WEBVTT - Surveillance: Taper Time With Fed's George 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.480 and of course, on the Bloomberg terminal. Right now, McKee 0:00:30.480 --> 0:00:34.640 begins his work at Jackson Hall. The number one issue 0:00:34.680 --> 0:00:37.839 is taper. No, not the economic taper, the taper of 0:00:37.880 --> 0:00:40.920 my waist. After three meals at the Pioneer Grill, guess 0:00:40.960 --> 0:00:44.960 what It's not gonna happen because we've gone virtual. McKee's virtual, 0:00:45.320 --> 0:00:50.280 and the distinguished esther George is virtual. Let's listen. We 0:00:50.560 --> 0:00:53.440 uh had hoped for an in person meeting. We had 0:00:53.440 --> 0:00:55.800 planned that way, knowing in the back of our mind 0:00:56.000 --> 0:00:59.400 that that would be a function of how the virus 0:00:59.480 --> 0:01:03.560 unfull it and as we saw last week, risk levels 0:01:03.600 --> 0:01:06.600 went up and in the interest of our guests, we 0:01:06.720 --> 0:01:12.080 pivoted to a virtual platform. So disappointed, but still looking 0:01:12.120 --> 0:01:16.360 forward to a great conference. We've got a great lineup 0:01:16.440 --> 0:01:19.040 of speakers and papers that I think are going to 0:01:19.120 --> 0:01:22.319 bring insight to an important topic. Well, you lead into 0:01:22.360 --> 0:01:26.360 an important question. The latest COVID spike. How do you 0:01:26.440 --> 0:01:30.959 think that is going to affect the economy? Well, I 0:01:30.959 --> 0:01:33.319 think it's a risk to the outlook. But what we've 0:01:33.360 --> 0:01:36.360 seen so far, and what I hear from contacts in 0:01:36.360 --> 0:01:40.440 our region, is the economy continues to grow at a 0:01:40.560 --> 0:01:45.720 strong rate. Consumers are still spending, the labor market is 0:01:45.800 --> 0:01:49.280 continuing to heal. We saw a good job gains last month, 0:01:49.840 --> 0:01:53.720 and so the outlook I think remains a positive one. 0:01:54.320 --> 0:01:58.360 We will have to see what impact this flare up 0:01:58.480 --> 0:02:01.480 in the virus might ring. So you can imagine that 0:02:01.560 --> 0:02:04.080 it might slow down some of the returns to the 0:02:04.160 --> 0:02:07.400 labor market, but I don't expect at this point that 0:02:07.520 --> 0:02:10.679 it will derail the economy as we saw last year 0:02:11.160 --> 0:02:14.880 when we first had to deal with the virus. Do 0:02:14.960 --> 0:02:18.040 you think it slows down your time table for when 0:02:18.040 --> 0:02:20.160 you might want a taper, because you might want to 0:02:20.200 --> 0:02:24.480 wait and get more data. I think for me, as 0:02:24.520 --> 0:02:27.520 I look at the progress that the economy has made 0:02:27.560 --> 0:02:30.840 so far, it really does suggest that we've come to 0:02:30.919 --> 0:02:34.359 a point where we can begin to ease up on 0:02:34.400 --> 0:02:38.480 the amount of accommodation provided to the economy. That's different 0:02:38.560 --> 0:02:42.680 than suggesting that we have arrived at the objectives that 0:02:42.800 --> 0:02:47.359 we have in terms of full employment and price stability. 0:02:47.520 --> 0:02:51.080 So I don't think that it changes my own calculus 0:02:51.120 --> 0:02:54.880 that it is time to begin to make those adjustments. 0:02:54.880 --> 0:02:58.480 Given the gains we've seen so far, have you gained 0:02:58.600 --> 0:03:03.160 enough on the elements side, especially in the diversity area. 0:03:03.440 --> 0:03:06.919 Have we seen enough progress in terms of getting minority 0:03:07.000 --> 0:03:11.720 unemployment down? What's the labor market picture like? Well, clearly 0:03:12.120 --> 0:03:16.120 we have not seen the labor market fully recover, and 0:03:16.720 --> 0:03:19.160 there's still slack there when you look at millions of 0:03:19.200 --> 0:03:22.200 people that have not come back into the workforce, not 0:03:22.360 --> 0:03:28.160 yet resumed working yet. And as you noted, when you 0:03:28.240 --> 0:03:32.400 begin to drill down into who's recovering who's not recovering, 0:03:32.919 --> 0:03:37.440 we know that there is a disproportionate outcomes right