WEBVTT - The Case for a Soft Landing 0:00:13.840 --> 0:00:17.079 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.160 --> 0:00:19.800 My name is Mike Reagan, I'm a senior editor at Bloomberg, 0:00:19.920 --> 0:00:23.319 and I'm Valdonna, hired across asset reporter with Bloomberg. And 0:00:23.400 --> 0:00:26.120 this week on the show, Well, it was the first 0:00:26.120 --> 0:00:28.680 time in more than two decades that the Federal Reserve 0:00:28.760 --> 0:00:32.160 raised interest rates by half a percentage point. But all 0:00:32.200 --> 0:00:34.640 it took was just a little hint of dovishness from 0:00:34.720 --> 0:00:38.800 chair j Palell to get the stock market roaring. He 0:00:38.880 --> 0:00:42.200 indicated it's unlikely that the federal increase rates by seventy 0:00:42.280 --> 0:00:45.680 five basis points during this cycle and the SMP shot 0:00:45.720 --> 0:00:49.120 up about three. So is that it is that all 0:00:49.120 --> 0:00:51.040 it took to set up bottom in the stock market. 0:00:51.640 --> 0:00:54.360 We'll talk about it this week with a Wall Street strategist. 0:00:54.720 --> 0:00:57.640 But first, Vildanna, I have to ask one thing before 0:00:57.640 --> 0:01:01.280 we get started, All Ears, did you have any nicknames 0:01:01.280 --> 0:01:04.920 in high school? Um? Why wait wait wait stop stop 0:01:04.920 --> 0:01:10.360 stop stop? Do not reveal your high school nicknames? Why 0:01:09.440 --> 0:01:13.959 you don't understand why? At this point of the show, 0:01:14.880 --> 0:01:18.640 the veteran podcast co host and listener of What Goes Up, 0:01:19.520 --> 0:01:23.520 nicknames are a very valuable commodity on this podcast. I 0:01:23.520 --> 0:01:28.080 think we got about a hundred reviews on Apple podcasts 0:01:28.240 --> 0:01:31.840 when I promised to reveal my high school nickname and 0:01:31.959 --> 0:01:35.640 I realized we are ratings and reviews have slowed down 0:01:35.680 --> 0:01:37.559 on Apple podcast, so I think we need to leverage 0:01:37.600 --> 0:01:40.520 your high school nickname. How long are you holding your hostage? 0:01:40.720 --> 0:01:42.920 A hundred more ratings. I think I got about seventy 0:01:43.240 --> 0:01:47.640 ratings on the on Apple podcast. So go ahead, listeners, 0:01:47.680 --> 0:01:49.760 if you want to hear Voldonna's high school nickname, you 0:01:49.840 --> 0:01:52.000 have to go and give us a rating on Apple podcast. 0:01:52.080 --> 0:01:55.360 We're not saying it has to be a five star rating. Uh, 0:01:55.440 --> 0:01:57.720 even though you know, maybe maybe that's what you want 0:01:57.720 --> 0:01:59.520 to give us. I don't know, but go rate, rate, 0:01:59.560 --> 0:02:01.840 review the show and I think we get a hundred more. 0:02:01.880 --> 0:02:06.720 Will will reveal you're holding the listeners hostage. No, no, no, 0:02:06.880 --> 0:02:10.840 I'll have to go and click that five stars, however 0:02:10.919 --> 0:02:12.720 many stars you want to click. I'm not saying it 0:02:12.720 --> 0:02:17.239 has to be five stars, not making any prerequisites. I 0:02:17.400 --> 0:02:19.679 will have no idea what they actually hit, how many 0:02:19.680 --> 0:02:21.840 stars they hit, but it's going to get the numbers 0:02:21.880 --> 0:02:25.600 going so more listeners can find the show and Uh, 0:02:25.880 --> 0:02:27.560 find out what you think about it, especially if you 0:02:27.600 --> 0:02:30.280 have a good a good review for us. You know 0:02:30.320 --> 0:02:33.360 who else we're holding hostage our guest this week. I 0:02:33.360 --> 0:02:37.840 realized this week he's probably having second thoughts about about 0:02:37.840 --> 0:02:40.800 English but joining this podcast. Yeah exactly. Oh, he might 0:02:40.840 --> 0:02:44.160 not even be on the zoom call anymore. I think 0:02:44.160 --> 0:02:47.320 he's still there. He is. I want to welcome Jeremy's 0:02:47.360 --> 0:02:50.040 here and he's senior portfolio manager and head of private 0:02:50.080 --> 0:02:53.600 client US Equities at ubs ASCID Management. Jeremy, welcome to 0:02:53.639 --> 0:02:57.000 the show. Thanks for having me out. And if you 