WEBVTT - The FOMC Meeting And Its Impact On 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 --> 0:00:11.480 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 --> 0:00:23.640 at Bloomberg dot com slash podcast. Today is a big day, obviously, 0:00:23.800 --> 0:00:26.599 FED a day today. It looks like the FED is 0:00:26.640 --> 0:00:29.200 about to give us some more color on how it 0:00:29.280 --> 0:00:32.560 intends to look at the interest rate structure out there. 0:00:32.600 --> 0:00:35.120 I eat raising rates and that's gonna be some That's 0:00:35.120 --> 0:00:36.919 a new environment for a lot of investors out there, 0:00:36.920 --> 0:00:39.680 So let's see how financial advisors are talking to their 0:00:39.680 --> 0:00:43.680 clients about that. Katerina Simonetti, Senior vice president, Private wealth 0:00:43.720 --> 0:00:46.319 advisor for Morgan Stanley, joins this. Katerina, thanks so much 0:00:46.360 --> 0:00:49.319 for taking the time here. I'm guessing some of your 0:00:49.360 --> 0:00:53.000 investors really don't have your clients, I mean, don't have 0:00:53.040 --> 0:00:58.440 a lot of experience investing in a rising interest rate environment. 0:00:58.680 --> 0:01:01.920 What are you telling them these days? Matt, thank you 0:01:01.960 --> 0:01:05.319 for having me on um. I think it's no surprise 0:01:05.480 --> 0:01:08.560 to them that the rates are going up, said has 0:01:08.640 --> 0:01:12.360 done a pretty good job setting expectations, and look, you know, 0:01:12.480 --> 0:01:14.800 interest rates are going to be going up, and there 0:01:14.880 --> 0:01:18.559 is zero reason why they shouldn't be. Um, we really 0:01:18.560 --> 0:01:20.320 should not be as low as they are right now. 0:01:20.640 --> 0:01:23.920 And yet there is this perceived fear that when the 0:01:24.000 --> 0:01:26.600 race are going to be going up, the market somehow 0:01:26.760 --> 0:01:29.840 is going to pull apart. Is it's not necessarily the case. 0:01:30.240 --> 0:01:33.520 Rates should be going up, and we're preparing our clients, 0:01:33.520 --> 0:01:36.880 and we're preparing the investors who were strategically positioning the 0:01:36.880 --> 0:01:41.640 portfolio in light of the rating late. So what do 0:01:41.680 --> 0:01:45.160 you do with someone who's you know, looking to retire 0:01:45.360 --> 0:01:48.920 in the next decade or two and is worried about 0:01:49.440 --> 0:01:53.720 putting new cash into the market of these high valuations 0:01:53.760 --> 0:01:59.880 and obviously also into bonds when rates are rising. Well, 0:02:00.120 --> 0:02:04.200 met it's not just the rates themselves, it's also the inflation. 0:02:04.320 --> 0:02:06.760 I think that the key of how challenging this environment 0:02:06.920 --> 0:02:10.960 is is that we've never had the inflation ory period 0:02:11.040 --> 0:02:14.400 with the raids of this slow and specifically for the 0:02:14.760 --> 0:02:17.760 in the retirees, the people that are about to start 0:02:17.800 --> 0:02:20.079 their retirement and are going to be losing their active 0:02:20.120 --> 0:02:23.200 income and switching into more of a passive situation. You know, 0:02:23.280 --> 0:02:26.880 the key is to focus on quality, and you know, 0:02:26.880 --> 0:02:29.760 when we look at strategic positioning of the portfolios and 0:02:29.840 --> 0:02:34.200 specifically at certain sectors that you know are a little 0:02:34.200 --> 0:02:36.359 bit stronger, a little bit more defense than the light 0:02:36.480 --> 0:02:40.079 of all the challenges that this market present. Our focus 0:02:40.360 --> 0:02:45.000 is on quality and on larger positions large cap for example, 0:02:45.120 --> 0:02:48.560 but not just like large cap growth or large cap value, 0:02:48.760 --> 0:02:52.399 but on defensive positions specifically. You know, we're looking very 0:02:52.440 --> 0:02:55.160 closely at each investments and make sure that the companies 0:02:55.160 --> 0:02:59.800 that we invest in have the earning stability, reasonable valuations, 0:03:00.080 --> 0:03:03.280 we're not overpaying for them. In the most importantly, companies 0:03:03.320 --> 0:03:06.480 with enough pricing power to perform well during this the 0:03:06.560 --> 0:03:10.560 average challenge and environment. Because while we absolutely are quite 0:03:10.560 --> 0:03:13.200 positive over the market, there is growth in the US 0:03:13.440 --> 0:03:15.240 you know that is still strong, that is still going 0:03:15.280 --> 0:03:18.320 to continue is going to be a bumpy right, and 0:03:18.480 --> 0:03:21.720 that's would present so many challenges and were preparing investors 0:03:21.720 --> 0:03:24.519 for it. So, Katarina, you know, there's I guess a 0:03:24.520 --> 0:03:25.960 little bit of a push and pool out there from 0:03:25.960 --> 0:03:29.040 some investors who really, since the Gray financial crisis, have 0:03:29.400 --> 0:03:32.520 really been successfully invested in the big growth names that 0:03:32.560 --> 0:03:34.519 have really driven this market, whether it's an Apple or 0:03:34.520 --> 0:03:37.760 an Amazon, or or Facebook or something like that. To 0:03:38.520 --> 0:03:41.000 what's really been a good trade over last eighteen or 0:03:41.000 --> 0:03:44.200 twenty months, which is more of a a cyclical trade 0:03:44.240 --> 0:03:46.560 if you will, um, maybe even you know, betting a 0:03:46.560 --> 0:03:49.440 little bit on the reopening of the global economy. Where 0:03:49.440 --> 0:03:56.000 are you suggesting, uh your clients think about, Well, I 0:03:56.040 --> 0:03:58.800 think it's it's all about the balance, right, and it's 0:03:58.840 --> 0:04:03.160 all about being the resoughtful about the portfolio design. And 0:04:03.200 --> 0:04:07.720 when we look at the twenty two and to analyze 0:04:07.880 --> 0:04:11.760 this amazing growth that we have seen uh in the 0:04:11.800 --> 0:04:15.920 market recently, the especially the year end is generally the 0:04:15.960 --> 0:04:18.719 good time to kind of just just analyze what happened. 0:04:18.880 --> 0:04:21.400 And this is a perfect time for strategic profit taking 0:04:21.720 --> 0:04:24.040 because there are some areas, for example, that we're used 0:04:24.080 --> 0:04:27.960 to saying that are extremely aggressive, that performed pretty well, 0:04:28.720 --> 0:04:31.880 but they are in fact, you know, showing some some 0:04:31.960 --> 0:04:36.240 stability and showing some price resilience, and they definitely have 0:04:36.960 --> 0:04:39.200 role in the portfolio. But this is a good time 0:04:39.240 --> 0:04:42.279 to rebalance, to go back to the drawing board to 0:04:42.320 --> 0:04:45.400 make sure that all the sectors are properly represented in 0:04:45.600 --> 0:04:50.400 some sectors that have that positioning into the interlight of 0:04:50.440 --> 0:04:54.480 what's happening with the economy. Sectors like financials, like healthcare, 0:04:55.000 --> 0:05:00.080 um inflationary hadgets of such commodities and reads for example, Well, 0:05:00.200 --> 0:05:04.000 we want to ensure that we overweight into the sectors 0:05:04.120 --> 0:05:06.839 that are either positioned well in light of the rising 0:05:06.880 --> 0:05:10.800 grades or present to be good inflationary head just or 0:05:10.920 --> 0:05:14.520 like healthcare. You know, the the um, the this this 0:05:14.680 --> 0:05:18.240 healthcare crisis that we're experiencing. You know, this this situation 0:05:18.279 --> 0:05:21.000 with the pandemic that you know is still going on. 0:05:21.240 --> 0:05:23.640 And you know, as much as progress are at healthcare 0:05:23.680 --> 0:05:26.960 companies and you know, are just health care communities making 0:05:27.000 --> 0:05:29.120 