now 0:03:37.600 --> 0:03:41.640 for black and Hispanic workers. That I think is a 0:03:41.680 --> 0:03:45.960 function again of watching how the labor markets heal and 0:03:45.960 --> 0:03:49.440 how the economy recovers, and to the extent some of 0:03:49.480 --> 0:03:53.640 those contact intensive sectors can continue to break jobs back 0:03:53.680 --> 0:03:56.520 on and we saw that last month. We saw leisure 0:03:56.560 --> 0:04:01.080 and hospitality UH come in pretty well. If those kinds 0:04:01.080 --> 0:04:05.680 of gains can continue at a healthy pace. Then my 0:04:05.800 --> 0:04:10.640 expectations we will continue to see, uh the impacts begin 0:04:10.760 --> 0:04:15.520 to narrow across many dimensions of the labor market, and 0:04:15.560 --> 0:04:19.000 that would be a good sign. Is there any division 0:04:19.360 --> 0:04:22.080 on the Open Market Committee about when did taper at 0:04:22.160 --> 0:04:24.440 Wall Streets? Making a lot out of the fact that 0:04:24.839 --> 0:04:26.719 some people think we should wait till the end of 0:04:26.720 --> 0:04:30.000 the year, and some say we haven't seen enough progress, 0:04:30.080 --> 0:04:32.480 And then there are people like you and other colleagues 0:04:32.480 --> 0:04:35.880 who say we've made enough progress to begin thinking about 0:04:37.279 --> 0:04:39.960 So this is a big committee, as you know, and 0:04:40.120 --> 0:04:42.560 one of its real strengths is the diversity of us. 0:04:42.680 --> 0:04:46.480 It brings to looking at a common set of data. 0:04:47.200 --> 0:04:51.680 That's a healthy discussion, and um, you often see those 0:04:51.760 --> 0:04:55.000 differences emerged at the point that the economy is turning. 0:04:55.640 --> 0:04:59.960 So it's a healthy sign for the Committee to be 0:05:00.000 --> 0:05:04.560 again to debate and deliberate on those issues as we 0:05:05.080 --> 0:05:08.279 judge when we've made progress towards the objectives that we've 0:05:08.320 --> 0:05:10.840 set out for the economy. Yeah, I'm just wondering if 0:05:11.000 --> 0:05:13.240 if Wall Streets making too much of it. You know, 0:05:13.360 --> 0:05:16.919 the idea of whether you say something in September or November, 0:05:17.240 --> 0:05:22.000 is that cutting the policy to Finally, I think what 0:05:22.120 --> 0:05:25.240 we've been focused on and you've seen is a commitment 0:05:25.320 --> 0:05:29.960 to communicate clearly, to make sure that we are being 0:05:30.000 --> 0:05:34.800 transparent about the factors that are being considered for that 0:05:34.880 --> 0:05:38.640 transition as it relates to asset purchases. And I think 0:05:38.680 --> 0:05:43.719 that's what's been happening um the the markets, the public 0:05:43.800 --> 0:05:47.159 has been hearing those communications, and of course we're coming 0:05:47.160 --> 0:05:50.359 into a meeting in September where we will continue to 0:05:50.480 --> 0:05:54.040 talk about how the economy has unfolded and the timing 0:05:54.160 --> 0:05:59.360 for adjustments to those asset purchases. Interesting story today about 0:05:59.400 --> 0:06:02.120 how Wall Street doesn't care as much about when you 0:06:02.240 --> 0:06:06.440 begin the taper as when you ended. Uh, what's your 0:06:06.520 --> 0:06:09.280 view on how fast you would want to get out 0:06:09.320 --> 0:06:13.000 of the QUEUEI business, So I think it's important to 0:06:13.040 --> 0:06:19.640 get started and the conditions of pace, timing of when 0:06:19.680 --> 0:06:22.919 we end. I think I'm open minded to listening to 0:06:24.200 --> 0:06:28.880 the debates around that, but I am less interested in 0:06:28.960 --> 0:06:32.440 deferring that decision. So I think it's important to really 0:06:32.640 --> 0:06:35.680 center on when we believe the progress in the economy 0:06:35.839 --> 0:06:39.080 is sufficient to start that process, And that's really where 0:06:39.120 --> 0:06:42.160 I'm focused in that sense, I think we should get 0:06:42.200 --> 0:06:45.919 started this year, uh, so that we can begin to 0:06:47.120 --> 0:06:51.000 uh pair back the amount of accommodation, watch to see 0:06:51.000 --> 0:06:54.400 