0:02:57.000 --> 0:02:59.919 need a nickname for me. The other jay Z works 0:03:00.120 --> 0:03:03.880 is fine, that's pretty good. One, that's really good. All right, 0:03:03.919 --> 0:03:05.640 you'll be jay Z the rest of the rest of 0:03:05.639 --> 0:03:09.760 this podcast. But tell us, you know, what is your 0:03:09.840 --> 0:03:14.840 takeaway from this FED meeting this week? I mean, obviously, 0:03:14.880 --> 0:03:18.280 a relief rally in the market. Uh SMP up three 0:03:18.919 --> 0:03:22.639 in a matter of minutes after Pal indicated that seventy 0:03:22.680 --> 0:03:25.760 basis points was most likely off the table. Also some 0:03:25.840 --> 0:03:28.680 comments suggesting that, you know, a soft landing in the 0:03:28.720 --> 0:03:35.240 economy amid rising FED rates is not necessarily unthinkable. Uh. 0:03:35.520 --> 0:03:37.680 You know, he indicated to be tricky but he doesn't 0:03:37.680 --> 0:03:40.840 think it's possible. I mean, was it just that was 0:03:40.960 --> 0:03:43.280 a real relief rally. Do you think we'll give it 0:03:43.320 --> 0:03:47.200 all back in coming days or we're um or is 0:03:47.240 --> 0:03:49.320 that really the type of thing that could help the 0:03:49.360 --> 0:03:53.119 market set a bottom after this ugly start to a year. Look, 0:03:53.120 --> 0:03:55.120 I think the markets are going to remain shoppy, but 0:03:55.720 --> 0:03:58.600 I do think that the Federals are being very clear 0:03:58.640 --> 0:04:02.840 that they're not con conto inflating far more aggressive tightening 0:04:03.320 --> 0:04:06.240 was certainly helpful in terms of thinking about the future 0:04:06.240 --> 0:04:09.280 path of monetary policy and just reducing what a lot 0:04:09.320 --> 0:04:12.880 of investors fear is a policy mistake tightening too quickly 0:04:13.080 --> 0:04:15.960 in the context of a slowing economy. I also think 0:04:16.000 --> 0:04:19.239 one of the statements that was really interesting was that 0:04:19.680 --> 0:04:22.480 you know, Federal you know s Propell said that he 0:04:22.600 --> 0:04:26.160 will strive to avoid adding uncertainty to what is already 0:04:26.200 --> 0:04:29.720 an extraordinarily challenging and uncertain time. Right. So it's not 0:04:29.800 --> 0:04:31.720 just that they didn't tighten as much or they're not 0:04:31.760 --> 0:04:35.799 contemplating tightening as much as feared, but it was also 0:04:35.920 --> 0:04:38.640 they want to be predictable, They want to be very 0:04:38.720 --> 0:04:42.560 clear on what they're doing and not surprised the market, 0:04:42.839 --> 0:04:45.360 and so to the extent that the market already has 0:04:45.480 --> 0:04:47.640 lots of things to worry about that are hard to predict, 0:04:47.839 --> 0:04:51.240 write the war in Ukraine, COVID outbreaks in China, out 0:04:51.279 --> 0:04:53.760 just you know, will we see peak inflation in the 0:04:53.839 --> 0:04:56.080 first half of this year? You know, the Federal Reserve 0:04:56.120 --> 0:05:00.840 is trying to reduce one of those uncertainties. Jermy, can 0:05:00.839 --> 0:05:04.720 you talk about the idea of I mean, wouldn't Pal 0:05:04.920 --> 0:05:08.000 sort of want the idea of a seventy five basis 0:05:08.120 --> 0:05:10.920 point hike at least like floating out there as this 0:05:11.000 --> 0:05:14.920 sort of fear because it helps tighten financial conditions. Whereas 0:05:14.920 --> 0:05:18.240 if we have stocks and other risky acids rallying, financial 0:05:18.240 --> 0:05:21.880 conditions are are are going to to ease or loosen. 