this is still something that is going to be lingering 0:05:29.120 --> 0:05:31.760 with us for many years to come. So when we 0:05:31.880 --> 0:05:36.080 look at this positioning of the portfolios, whether it's fixed income, 0:05:36.400 --> 0:05:40.000 whether it's equity, we need to take inflation into consideration, 0:05:40.120 --> 0:05:43.599 the resilience quality and make sure that the portfolio is 0:05:43.640 --> 0:05:47.200 strong enough to get us through this period of volatility 0:05:47.400 --> 0:05:49.200 that is not over yet. We still have a lot 0:05:49.279 --> 0:05:52.080 of challenges out there. Katerina, thank you so much for 0:05:52.160 --> 0:05:54.800 joining us. Love getting your perspective here. As you talk 0:05:54.880 --> 0:05:59.400 to and counsel your clients. Katerina Seminetti, Jesus, Senior Vice president, 0:05:59.640 --> 0:06:02.560 Private Wealth Advisor for Morgan Stanley here, like the rest 0:06:02.560 --> 0:06:04.640 of us, waiting to see what we will hear from 0:06:04.640 --> 0:06:06.960 our Freederal Reserve the sion in a two pm Wall 0:06:06.960 --> 0:06:10.440 Street time, and and how that will impact markets going forward, 0:06:10.480 --> 0:06:14.560 and how investors should be allocating their capital. Katina deals 0:06:14.600 --> 0:06:16.960 with her Morgan Stanley clients, and I'm sure they have 0:06:17.040 --> 0:06:19.560 lots of questions, and so we appreciate getting some time 0:06:19.560 --> 0:06:22.080 from Katerina. We have read on the screen here not 0:06:22.200 --> 0:06:24.960 much to speak about SMP off about about three tenths 0:06:25.000 --> 0:06:31.719 of one percent. All right, we have a pretty great 0:06:31.760 --> 0:06:33.960 guest for you right now, Sam City, as president and 0:06:34.080 --> 0:06:39.160 CEO of Customers Bank, and they've had a pretty good pandemic. Sam, 0:06:39.240 --> 0:06:41.960 looking at your your stock price, you've gone from twenty 0:06:41.960 --> 0:06:45.680 bucks basically a share at the end of beginning to 0:06:45.839 --> 0:06:50.080 sixty bucks a share basically now. And I see that 0:06:50.240 --> 0:06:53.719 some analysts are even raising your price target, uh tow 0:06:53.920 --> 0:06:56.560 to seventy five dollars web Bush, for example. We talked 0:06:56.560 --> 0:06:59.840 to Dan Ives from web Bush a lot um and 0:07:00.880 --> 0:07:03.520 b Riley has your price target raised to a hundred dollars, 0:07:03.560 --> 0:07:07.240 so expecting a lot from customers. Walk us through what 0:07:07.360 --> 0:07:11.760 makes Customers different than other banks? Sure? Absolutely, Well, Matt 0:07:11.800 --> 0:07:13.600 and Paul, thanks so much for having me. It's a 0:07:13.600 --> 0:07:16.600 pleasure to be here. I really appreciate that that introduction. 0:07:17.080 --> 0:07:21.480 You know, Customers Bank entered the pandemic as a tech forward, 0:07:21.680 --> 0:07:23.800 organic grower, and I think that's really one of the 0:07:23.800 --> 0:07:26.200 big things that differentiates us. So in the banking industry, 0:07:26.200 --> 0:07:28.280 there's not so much to differentiate yourselves on and a 0:07:28.360 --> 0:07:32.760 reasonably commoditized business, so service and technology are big portions 0:07:32.800 --> 0:07:35.040 of that. So we started off in the in in 0:07:35.200 --> 0:07:37.640 March and April of last year by being a big 0:07:37.640 --> 0:07:40.320 player in the Paycheck Protection Program and that really helped 0:07:40.400 --> 0:07:45.600 allow us to deliver three thousand plus loans ten billion 0:07:45.600 --> 0:07:49.160 dollars of PPP funds out. We also earned origination fee, 0:07:49.480 --> 0:07:52.400 which really allowed us to build some capital and support 0:07:52.480 --> 0:07:55.160 the future growth of the organization. So being that sort 0:07:55.160 --> 0:07:58.920 of tech forward organic grower um with