how the economy unfolds after that, and then down the 0:06:54.520 --> 0:06:57.320 road be in a position to make decisions as the 0:06:57.360 --> 0:07:01.280 economy changes on what we need to do with our policy. Right, 0:07:01.880 --> 0:07:03.960 I'm gonna guess that you would agree with the Chairman 0:07:04.040 --> 0:07:07.839 Powell that tapering is not tightening and that the two 0:07:07.880 --> 0:07:12.080 are not connected. But the way traders see it, you 0:07:12.320 --> 0:07:14.560 at this point, because of what the Chairman has said, 0:07:14.600 --> 0:07:17.480 aren't going to start tightening until you're done with tapering. 0:07:17.640 --> 0:07:20.200 So uh, there is a bit of a connection on 0:07:20.280 --> 0:07:22.280 the back end. And I'm wondering if you agree with 0:07:22.320 --> 0:07:25.120 the members of the committee who say we should get 0:07:25.120 --> 0:07:27.960 it done faster than we did last time. I think 0:07:27.960 --> 0:07:31.560 there's good arguments for that, um again depending on how 0:07:31.600 --> 0:07:36.880 the economy unfolds. Uh. The arguments that ending the asset 0:07:36.920 --> 0:07:40.880 purchases will give the committee some flexibility to judge the 0:07:40.960 --> 0:07:44.240 progress in the economy. But I don't think that's in 0:07:44.280 --> 0:07:47.760 any way a mechanical decision and one that we can 0:07:47.880 --> 0:07:51.120 lay out today. Whether it's a certain amount of months, 0:07:51.880 --> 0:07:54.600 the conditions really that have been laid out in the 0:07:54.640 --> 0:07:58.760 guidance from the Committee has been that we will have 0:07:58.920 --> 0:08:03.800 achieved maximum employment and price stability objectives when that rate 0:08:03.880 --> 0:08:08.679 decision is made, whatever decision you make about the pace 0:08:08.800 --> 0:08:11.680 of taporing, you're doing a hundred and twenty billion a 0:08:11.680 --> 0:08:15.560 month right now. At what point would anybody even notice 0:08:15.600 --> 0:08:20.200 in the economy. Well, I'll be watching for that um 0:08:20.240 --> 0:08:23.200 at the point that begins, because it is a tremendous 0:08:23.240 --> 0:08:28.120 amount of accommodation going into the economy right now. And 0:08:28.360 --> 0:08:35.040 assuming communications have been laid out and the committees um 0:08:36.240 --> 0:08:40.600 response to how the economy is unfolding is clear, Uh, 0:08:41.120 --> 0:08:43.679 you would expect the economy to be able to work 0:08:43.760 --> 0:08:48.360 through that. And that is my expectation that with good communication, 0:08:48.520 --> 0:08:52.959 with clarity around the factors that we judge are pushing 0:08:53.040 --> 0:08:58.640 us toward our mandates, UH, that that will all work 0:08:58.640 --> 0:09:01.600 out in terms of the omy's ability to absorb that. 0:09:02.559 --> 0:09:04.600 The minutes of the last couple of meetings suggests that 0:09:04.679 --> 0:09:08.439 you've all basically agreed that you've essentially reached your mandate 0:09:08.480 --> 0:09:11.400 on the inflation side. So I'm wondering where Esther George, 0:09:11.400 --> 0:09:13.960 the inflation hawk is at this point. What do you 0:09:14.000 --> 0:09:18.400 think about the progress of inflation, and do you have 0:09:18.480 --> 0:09:23.720 some concerns that maybe it's not transitory. Well, I think 0:09:24.040 --> 0:09:27.440 watching the level of inflation right now certainly has gotten 0:09:27.440 --> 0:09:30.520 my attention. It's gotten the attention of many households and 0:09:30.559 --> 0:09:34.080 businesses in my region that frankly hadn't had to think 0:09:34.080 --> 0:09:39.320 about inflation for many years in their decision making, So 0:09:39.400 --> 0:09:42.880 it's not something to ignore by any means. Having said that, 0:09:43.320 --> 0:09:46.680 I do think that it is reasonable to assume that 0:09:46.760 --> 0:09:51.000 what we're seeing right now is coming from the combination 0:09:51.280 --> 0:09:57.199 of robust demand running up against supply constraints, and that 0:09:57.280 --> 0:10:01.520 of course is keeping upward pressure on prices over time. 0:10:01.720 --> 0:10:05.360 