0:05:22.080 --> 0:05:25.400 So can you talk about why he felt the need 0:05:26.240 --> 0:05:29.400 to to quash the idea of a seventy five basis 0:05:29.440 --> 0:05:32.760 point hike. Yeah, I think it's pretty straightforward. I think 0:05:32.800 --> 0:05:36.640 that financial conditions have tightened. Right. We've seen a dramatic 0:05:36.720 --> 0:05:40.200 increase in the two year the ten year, and real 0:05:40.279 --> 0:05:43.680 interest rates that have gone from deeply negative territory just 0:05:43.800 --> 0:05:46.680 three months ago to positive territory from the first time 0:05:46.680 --> 0:05:50.159 since before the pandemic, and so, you know, I think 0:05:50.160 --> 0:05:53.760 that that has a tricky balancing act to handle. I mean, 0:05:53.800 --> 0:05:58.480 we certainly have seen some of the growth indicators soften, 0:05:59.080 --> 0:06:01.000 uh during the first week of this month, with the 0:06:01.000 --> 0:06:04.320 I s M both manufacturing and non manufacturing index, you know, 0:06:04.400 --> 0:06:07.359 coming off the boil. And so I think this was 0:06:07.400 --> 0:06:09.680 just a matter of you know, the Fed saying, look, 0:06:09.839 --> 0:06:12.359 financial conditions are tightening, we have are high on the 0:06:12.360 --> 0:06:17.279 ball in terms of trying to balance our dual mandate 0:06:17.640 --> 0:06:21.159 and that you know, given you know, market positioning, which 0:06:21.200 --> 0:06:24.000 was horrendous right over the last month, with you know, 0:06:24.040 --> 0:06:27.760 the SMP dropping on early ten percent last month. UM, 0:06:27.800 --> 0:06:32.000 this was just the Powell's attempt to try to balance 0:06:32.040 --> 0:06:35.279 and square that equation. You know. Jeremy, you mentioned that 0:06:35.320 --> 0:06:38.600 you think markets will remain choppy on some of the 0:06:38.640 --> 0:06:41.840 outlook notes you sent over to us. Uh, you indicated 0:06:41.839 --> 0:06:43.359 that you think yes, and people probably be in a 0:06:43.400 --> 0:06:47.479 trading range over the next few months. UM, as investors 0:06:47.480 --> 0:06:51.279 wrestle with all these cross currents. Uh, how do you 0:06:51.400 --> 0:06:55.000 play that as a portfolio managers a strategist, I mean, 0:06:55.040 --> 0:06:57.280 is it just kind of hold what you have and 0:06:57.839 --> 0:07:01.000 you know, wait, for this this phase to be overs there. 0:07:01.040 --> 0:07:03.960 You know, it doesn't make sense to try to play 0:07:04.000 --> 0:07:06.680 that range at all, or is that just too risky? 0:07:07.120 --> 0:07:09.320 I think it's hard to sort of a so called 0:07:09.320 --> 0:07:11.960 play the range in terms of the very short term 0:07:12.040 --> 0:07:14.880 just because of the unpredictability of what's happening in some 0:07:14.960 --> 0:07:18.120 of the risk factors that we talked about. UM. Generally, 0:07:18.440 --> 0:07:20.560 you know, we invest for the long term, so we 0:07:20.640 --> 0:07:24.160 own great companies that generate great cash flows and normalized environments, 0:07:24.200 --> 0:07:27.000 and so we don't worry too much about you know, 0:07:27.120 --> 0:07:30.520 thinking about you know, we're in the range of a 0:07:30.600 --> 0:07:34.800 tactical positioning. We are, although when opportunities arise, I think 0:07:34.840 --> 0:07:38.840 that you do want to tilt portfolios to take advantage 0:07:38.840 --> 0:07:42.640 of some areas that could be attractive. Uh, you know, certainly, 0:07:42.840 --> 0:07:45.280 you know, we think and we've been positioned more towards 0:07:45.520 --> 0:07:49.760 the value segments of the market over the past several months, 0:07:50.320 --> 0:07:52.640 believing that we are in a tightening cycle. We are 0:07:52.640 --> 0:07:56.280 in a rising rate environment and with elevated valuations and 0:07:56.400 --> 0:07:58.920 some of the secular growth areas of the market that 0:07:59.120 --> 0:08:03.720 you value reopening plays are you know, the most interesting 0:08:03.760 --> 0:08:06.280 and offer the best reward in the market. So when 0:08:06.440 --> 0:08:10.320 segments within those categories sell off because of you know, 0:08:10.400 --> 0:08:14.720 near term concerns, we get more interested in and tend 0:08:14.760 --> 0:08:17.240 to back those positions. But would you want if I 0:08:17.280 --> 0:08:19.920 just follow up on that and ask, you know, uh, 0:08:20.040 --> 0:08:22.240 what looks like a good value in the market. You know, 0:08:22.280 --> 0:08:24.080 what are the what are the value pockets of the 0:08:24.120 --> 0:08:27.600 market that look attractive at the moment um. But I 0:08:27.600 --> 0:08:29.240 think there's a couple of ways to look at it, right, 