a very strong 0:07:58.960 --> 0:08:02.680 digital focus as it is, is really what what Customers 0:08:02.680 --> 0:08:06.160 Bank is today. Sam, what are your clients doing these days? 0:08:06.160 --> 0:08:08.640 They've just gone through you know, almost two years of 0:08:08.760 --> 0:08:12.600 unprecedented disruption to their businesses. Just give us an overall 0:08:12.680 --> 0:08:15.720 sense of how they're faring. Are they are they trying 0:08:15.760 --> 0:08:17.800 to come back, are they trying to invest in their business, 0:08:17.800 --> 0:08:20.440 are they trying to expand? Or are they still cautious? 0:08:21.960 --> 0:08:25.280 Absolutely so, I think that there's obviously been a little 0:08:25.280 --> 0:08:26.840 bit of a change in stands. Will wait and see 0:08:26.840 --> 0:08:30.280 what happens with the Fed UH later today, UM, But 0:08:30.640 --> 0:08:34.240 earlier this year there was a strong sense of confidence 0:08:34.480 --> 0:08:37.920 emerging inflation. I think that that concern has turned into 0:08:37.920 --> 0:08:39.920 a little bit more of a little bit of a 0:08:39.960 --> 0:08:44.440 reality UM sitting where we are today, but overall, the 0:08:44.480 --> 0:08:49.480 macroeconomics backdrop is strong. There are challenges with supply chain, 0:08:49.559 --> 0:08:53.160 there are challenges with concerns about labor UH and inflation, 0:08:53.920 --> 0:08:58.240 but generally UH, the the sentiment is still positive and 0:08:58.280 --> 0:09:01.800 I think that's the that's the importance. We've survived as 0:09:01.800 --> 0:09:05.160 an economy, the pandemic, and you know, while they're they're 0:09:05.280 --> 0:09:08.200 arguably could have been too much stimulus as leading to 0:09:08.240 --> 0:09:11.800 potential non transitory inflation. I think at the end of 0:09:11.840 --> 0:09:15.079 the day, it's it's difficult to um to Monday morning 0:09:15.120 --> 0:09:17.839 quarterback with certainty I just want to paint a picture 0:09:17.920 --> 0:09:21.120 for for listeners of where you're coming from, because you 0:09:21.200 --> 0:09:25.320 have a pretty impressive resume. Undergrad at Wharton NBA. From Harvard, 0:09:25.360 --> 0:09:29.199 you worked at Providence Equity Partners as well as Goldman Sachs. 0:09:29.240 --> 0:09:33.760 You've done real estate focused private equity, You've done blockchain 0:09:33.800 --> 0:09:38.719 based real payment services. UM, what do you think with 0:09:38.760 --> 0:09:41.600 all of this experience in finance and on Wall Street, 0:09:41.640 --> 0:09:47.960 what do you think of something like defy? M so uh. 0:09:48.160 --> 0:09:51.120 I like to firstly say, my resume makes me seem 0:09:51.160 --> 0:09:53.360 a lot stronger uh than I am, but note the 0:09:53.480 --> 0:09:56.200 less that's that's how my friend. That's very humble of you, 0:09:58.080 --> 0:10:00.959 you know. But I think Defied is really a reaction 0:10:01.080 --> 0:10:04.360 to to where we are from number one, the emergence 0:10:04.400 --> 0:10:06.560 of blockchain, because that's really the ledger and the and 0:10:06.640 --> 0:10:09.280 the platform upon which and the infrastructure upon which these 0:10:09.280 --> 0:10:13.800 decentralized finance concept is is going to be established. I think, 0:10:13.840 --> 0:10:16.679 you know, generally, as you think about if defy it 0:10:16.720 --> 0:10:18.760 is successful in the way that the folks that are 0:10:18.800 --> 0:10:23.320 that are um emerging as as important players and platforms 0:10:23.640 --> 0:10:29.880 from a decentralist finance perspective, Arguably, centralized finance kee structures 0:10:30.440 --> 0:10:35.320 methodologies would would change UM and you may see reversion 0:10:35.360 --> 0:10:38.840 back to a different way of doing business, to traditional 0:10:38.880 --> 0:10:41.160 forms which are working extremely