I would expect that to moderate, and that I think 0:10:05.440 --> 0:10:08.840 is a reasonable assumption to make. But that, of course 0:10:08.880 --> 0:10:13.120 will depend on a variety of other factors. To what extent, UH, 0:10:13.320 --> 0:10:17.079 does risk from the virus affect those supply chains, will 0:10:17.120 --> 0:10:20.720 they become more persistent? Will it begin to build into 0:10:20.760 --> 0:10:24.560 people's expectations in a way that will cause us to 0:10:24.600 --> 0:10:29.680 have to rethink that policy accommodation UH different than we 0:10:29.720 --> 0:10:33.640 are today. You've always been on the lookout for inflation 0:10:33.640 --> 0:10:36.439 and one of the first to warn about the possibilities. 0:10:36.640 --> 0:10:39.320 So I'm wondering if you think we would have time 0:10:39.440 --> 0:10:41.600 or you would have time since I don't have a vote, 0:10:42.120 --> 0:10:45.320 you would have time to react if inflation proved not 0:10:45.440 --> 0:10:48.040 to be transitory and that you're not behind the curve. 0:10:50.240 --> 0:10:52.560 So it's hard to say today, given where we are 0:10:52.600 --> 0:10:56.959 in this recovery, Certainly the Committee has the tools it 0:10:57.000 --> 0:11:01.319 needs to respond to inflation. That, of course, is always 0:11:01.360 --> 0:11:05.199 a function of understanding what's going on in the broader economy, 0:11:05.280 --> 0:11:08.960 and it's hard to judge, but I think, uh, no 0:11:09.000 --> 0:11:12.680 one should question that the Committee is committed that I'm 0:11:12.720 --> 0:11:16.200 committed to a two percent inflation objective over the long 0:11:16.320 --> 0:11:20.040 run for the economy, and we'll just have to see 0:11:20.400 --> 0:11:26.280 how this transition in the economy from a terrible pandemic 0:11:26.360 --> 0:11:31.160 shock to beginning to recover from that unfold. I have 0:11:31.200 --> 0:11:35.000 to ask you one last question on a fiscal side, uh, 0:11:35.120 --> 0:11:40.240 leaving aside the merits and the partisan issues involved in 0:11:40.480 --> 0:11:43.560 the budget that was just passed by Congress, do you 0:11:43.640 --> 0:11:47.480 worry that billions more, hundreds of billions of more in 0:11:47.840 --> 0:11:53.120 UH spending would be inflationary? So I think the question 0:11:53.200 --> 0:11:57.280 of fiscal spending is one that I'm going to defer 0:11:57.400 --> 0:12:01.400 to fiscal policy makers. UH, to a judge, I think 0:12:01.440 --> 0:12:06.520 as a monetary policy maker, I will be watching carefully 0:12:06.640 --> 0:12:10.640 any number of impacts our economy, including fiscal spending, to 0:12:10.720 --> 0:12:14.920 understand how it might change the dynamics for how we 0:12:15.080 --> 0:12:18.880 achieve the objectives that Congress has given us. I actually 0:12:18.880 --> 0:12:20.920 have one more question, and that is you talked about 0:12:21.000 --> 0:12:24.599 the great guest lineup you have. There's one in particular 0:12:24.800 --> 0:12:28.280 that everybody wants to hear from. UH. The minutes of 0:12:28.280 --> 0:12:31.560 the last meeting said no decisions were made. So I'm 0:12:31.600 --> 0:12:34.040 wondering what we should expect from the chairman. Is he 0:12:34.080 --> 0:12:39.000 going to be giving us guidance or opinion? Well, the 0:12:39.080 --> 0:12:42.240 Chairman has not shared his remarks with me, so I 0:12:42.280 --> 0:12:45.040 could not honestly tell you what he'll be offering, but 0:12:45.120 --> 0:12:49.080 I'm sure it will be worth listening to. From the Midwest, 0:12:49.200 --> 0:12:51.720 esther George and the Kansas City Fed and a decidedly 0:12:51.920 --> 0:12:54.640 different president. Of fact, she does not have a PhD 0:12:54.640 --> 0:12:58.000 in economics. Think James Bullard and many others who do, 0:12:58.640 --> 0:13:02.000 but just to simply do front path replacing Thomas Hunting. 