0:08:29.280 --> 0:08:31.000 I mean, if you look at it by you know, 0:08:31.040 --> 0:08:33.600 sort of sector and industry, I think it is your 0:08:33.600 --> 0:08:38.120 classic value oriented sectors, So that would be energy, financials, 0:08:38.440 --> 0:08:42.080 you pockets of the consumer discretionary sector, um, where you 0:08:42.160 --> 0:08:46.240 do see you know, just low valuations and just fears 0:08:46.559 --> 0:08:50.080 that the earnings will not be resilient enough and that 0:08:50.160 --> 0:08:54.040 they are you know, potentially value traps. And so you know, 0:08:54.080 --> 0:08:57.560 you look at energy energy right now trading at free 0:08:57.559 --> 0:09:00.800 cash flow yields over ten percent, four per points above 0:09:01.160 --> 0:09:03.640 any other sector in the market. So there's clear fear 0:09:03.720 --> 0:09:07.600 that you know, the oil prices will normalize or go 0:09:08.120 --> 0:09:11.760 be lower over the next six twelve, twenty four months. 0:09:11.880 --> 0:09:14.400 And just given you know how tight oil markets are, 0:09:14.559 --> 0:09:17.520 limited supply just the under investment in the sector for 0:09:17.559 --> 0:09:20.120 the past five to six years. It does look like 0:09:20.200 --> 0:09:22.559 there's you know, even though the sector has done phenomenally 0:09:22.600 --> 0:09:25.760 well over the last twelve to fifteen months or so, 0:09:26.040 --> 0:09:28.560 I think that there's more upside and markets are still 0:09:28.880 --> 0:09:31.760 you know, cautious on the long term outlook. I think 0:09:31.760 --> 0:09:36.040 financials also look attractive here in certain areas. Um You know, 0:09:36.160 --> 0:09:39.240 if what's been interesting is that, you know, the financials 0:09:39.240 --> 0:09:41.440 have traded sort of in line with the tenure treasury 0:09:41.480 --> 0:09:44.319 up until about two months ago, and that's been a 0:09:44.400 --> 0:09:47.480 there's there's been a pretty big disconnect between the performance 0:09:47.480 --> 0:09:51.680 of financials and interest rates, meaning that financials haven't kept 0:09:51.760 --> 0:09:53.920 up with the pace of interest rates. And I think 0:09:53.920 --> 0:09:55.880 a lot of this is on fears of a hard 0:09:55.960 --> 0:09:58.679 landing and fears that you know, credit is going to 0:09:58.760 --> 0:10:02.680 be a problem, and that if we do have uh 0:10:02.760 --> 0:10:05.199 an extension of the economic cycle and that that is 0:10:05.240 --> 0:10:08.960 able to orchestrate a soft or soft dish landing, then 0:10:09.240 --> 0:10:11.480 you know, financial should perform very well in this type 0:10:11.480 --> 0:10:15.160 of environment. And then also I think you like a 0:10:15.200 --> 0:10:17.600 lot of the reopening place that are tied to the 0:10:17.640 --> 0:10:21.240 travel industry, the hotel leisure that type of stuff. If 0:10:21.280 --> 0:10:23.040 you could talk about that. I know, we had some 0:10:23.120 --> 0:10:26.480 really good earnings from the likes of Airbnb earlier and 0:10:27.040 --> 0:10:29.480 I think it was earlier this week. Speek feels really long, 0:10:29.559 --> 0:10:32.760 but um, but you to like some of those, right, 0:10:33.200 --> 0:10:35.440 I do? Right, Like, So, if you think about across 0:10:35.440 --> 0:10:39.439 you know, across sectors where there's good value, I would 0:10:39.440 --> 0:10:44.160 say it's in you know, industries where their earnings were 0:10:44.200 --> 0:10:48.319 impaired because of COVID and their catch up trades, because 0:10:48.360 --> 0:10:52.720 the market is skeptical that earnings can reach more you know, 0:10:53.160 --> 0:10:56.360 pre COVID levels anytime in the next couple of years. 