480 do with their uh you know, excess sort of free 0:17:00.480 --> 0:17:03.960 cash flows, right, but you know, I don't see a 0:17:04.280 --> 0:17:08.000 major effect because of that. All Right, I'll bet thank 0:17:08.040 --> 0:17:10.160 you so much for joining us. All A Desponde, founder 0:17:10.480 --> 0:17:15.200 and chief investment officer of center Stone Investors. Staying long 0:17:15.359 --> 0:17:17.920 this market here, and it's gonna be interesting to see, Kaylee, 0:17:18.000 --> 0:17:20.680 when we have earnings coming out a what the numbers are, 0:17:20.680 --> 0:17:23.119 of course, but be what the guidance is and what 0:17:23.160 --> 0:17:26.000 kind of confidence some of these C suites folks have 0:17:26.119 --> 0:17:29.040 an issuing guidance for their business. Yeah, especially considering these 0:17:29.040 --> 0:17:31.359 supply chain issues. I think there was an expectation for 0:17:31.400 --> 0:17:33.120 most of this year that they were going to ease 0:17:33.240 --> 0:17:35.399 up in the fall, you know, in the months ahead 0:17:35.760 --> 0:17:37.800 now that is a much larger question mark, And how 0:17:37.800 --> 0:17:39.920 do you give any kind of firm guidance when there's 0:17:39.920 --> 0:17:42.879 still so many constraints out there on the supply side. Yeah, absolutely, 0:17:43.200 --> 0:17:45.119 But on the flip side, I think analysts and investors 0:17:45.160 --> 0:17:47.480 are going to be really demanding of some guidance. Here, 0:17:47.920 --> 0:17:55.920 eighteen months into this pandemic. This is Bloomberg Today's October one. 0:17:56.119 --> 0:17:59.199 We have three quarters of one in the books. As 0:17:59.240 --> 0:18:02.680 we start to fourth order, let's check in on Phil Orlando, 0:18:02.840 --> 0:18:05.960 chief equity market strategist and head of client portfolio Management 0:18:06.240 --> 0:18:09.280 and Federated Hermes. So thanks much for joining us here. 0:18:09.480 --> 0:18:13.560 You've had a consistent constructive view of this equity market. 0:18:13.920 --> 0:18:18.200 Where are you now as we start Q four? Well, Paul, 0:18:18.240 --> 0:18:20.800 as we talked about, I guess going back into the 0:18:20.840 --> 0:18:25.080 August period, we uh the stock market was at record highs. 0:18:25.200 --> 0:18:28.399 We were up beginning of the year, up a hundred 0:18:28.400 --> 0:18:32.800 and seven percent since the pandemic trough in March. But 0:18:33.119 --> 0:18:36.480 we felt that there were a significant number of Washington 0:18:36.600 --> 0:18:41.919 related headwinds on the horizon during August, September, October, and 0:18:41.960 --> 0:18:44.639 we felt that the market was poised for five to 0:18:44.720 --> 0:18:48.000 ten percent pullback during that period, so we reduced our 0:18:48.040 --> 0:18:51.159 equity allocation a little bit, raise some cash when a 0:18:51.160 --> 0:18:56.080 little more defensive. With the benefit of hindsight, the market 0:18:56.160 --> 0:18:58.639 is down about five and a half percent or so 0:18:58.840 --> 0:19:02.320 over the last month. We think there could be another 0:19:02.320 --> 0:19:06.119 shoe to drop here, given the h the state of 0:19:06.160 --> 0:19:10.520 play in Washington right now. So I think we're just 0:19:10.960 --> 0:19:15.639 sort of sitting tight and watching how events evolve in 0:19:15.760 --> 0:19:18.560 Congress and at the Federal Reserve over the course of 0:19:18.600 --> 0:19:20.439 the next couple of days and a couple of weeks. 