0:13:08.200 --> 0:13:10.480 Do we start strong at this hour of surveillance with 0:13:10.559 --> 0:13:15.439 Russ coaster Ridge, with black Rock Global Allocation fund portfolio manager, 0:13:15.559 --> 0:13:18.600 someone who really can synthesize the moment. Russ, why do 0:13:18.720 --> 0:13:20.960 I want to own bonds? I just don't get it. 0:13:21.040 --> 0:13:24.040 When I see where yields are your short duration, I 0:13:24.080 --> 0:13:27.720 get that, But what is the waiting of bonds right now? 0:13:27.880 --> 0:13:32.000 Or do you just run to dividend growth? You know, 0:13:32.080 --> 0:13:34.920 if you're talking about traditional treasury bombs, there not a 0:13:34.920 --> 0:13:38.200 lot of reasons. Uh. You know, obviously the income is 0:13:38.240 --> 0:13:40.160 not there, and what we think yields are gonna back 0:13:40.200 --> 0:13:42.439 up a little bit by your end, you're still getting 0:13:42.440 --> 0:13:45.920 a very paltry yield. The reason you held them for 0:13:46.080 --> 0:13:49.120 much the last ten twenty years was they act as 0:13:49.120 --> 0:13:53.200 a risk ntigant. They had a reliably negative correlation with stocks. 0:13:53.679 --> 0:13:57.000 They provided some downside protection the portfolio, Thomas, you know 0:13:57.040 --> 0:13:59.679 they're not doing that right now. We've seen at the 0:13:59.720 --> 0:14:03.079 correlation has been somewhere between positive and zero for much 0:14:03.120 --> 0:14:05.440 of the last six to nine months. And honestly, there 0:14:05.440 --> 0:14:07.920 are other ways to think about risk mitigation, whether it's 0:14:07.960 --> 0:14:11.320 being long the dollar, whether it's using volatilities and asset 0:14:11.320 --> 0:14:14.800 class So the short answer your questions, I think today 0:14:14.840 --> 0:14:17.000 other than parts of the bond market, whether you're talking 0:14:17.040 --> 0:14:21.040 about e M debt or securitized that offers some yield, 0:14:21.440 --> 0:14:23.040 you own a lot less bonds than you used to. 0:14:23.520 --> 0:14:27.280 RUSS ten Equity markets continue to rally if treasury yields 0:14:27.280 --> 0:14:29.800 ten year treasure yields go up to one point five 0:14:30.400 --> 0:14:35.440 one in short order. Absolutely, I mean, I think you 0:14:35.480 --> 0:14:37.480 know this, this is the big question. But if you 0:14:37.520 --> 0:14:40.440 go back and you look at history, you've actually seen, 0:14:40.520 --> 0:14:42.920 you know, contrary to what a textbook would tell you, 0:14:43.480 --> 0:14:47.400 that multiples in real rates in the US have tended 0:14:47.440 --> 0:14:49.960 to co move together. And there's a simple reason for that. 0:14:50.040 --> 0:14:53.160 It's because when you see that modest rise and really yields, 0:14:53.160 --> 0:14:56.280 particularly from these you know, absurdly low levels, it's come 0:14:56.320 --> 0:14:59.560 in the context of a better economy, better earnings growth, 0:14:59.640 --> 0:15:02.640 and that's environment where both equities and multiples tend to 0:15:02.640 --> 0:15:05.560 be solid. So I don't think the ten year in 0:15:05.720 --> 0:15:08.880 one five, one six, one seven is a big threat 0:15:08.880 --> 0:15:11.360 to the equity rally. If anything, I think the tenure 0:15:11.480 --> 0:15:14.760 one five, one six, one seven tells you monetary policy 0:15:14.840 --> 0:15:17.640 is getting a bit more rational and the economy solid 0:15:17.640 --> 0:15:21.320 and ermine's growth it's likely to remain strong. RUS what 0:15:21.440 --> 0:15:24.040 does a policy mistake look like right now? From the FED? 0:15:24.120 --> 0:15:27.400 So there's an interesting HSBC notes saying, actually, the inflation 0:15:27.880 --> 0:15:30.760 is transitory, but it's the biggest danger at and that 0:15:30.920 --> 0:15:33.520 now that at any point since the central banks became 0:15:33.600 --> 0:15:38.200 independent in the nine nineties. You know, I think there 0:15:38.440 --> 0:15:42.359 is this question about you know, inflation I believe is transitory. 