0:10:56.679 --> 0:10:59.080 And so if you look at some of the travel 0:10:59.720 --> 0:11:03.120 uh um levered stocks, I mean just bookings last night, 0:11:03.360 --> 0:11:06.880 but up I said that room night growth was thirty 0:11:06.920 --> 0:11:10.760 percent higher than two thousand nineteen levels, and so there 0:11:10.840 --> 0:11:16.280 is significant pent up demand for travel for service oriented industries, 0:11:16.960 --> 0:11:19.360 and largely, you know, I think what investors are really 0:11:19.360 --> 0:11:21.560 wrestling with is that we've had this you know, pull 0:11:21.679 --> 0:11:26.200 forward of demand in segments of the economy and you know, 0:11:26.240 --> 0:11:31.600 technology and many goods producing industries, and we've had you know, 0:11:31.640 --> 0:11:34.280 and that was largely just because consumers had cash and 0:11:34.520 --> 0:11:36.800 they needed we're going to spend it, but they couldn't 0:11:36.840 --> 0:11:40.000 spend it on service oriented industries because of health concerns 0:11:40.120 --> 0:11:43.040 or just restrictions. And so now I think we're seeing 0:11:43.280 --> 0:11:46.080 that reverse and it's not a straight line because we 0:11:46.120 --> 0:11:49.480 don't have you know, uh, we still have COVID to 0:11:49.520 --> 0:11:51.640 deal with, not as much as we did, but we 0:11:51.679 --> 0:11:54.600 still are dealing with some some of the effects of COVID. 0:11:55.120 --> 0:11:57.160 Less so in the United States, but you know, still 0:11:57.160 --> 0:12:00.160 seeing the effects in other parts of the world, especially 0:12:00.240 --> 0:12:03.520 in Asia. Um. But I do think that for patient 0:12:03.679 --> 0:12:07.360 capital that the best risk rewards in the market are 0:12:07.440 --> 0:12:12.240 really on those areas that have seen um, you know, 0:12:13.480 --> 0:12:17.160 you know, disruption from COVID that you know, I don't 0:12:17.200 --> 0:12:19.240 know if it's going to be in three to six months, 0:12:19.240 --> 0:12:22.200 but in two to five years are likely to have 0:12:22.520 --> 0:12:24.840 sort of more normal earnings levels and back to trend 0:12:24.880 --> 0:12:28.000 earnings levels that they saw before COVID. Yeah. I think 0:12:28.000 --> 0:12:31.599 it's an interesting dynamic that pent up sort of bottleneck 0:12:31.600 --> 0:12:34.040 and demand that you mentioned. You know, the flip side 0:12:34.040 --> 0:12:36.440 of the coin of that is just you know, consumers 0:12:36.480 --> 0:12:40.280 having this extraordinary amount of savings that you know, the 0:12:40.320 --> 0:12:43.480 likes of which we really never saw in modern times 0:12:43.520 --> 0:12:47.679 before the pandemic um. So to me, it seems like 0:12:47.720 --> 0:12:51.120 that a corporations to you know, corporations balance sheets are 0:12:51.160 --> 0:12:55.599 are so strong, uh coming out of the pandemic um 0:12:55.640 --> 0:13:00.160 that it seems like, you know, the inflationary environment mean 0:13:00.520 --> 0:13:03.319 um is not as sort of a head as big 0:13:03.360 --> 0:13:05.680 of a headwind as it would be otherwise. If you know, 0:13:05.720 --> 0:13:08.440 if the savings rate had not sort of ballooned the 0:13:08.480 --> 0:13:12.679 way it did during the pandemic, how long do you 0:13:12.720 --> 0:13:16.240 think that lasts? Though? How long can that consumer sort 0:13:16.280 --> 0:13:20.000 of draw down those savings um before we sort of 0:13:20.080 --> 0:13:24.800 normalize back to uh, you know, pre pandemic levels of demand. 0:13:24.960 --> 0:13:27.559 Is it, you know, something that could happen quickly or 0:13:27.880 --> 0:13:30.720 is it something that the last perhaps as long as 0:13:30.760 --> 0:13:33.920 the pandemic lasted. Is there any sense from your end 0:13:33.920 --> 0:13:36.920 of of how long we can count on that consumer 0:13:36.960 --> 0:13:40.520 to have the spending power that they do. Yeah, I 0:13:40.559 --> 0:13:45.400 think the market is overestimating just the probability of the 0:13:45.400 --> 0:13:48.120 consumer retrenching. I think it is because of what as 0:13:48.160 --> 0:13:50.559 you mentioned, there is a good amount of pent up savings, 0:13:50.600 --> 0:13:54.920 but more importantly what the highest correlation to consumer spending 0:13:54.920 --> 0:13:58.320 is simply jobs? Right, If if if you have a job, 0:13:58.320 --> 0:14:00.560 you're going to spend. If your way just are going up, 0:14:00.559 --> 0:14:02.080 you're going to spend a little bit more. If you 0:14:02.120 --> 0:14:04.040 have