0:19:20.760 --> 0:19:22.840 So what would your re entry point be where you 0:19:22.840 --> 0:19:24.639 start to deploy a little bit of that cash and 0:19:24.680 --> 0:19:26.760 put it back to work in the equity market. Sure, 0:19:26.920 --> 0:19:30.480 A great question, Kaylee. I think there are two. From 0:19:30.480 --> 0:19:34.720 a price standpoint, what we're looking for technically speaking, was 0:19:34.760 --> 0:19:37.600 a pull back to the two day moving average. So 0:19:37.640 --> 0:19:41.359 in round numbers, uh, the two day moving averages is 0:19:41.480 --> 0:19:45.960 a little above the level. From a fundamental standpoint, we 0:19:46.040 --> 0:19:48.800 want to get a sense that that issues have been 0:19:48.840 --> 0:19:52.760 resolved or we're making progress towards that resolution. Now I 0:19:52.760 --> 0:19:56.240 think we've got our hands on the Federal reserve. Inflation 0:19:56.440 --> 0:19:59.639 is sustainable, and I think the Fed is now coming 0:19:59.640 --> 0:20:02.879 to that realization they're going to announce the tapering we 0:20:02.960 --> 0:20:06.760 think on November three. Uh, complete the tapering by the 0:20:06.840 --> 0:20:09.600 middle of the next year, and then rate increases start 0:20:09.640 --> 0:20:11.560 at the end of next year. We don't have any 0:20:11.560 --> 0:20:14.200 problem what the Feds doing. But when we look at 0:20:14.240 --> 0:20:19.000 fiscal policy. UM, we've got this continuing resolution that passed 0:20:19.080 --> 0:20:22.080 yesterday to keep the government running. But this death seiling 0:20:22.119 --> 0:20:26.160 issue is still uh, you know, very much an open question. 0:20:26.480 --> 0:20:30.720 We're very comfortable with the one point two trillion bipartisan 0:20:30.720 --> 0:20:34.080 Infrastructure bill, even though Speaker Pelosi has moved the vote 0:20:34.160 --> 0:20:37.359 dates out a couple of times. The big anchilada right 0:20:37.400 --> 0:20:40.960 now is how do we resolve this this five and 0:20:41.000 --> 0:20:44.640 a half trillion dollar human infrastructure bill. Um, We've got 0:20:44.640 --> 0:20:50.439 to see that number smaller, tighter, better targeted, less debt, 0:20:51.000 --> 0:20:54.359 less tax increases, and and and that right now is 0:20:54.400 --> 0:20:57.200 a very open question. And frankly, that's what's going on, 0:20:57.640 --> 0:21:01.000 you know, with Speaker Pelosi and her her members right now. 0:21:01.920 --> 0:21:04.680 How concerned are you about this inflation that we're seeing 0:21:04.720 --> 0:21:09.280 throughout the economy again feels less and less transitory, maybe 0:21:09.280 --> 0:21:12.000 a little bit more longer term. How do you guys 0:21:12.040 --> 0:21:16.080 think about that well, this is you know, you're you're 0:21:16.119 --> 0:21:18.720 preaching of the choir here. This this has been our 0:21:19.480 --> 0:21:21.960 talking point for the last six months. We thought the 0:21:22.000 --> 0:21:27.480 Federal Reserve had completely misread the sustainability of the inflation issues. 0:21:27.760 --> 0:21:32.560 Their argument was that once the procedural base effects you know, 0:21:32.720 --> 0:21:35.640 rolled off and made that inflation would sort of tame down. 0:21:36.080 --> 0:21:38.520 And and in our view there was there was no 0:21:38.600 --> 0:21:44.120 comprehension of what the impact was on on shelter food, inflation, 0:21:44.880 --> 0:21:51.840 UH wages, UH energy. Those prices were sustainable, they were sticky, 0:21:52.040 --> 0:21:54.640 and they were going to continue to force the core 0:21:54.760 --> 0:21:57.520 CPI much higher than the FED target. We just got 0:21:57.560 --> 0:22:00.520 an update this morning. August level for the last three 0:22:00.560 --> 0:22:04.600 months now has been three point six core pc the 0:22:04.640 --> 0:22:09.119 FEDS targets two and and it's now August, not May. 0:22:09.160 --> 0:22:11.639