0:15:42.480 --> 0:15:45.120 But because we've spoken about in the past, transitory can 0:15:45.160 --> 0:15:48.840 be a long time. Transitory can last six, nine, twelve months, 0:15:48.920 --> 0:15:53.320 given the inflationary pressures you have. So getting some clarity 0:15:53.520 --> 0:15:58.040 about tapering, getting some clarity about how long that's going 0:15:58.120 --> 0:16:00.960 to last. I think the FED would do well to 0:16:01.200 --> 0:16:05.360 start soon, give themselves the optionality to be able to 0:16:05.480 --> 0:16:08.480 raise rates in late two thousand twenty two if inflation 0:16:08.520 --> 0:16:12.000 remains more persistent than they think that would be healthy 0:16:12.040 --> 0:16:14.480 at this point in the cycle. Whereas very quickly here 0:16:14.600 --> 0:16:18.080 I've lost track and I'm fascinated with what you think. 0:16:18.600 --> 0:16:21.080 What's the bet of the street right now? Are we 0:16:21.480 --> 0:16:25.960 way overweighted in equities? Are we are hedgephones loading the 0:16:26.040 --> 0:16:29.440 boat on equities? What's that tone in the malaise of August? 0:16:31.240 --> 0:16:33.160 It's Tim's really interesting. We spend a lot of time 0:16:33.240 --> 0:16:36.360 on this and you come to different conclusions. Up, clearly, 0:16:36.560 --> 0:16:39.200 people have been buying stocks. The flows have been very strong, 0:16:39.280 --> 0:16:41.640 but there was a very long periods we know, when 0:16:41.680 --> 0:16:45.680 flows were persistently negative in stocks and people were buying bombs. 0:16:46.200 --> 0:16:48.280 We look at other measures, We look at some of 0:16:48.360 --> 0:16:51.400 the surveys, Uh, some of the retail surveys. They're not 0:16:51.520 --> 0:16:54.600 that bullosh. So look, I think people are long equities. 0:16:55.040 --> 0:16:57.760 It's not obvious that you have the extreme crowding that 0:16:57.840 --> 0:17:00.040 you had earlier in the year. And the reasons of 0:17:00.120 --> 0:17:03.400 that is we've seen these violent rotations. You know, in 0:17:03.560 --> 0:17:06.280 most of two thousand twenty when stocks were rebounded, it 0:17:06.359 --> 0:17:09.560 was all about secular growth. Then it moved to cyclicals. 0:17:09.920 --> 0:17:12.200 Now it's tilted about a little bit back towards growth. 0:17:12.280 --> 0:17:15.159 So while the markets continue to grind higher in this 0:17:15.440 --> 0:17:17.920 very steady fashion, you know, as you as you well know, 0:17:18.520 --> 0:17:21.880 under the surface, you've had some very violent rotations which 0:17:21.880 --> 0:17:24.439 in my opinion, have kept parts of the market from 0:17:24.480 --> 0:17:27.160 getting as crowded as they might be. Russ, How concerned 0:17:27.200 --> 0:17:29.760 are you that we saw the first decline in leveraged 0:17:29.920 --> 0:17:33.480 and borrow money to buy stocks going back to the 0:17:33.560 --> 0:17:37.399 beginning of the pandemic, the idea that suddenly people are 0:17:37.480 --> 0:17:41.359 reducing their riskiness or at least how leverage their speculative 0:17:41.400 --> 0:17:45.720 positions are. Honestly, I think it's healthy. I was probably 0:17:45.720 --> 0:17:47.919 a bit more concerned earlier in the year when leverage 0:17:48.000 --> 0:17:51.840 levels were were extremely high, when you had, you know, 0:17:52.000 --> 0:17:55.840 these enormous surges in volume for small and MidCap names 0:17:56.000 --> 0:17:59.520 that were trading not on fundamentals but purely un momentum, 0:17:59.520 --> 0:18:02.800 When you saw all of the meme stocks just erupting 0:18:02.920 --> 0:18:06.240 higher without any good reason. Uh. If anything, the market 0:18:06.280 --> 0:18:07.840 has actually calmed down a bit. And one of the 0:18:07.960 --> 0:18:11.200 really interesting things is if you look at again, what's 0:18:11.240 --> 0:18:15.240 been working, uh, since February, since March, since yields peaked, 0:18:15.600 --> 0:18:19.119 he moved away from some of the more speculative parts 0:18:19.520 --> 0:18:22.280 of the market, and you've actually moved towards quality. You know, 0:18:22.359 --> 0:18:25.800 what's worked in the last six months has been companies 0:18:25.920 --> 0:18:29.440 that are profitable that if consistent earnings with modest leverage. 