excess savings, you're gonna spend a little bit more. 0:14:04.480 --> 0:14:08.440 But the main, the main focal point for any analysis 0:14:08.520 --> 0:14:11.760 of the outlook for consumer spending is employment. And right 0:14:11.760 --> 0:14:16.000 now labor demand is by far outstripping labor supply. We 0:14:16.040 --> 0:14:19.440 still have labor force participation rates at well below pre 0:14:19.520 --> 0:14:23.320 pandemic levels because a lot of people were fearful of 0:14:23.480 --> 0:14:26.400 entering the labor market because of COVID or couldn't because 0:14:26.400 --> 0:14:29.560 of child care concerns. And so if we get I mean, 0:14:31.120 --> 0:14:33.360 at the end of the day, you know, the consumer 0:14:33.400 --> 0:14:36.680 can stay resilient, and it's not a matter of working 0:14:36.680 --> 0:14:39.600 off savings in my view, it's a matter of whether 0:14:39.760 --> 0:14:43.240 they stay employed. And I think that you know, even 0:14:43.360 --> 0:14:48.480 with that tightening, we're not anywhere close to seeing our 0:14:49.040 --> 0:14:54.360 trenchment in corporate hiring, and so, like, I understand the 0:14:54.360 --> 0:14:57.280 bearish argument that the FED is tightening and that you know, 0:14:57.720 --> 0:14:59.920 the yield curve inverted and that has been a precur 0:15:00.000 --> 0:15:04.040 search of recession, but it seems like in this environment 0:15:04.280 --> 0:15:08.360 the buffer is that consumer and corporate balance sheets are 0:15:08.400 --> 0:15:10.520 in very good shape. We still have a very healthy 0:15:10.600 --> 0:15:14.200 demand for labor. That isn't that is far out of balance, 0:15:14.720 --> 0:15:17.280 and that you know, the spent you know, because consumer 0:15:17.320 --> 0:15:20.560 spending can remain far more resilient for a longer period 0:15:20.560 --> 0:15:23.240 of time because you know, we don't this isn't a 0:15:23.280 --> 0:15:26.200 normal economic cycle. We didn't see, you know, a housing 0:15:26.200 --> 0:15:28.240 boom and bust like we did in two thousand six 0:15:28.280 --> 0:15:31.160 or two thousand seven. We're not seeing a corporate spending 0:15:31.240 --> 0:15:33.760 boom and bust in technology like we did in the 0:15:33.800 --> 0:15:37.120 late nineties. Fundamentals are generally pretty good going into this 0:15:37.920 --> 0:15:41.080 health crisis and pandemic. So I think that, you know, 0:15:41.280 --> 0:15:45.360 the outlook for for UH and the probability of a 0:15:45.400 --> 0:15:50.520 softer landing and longer expansion is fairly high and probably 0:15:50.560 --> 0:15:53.760 higher than market perception. I was just about to ask 0:15:53.800 --> 0:15:55.640 you what your view is and whether or not the 0:15:55.640 --> 0:15:59.280 FED can avoid a hard landing or this UH if 0:15:59.280 --> 0:16:02.120 we can have this softish lending is how I think 0:16:02.120 --> 0:16:05.640 Paul described it this week. Yeah, I mean, look, I 0:16:05.960 --> 0:16:08.280 think that because of what I just mentioned, and just 0:16:08.360 --> 0:16:11.360 because the strength of the consumer and incorporate balance sheets 0:16:11.400 --> 0:16:15.040 and still generally healthy labor markets. You know, there's a 0:16:15.080 --> 0:16:17.720 good chance. I mean, that's that's essentially what Powell said, 0:16:17.720 --> 0:16:20.160 that there's a good chance we don't know, right. I mean, 0:16:20.160 --> 0:16:22.680 there's a lot of risk factors that you know, could 0:16:22.880 --> 0:16:27.320 lead to a you know, moderate downturn um. I don't 0:16:27.360 --> 0:16:29.200 think that if we do see your recession, it would 0:16:29.240 --> 0:16:33.640 be your normal you know, typical you know, markets go down, 0:16:34.480 --> 0:16:36.240 it takes a couple of years to get back to 0:16:36.720 --> 0:16:39.560 you know, back to trend levels of economic activity. It 0:16:39.560 --> 0:16:43.600 will probably be a little bit you know, more shallow um, 0:16:43.600 --> 0:16:48.280 given some of the strong economic momentum that's already you know, 0:16:48.520 --> 0:16:51.400 in the in the U. S. Economy. But I think 0:16:51.520 --> 0:16:54.280 that there's a good chance that we you know, in 0:16:54.320 --> 0:16:57.600 our base case, you know, the economy slows, it doesn't 0:16:57.720 --> 0:17:02.840 roll over, you know, even the outlined and very clearly 0:17:02.920 --> 0:17:06.679 defined you know, hiking path from the Fed, you know, 0:17:06.720 --> 0:17:09.920 we're only going to go to sort of neutral territory 0:17:10.320 --> 0:17:13.560 in terms of FED policy over the next several months. 0:17:14.119 --> 0:17:18.119 And you know, in my view, there's a reasonably good 0:17:18.240 --> 0:17:22.600 chance that the Fed can pause there and once they 0:17:22.600 --> 0:17:24.760 reach you know, levels of around two to and a 0:17:24.800 --> 0:17:27.480 half percent on the FED funds right, and because I 0:17:27.520 --> 0:17:32.160 think that inflation is likely peaking right about now or 0:17:32.240 --> 0:17:34.640 in the next couple of months, and that will see 0:17:34.640 --> 0:17:37.920 lower levels of inflation over the course of the second 0:17:37.920 --> 0:17:39.720 half of the year, and that will give the FED 0:17:40.040 --> 0:17:44.760 an opportunity to you know, uh the ease off in 0:17:44.840 --> 0:17:48.119 terms of it's hiking, increasing the probability of a software landing. 0:17:49.480 --> 0:17:52.359 You know, you mentioned in UH when your notes to 0:17:52.440 --> 0:17:56.080 us that you like high quality companies with pricing power. 0:17:56.640 --> 0:18:01.360 I've been kind of surprised, um at it seems like 0:18:01.680 --> 0:18:05.600 so many companies have that pricing power right now. This week, UM, 0:18:05.640 --> 0:18:07.960 we saw a T and T and Verizon you know, 0:18:08.000 --> 0:18:12.200 either announcing or planning to announce uh increases in mobile 0:18:12.840 --> 0:18:15.639 UH subscription rates, which perhaps that's kind of a no 0:18:15.720 --> 0:18:17.560 brain or a cell phone company is going to be 0:18:17.600 --> 0:18:21.280 able to you know, raise prices arguably more than sort 0:18:21.320 --> 0:18:25.960 of a discretionary um uh consumer company. Where where would 0:18:25.960 --> 0:18:29.800 you expect the pockets of the market to be where 0:18:29.800 --> 0:18:32.120 the pricing power is not robust. Is it as simple 0:18:32.160 --> 0:18:37.000 as sort of you know, frivolous consumer discretionary type of products, 0:18:37.080 --> 0:18:40.480 or is it more complicated than that. Now I think 0:18:40.480 --> 0:18:43.840 that like in general, you know, you would see it 0:18:43.880 --> 0:18:46.440 in sort of some of the names that are are 0:18:46.480 --> 0:18:50.080 really sort of like discounters, right, and where you don't 0:18:50.080 --> 0:18:53.680 have where you're already working on very low margins. And 0:18:53.800 --> 0:18:56.600 so I do think that you know, in pockets of 0:18:56.640 --> 0:19:01.600 consumer discretionary um or very competit it is environments and 0:19:01.760 --> 0:19:05.399 very competitive industries, you're likely to see you less pricing 0:19:05.400 --> 0:19:10.000 power than and see some further margin erosion than other 0:19:10.320 --> 0:19:13.600 you know, other other sectors. But probably it seems like 0:19:13.680 --> 0:19:17.880 most companies are are being you know, have that power 0:19:17.920 --> 0:19:22.400 they a they're able to raise prices pretty aggressively. Um, 0:19:22.440 --> 0:19:25.600 so far is up in your your general impression, Yeah, 0:19:25.680 --> 0:19:27.119 I mean, if you look at the ring season so 0:19:27.160 --> 0:19:29.879 far most companies have reported and you're seeing that you know, 0:19:29.920 --> 0:19:33.119 sales growth is on track to be up about twelve 0:19:33.160 --> 0:19:37.520 percent for the sp earnings up about ten so you know, 0:19:38.000 --> 0:19:41.320 an aggregate, that statement you just made is true. I 0:19:41.359 --> 0:19:44.119 do think though, that we are in a period where 0:19:44.480 --> 0:19:46.520 as you mentioned, right, the consumer still has a good 0:19:46.520 --> 0:19:50.480 amount of savings to spend, and labor markets are strong, 0:19:50.520 --> 0:19:53.160 so we have