0:18:29.720 --> 0:18:33.840 To me, that's a healthy sign that fundamentals all reasserting themselves. Russ, 0:18:33.880 --> 0:18:36.080 thank you so much. Russ Coster to us with black 0:18:36.200 --> 0:18:47.399 Rock on a global allocation fund portfolio manager. This is 0:18:47.560 --> 0:18:52.560 the important conversation today of your emotion of what to do? 0:18:52.840 --> 0:18:55.440 You know the cliche, there's a wall of worry, and 0:18:55.560 --> 0:18:58.159 Darryl Cronk is esteemed and able to write about it 0:18:58.680 --> 0:19:03.480 wells Fargo, here is there, Investment Officer, Darryl, I love, love, 0:19:03.920 --> 0:19:06.560 love your note because you go to the emotion of this. 0:19:07.040 --> 0:19:10.679 Forget about Fabozzi, forget about the textbooks, forget about all 0:19:10.720 --> 0:19:13.840 the fancy stuff you say. Here are the worries. You 0:19:13.920 --> 0:19:17.320 gotta fade these, You gotta follow closely these, and you 0:19:17.400 --> 0:19:19.840 gotta fear these. Let's start with fade. What do I 0:19:19.960 --> 0:19:23.400 fade here? And the worries that I can ignore? Well, 0:19:23.440 --> 0:19:25.359 I think there's a good morning Tom first of all, 0:19:25.400 --> 0:19:27.680 and good morning Lisa and Francy. So I think there's 0:19:27.680 --> 0:19:30.040 a number of them that you can actually fade. This 0:19:30.160 --> 0:19:32.679 one may be a little controversial, but I think from 0:19:32.720 --> 0:19:35.880 an economic and capital market standpoint, delta is one of those. 0:19:36.119 --> 0:19:37.840 You can't fade it from a health standpoint, but I 0:19:37.880 --> 0:19:41.320 think you can fade it from the economy. Uh. Just 0:19:41.520 --> 0:19:44.680 note the up in the SMP fifty one new eyes 0:19:45.280 --> 0:19:48.240 um that was just discussed. You know, there's just there's 0:19:48.280 --> 0:19:53.679 some violent rotation under the surface from growth to um 0:19:54.200 --> 0:19:59.040 cyclicals to bond proxies and back again. But beyond that 0:19:59.359 --> 0:20:02.680 market still move higher. I would watch the debt ceiling. 0:20:02.680 --> 0:20:06.240 I think you've got to fear the debt ceiling. UM. Yeah, 0:20:07.119 --> 0:20:09.520 September is going to be a white knuckle events. I mean, 0:20:09.560 --> 0:20:12.120 you've got a whole bunch of things going on there 0:20:12.240 --> 0:20:16.960 with the budget resolution, You've got perhaps the uh, certainly 0:20:17.000 --> 0:20:19.719 the debt ceiling, and we're in extraordinary measures. You've got 0:20:20.080 --> 0:20:22.680 the reinstatement of Powell, Darryl. This is important. I want 0:20:22.680 --> 0:20:24.800 to underscore this September is going to be a white 0:20:24.880 --> 0:20:27.320 knuckle month at a time when we have all bears 0:20:27.359 --> 0:20:29.600 basically blown out of the water and everyone trying to 0:20:29.680 --> 0:20:32.359 get more bullish and absolutely everything. Do you think that 0:20:32.440 --> 0:20:35.040 this is a problem setting up for sort of a 0:20:35.200 --> 0:20:39.480 perfect storm, if you will, in the next few weeks. Yeah, 0:20:39.560 --> 0:20:41.840 I do think it. I think it's going to be 0:20:41.880 --> 0:20:43.600 a lot of headlines. I guess that's what i'd say. 0:20:43.640 --> 0:20:46.080 You've got You've got the bipartisan infrastructure package, You've got 0:20:46.119 --> 0:20:48.840 a three and a half trillion dollar spending budget legislation, 0:20:48.880 --> 0:20:51.439 You've got a potential government shutdown, You've got the debt ceiling, 0:20:51.480 --> 0:20:54.200 and you've got the reappointment of uh FED chair Powell, 0:20:54.560 --> 0:20:57.680 all of which has to get somehow resolved in progress 0:20:57.760 --> 0:21:01.879 in September. We know where the politics are, so this 0:21:02.040 --> 0:21:04.400 is a real risk. You'll remember, you know, ten years 0:21:04.440 --> 0:21:07.080 ago this month was it was August two thousand eleven 0:21:07.119 --> 0:21:09.199 when we downgraded the U S debt as a result 0:21:09.240 --> 0:21:13.200 of the standoff. So um that had a decline in 0:21:13.240 --> 0:21:17.480 consumer confidence, in a decline in the SMP. So. Look, 0:21:17.760 --> 0:21:20.000 I think at the end they do find some resolution, 0:21:20.200 --> 0:21:22.280 but it's not going to be without some of those 0:21:22.280 --> 0:21:24.560 white knuckle events. And I