good economic momentum. What will be more 0:19:53.200 --> 0:19:55.840 interesting to see is how companies have you know, how 0:19:55.880 --> 0:19:59.399 the pricing power holds up as the economy starts to 0:20:00.640 --> 0:20:03.600 and the consumer you know, starts to get a little 0:20:03.640 --> 0:20:06.320 bit more stretched. And so there I think, you know, 0:20:06.359 --> 0:20:09.720 what we try to do in our analysis is really 0:20:09.720 --> 0:20:12.760 look at, you know, do the companies have a mode. 0:20:12.800 --> 0:20:17.480 Are they in industries that have oligopalistic nature to them 0:20:17.520 --> 0:20:20.960 where they don't have where they generally have rational pricing 0:20:21.000 --> 0:20:24.080 across the industry, and you know, are they able to 0:20:24.320 --> 0:20:25.879 do they have enough brand equity where they can and 0:20:25.960 --> 0:20:36.480 raise prices to continue to offset some of the costs. 0:20:36.520 --> 0:20:39.320 You mentioned the earning season, and I actually wanted to 0:20:39.320 --> 0:20:42.239 ask you why you feel the market hasn't held up 0:20:42.320 --> 0:20:45.080 better or didn't hold up better during the earning season 0:20:45.119 --> 0:20:47.000 when we did have all of these reports that were 0:20:47.080 --> 0:20:50.800 largely very good and whether or not you think that's 0:20:51.040 --> 0:20:55.160 largely tied to you know, the macro narratives just being 0:20:55.240 --> 0:21:00.200 so much more overwhelming than anything we've heard from from companies. Yeah, 0:21:00.240 --> 0:21:02.359 I would say one it was the rate backdrop was 0:21:02.440 --> 0:21:05.760 the primary driver. Uh. You know, if you look at 0:21:05.800 --> 0:21:09.359 what didn't work in the stock market the last few weeks, 0:21:09.520 --> 0:21:12.240 it's been you know, the secular growth names that sold 0:21:12.240 --> 0:21:14.800 off a lot more than you know, value and cyclicals, 0:21:14.840 --> 0:21:18.240 and so you know that was directly tied to the 0:21:18.359 --> 0:21:20.879 rise in you know, nominal and real interest rates, I 0:21:20.920 --> 0:21:24.560 think more so than than earnings. I would also note that, 0:21:24.680 --> 0:21:29.040 you know, while earnings were reasonably good in the quarter, 0:21:29.280 --> 0:21:34.119 the level of beats this quarter was well below the 0:21:34.240 --> 0:21:38.640 outsized beats that we saw over the last several quarters. Now, 0:21:38.680 --> 0:21:42.040 it doesn't make me overly concerned because the level of 0:21:42.040 --> 0:21:44.439 beats this quarter is actually pretty normal in line with 0:21:44.480 --> 0:21:47.200 historical averages. It was just that the companies were beating 0:21:47.200 --> 0:21:50.240 by such a wide margin, uh in the last few 0:21:50.280 --> 0:21:53.280 quarters that I think you know, investors sort of have 0:21:53.400 --> 0:21:56.359 muscle memory and said, well, you know, things are beats 0:21:56.400 --> 0:21:59.119 are slowing the aggregate level of growth, this slowing the 0:21:59.200 --> 0:22:01.679 beds raising rates, and you know, putting all of that 0:22:01.720 --> 0:22:04.359 into the into the equation to say, you know, this 0:22:04.440 --> 0:22:06.639 might not be as good in uh time to be 0:22:06.800 --> 0:22:10.000 investing inequities. I also think you also, just last point 0:22:10.000 --> 0:22:13.800 I'll make is you had some pretty high profile margin misses, 0:22:14.280 --> 0:22:17.879 you know with technology companies or you know pull forward 0:22:17.960 --> 0:22:21.840 demand companies like you know a Netflix, um or an Amazon, 0:22:22.240 --> 0:22:25.520 and so from the from that perspective, you know, there 0:22:25.720 --> 0:22:29.520 was I think just concern about Okay, you know, well 0:22:29.680 --> 0:22:34.480 in aggregate companies are handling, are able to pass along 0:22:34.560 --> 0:22:38.800 pricing um, and are seeing reasonably resilient and market demand. 0:22:39.440 --> 0:22:43.800 It's not uniform and so it's not a fewer company 0:22:43.840 --> 0:22:45.800 you know, with a breath of companies beating and the 0:22:45.880 --> 0:22:50.080