think it's going to create 0:21:24.600 --> 0:21:28.879 a September to remember out of Washington. I like that 0:21:29.000 --> 0:21:32.440 September to remember how much white knuckle events will come 0:21:32.600 --> 0:21:35.840 from currency volatility and actually, how will that if we 0:21:36.000 --> 0:21:38.919 have a volatile dollar going into a FED meeting, how 0:21:39.040 --> 0:21:43.240 much will that wipen it up? Um. We actually think 0:21:43.280 --> 0:21:46.080 the dollar is is kind of in a near term peak. 0:21:46.119 --> 0:21:47.960 We think it's in a longer term kind of channel 0:21:48.000 --> 0:21:51.640 sideways trend, but a near term peak with some weakening here, 0:21:52.000 --> 0:21:53.920 which is part of the reason you're getting a little 0:21:53.960 --> 0:21:57.600 bit of that bullish sentiment. People are turning things back on. 0:21:58.080 --> 0:22:00.240 I think what's interesting here, though, is if you get 0:22:00.280 --> 0:22:03.320 under the surface, right, pay attention. I'm paying attention to 0:22:03.480 --> 0:22:07.800 high yield spreads and credit oss. They're up fifty basis 0:22:07.840 --> 0:22:11.240 points in the last six weeks, right, there's they're quietly 0:22:11.359 --> 0:22:13.639 leaking higher, right, so we need to pay attention to that. 0:22:14.280 --> 0:22:16.880 You've got merging markets are now negative year to date, 0:22:16.960 --> 0:22:19.560 and you've got copper and oil both off double digits 0:22:19.920 --> 0:22:21.720 from their previous highs. So there are some things we 0:22:21.760 --> 0:22:24.479 gotta pay attention to there. Darryl Cronic, thank you so much. 0:22:24.520 --> 0:22:26.480 Too short of visit. We got to this longer next time. 0:22:26.520 --> 0:22:36.720 With Wells Fargo, their chief investment officer, what you want 0:22:36.760 --> 0:22:41.120 to hear about is the equity market dowty thousand, four 0:22:41.240 --> 0:22:44.680 zero five. Sam stove All a few years ago was 0:22:44.760 --> 0:22:48.280 sitting on an acclaimed father's lap considering the Dow at 0:22:48.320 --> 0:22:51.640 three fifty or whatever it was back then. With CFRE 0:22:51.800 --> 0:22:56.240 and their chief investment strategies, Sam, we get heated mail 0:22:56.640 --> 0:22:59.800 when we talked to bulls. What's the level of your 0:22:59.800 --> 0:23:04.760 bullish belief right now? Well, good morning, Tom, and thank 0:23:04.800 --> 0:23:07.440 you for that intro yeah, I never crushed my father's lap, 0:23:07.520 --> 0:23:09.520 but uh, good thing I haven't sat on it in 0:23:09.560 --> 0:23:12.760 a while. Uh. Anyway, you know, the feeling is that 0:23:12.920 --> 0:23:17.280 the path of least resistance continues to be higher. Even 0:23:17.359 --> 0:23:19.800 though we have seen a creeping up of the ten 0:23:19.880 --> 0:23:24.560 year yield, we're still seeing investors gravitating toward the growth 0:23:24.640 --> 0:23:29.760 side of the equation, also looking toward real estate, etcetera. So, uh, 0:23:30.680 --> 0:23:34.160 twenty is our target? You have you have at least 0:23:34.200 --> 0:23:36.119 a Please go ahead. I'm sorry my fault. No, no, 0:23:36.240 --> 0:23:38.240 I mean Sam and no, no worries. It's just you know, 0:23:38.280 --> 0:23:40.800 I got to jump in because you talk about forty hundred. 0:23:40.840 --> 0:23:43.280 You sound like a bear. I mean, honestly, this is 0:23:43.320 --> 0:23:45.600 a market where people can't get bullish enough. And are 0:23:45.640 --> 0:23:48.480 you also thinking five thousand, six thousand, seven thousand and 0:23:48.560 --> 0:23:53.560 projecting out incredible earnings and returns for the foreseeable future. Well, 0:23:53.640 --> 0:23:56.200 what's the old saying? You you target a price but 0:23:56.359 --> 0:23:59.399 not a date, or you pet forecast a date but 0:23:59.600 --> 0:24:03.000 not a rice. Uh so, yes, those numbers that you 0:24:03.119 --> 0:24:06.280 mentioned will be attained at sometime down the road. But 0:24:06.400 --> 0:24:08.920 I think we also have to make sure that we 0:24:09.119 --> 0:24:12.800 are risk mitigators at the same time, we've gone three 0:24:12.880 --> 0:24:16.159