well. By the way, say 0:10:41.280 --> 0:10:43.160 that's that's why I asked, you know, yesterday I talked 0:10:43.200 --> 0:10:46.280 to Mike Novigrats. He's got a new office UM down 0:10:46.280 --> 0:10:49.240 by Goldman Sachs and he was most pumped about that. 0:10:49.360 --> 0:10:52.600 And it just makes me wonder, UM, what the future 0:10:52.640 --> 0:10:54.920 of Wall Street looks like? How do you see it? 0:10:56.960 --> 0:10:59.960 You know? UM, At Customers Bank, we we like to 0:11:00.040 --> 0:11:04.160 think that this hybrid approach of human based experienced bankers 0:11:04.200 --> 0:11:07.640 plus technology and a commercial banking sense is the right 0:11:07.880 --> 0:11:11.480 is the right hybrid way to approach the market today. 0:11:11.960 --> 0:11:15.360 I think similarly, from an investment banking perspective, you're gonna 0:11:15.400 --> 0:11:18.400 see very similar trends. There's always going to need be 0:11:18.440 --> 0:11:22.400 a need for for customized advice, for specific advice, and 0:11:22.440 --> 0:11:26.360 for bespoked UM type transactions and service in handholding. It. 0:11:26.360 --> 0:11:29.760 It's going to be difficult to completely UM, you know, 0:11:30.760 --> 0:11:35.000 change the way that that many businesses need to operate, 0:11:35.160 --> 0:11:38.520 given the fact that that that there's a lot of 0:11:38.559 --> 0:11:44.520 businesses that that have disparate needs and not everything is somotronized. Alright, 0:11:44.600 --> 0:11:46.720 never enough time, Sam, but always great talking to you. 0:11:46.760 --> 0:11:49.000 Thanks so much for joining us. Sam. To do there's 0:11:49.080 --> 0:11:51.840 president and CEO of Customers Bank. Check out the stock. 0:11:52.160 --> 0:11:55.880 The ticker is CEU b I trades on the New 0:11:55.960 --> 0:12:04.040 York Stock Exchange. All right, it is FED day today. Um. 0:12:04.240 --> 0:12:08.079 The question is how our investors positioning their portfolios for 0:12:08.240 --> 0:12:10.520 what is likely to be a rising interest rate environment. 0:12:10.600 --> 0:12:13.400 Let's check out the Brian small Look, Chief investment Officer 0:12:13.440 --> 0:12:16.000 of hood River Capital Management. Brian, thanks so much for 0:12:16.120 --> 0:12:18.360 joining us once again. You guys at hood River, you 0:12:18.400 --> 0:12:22.720 focus on small cap growth stocks. Give us a sense 0:12:22.760 --> 0:12:25.560 of how you think small caps are going to perform 0:12:26.360 --> 0:12:28.559 and what's going to be a different interest rate environment. 0:12:30.320 --> 0:12:33.880 So we're constructive on small caps from here, especially after 0:12:34.000 --> 0:12:37.360 after this ten percent pullback or so we've seen in 0:12:37.440 --> 0:12:42.360 small caps since oh Macron broke and talks of a 0:12:42.400 --> 0:12:46.520 FED taper of really heated up here. Valuations have pulled 0:12:46.520 --> 0:12:50.880 back pretty significantly to where now small cap trades at 0:12:50.920 --> 0:12:56.200 an absolute pe discount on earnings versus the SMP. Usually 0:12:56.240 --> 0:12:59.319 it's at a premium. The market does have to thread 0:12:59.360 --> 0:13:01.839 the needle here over the next couple of months with 0:13:02.559 --> 0:13:04.959 rising rates and O Macron, which could kind of put 0:13:04.960 --> 0:13:08.760 a pause on recovery while rates are going up. But 0:13:08.880 --> 0:13:12.360 after that, we think that earning assessments need to move 0:13:12.480 --> 0:13:16.880 up and the economy will recover and you want to 0:13:16.880 --> 0:13:19.360 own stocks and small cat stocks will move up with 0:13:19.360 --> 0:13:22.480 those earnings revision. Specifically a good river. We're looking for 0:13:22.480 --> 0:13:28.000 a dislocation in of the market fundamentals for that particular company, 0:13:28.040 --> 0:13:30.719 which is what the streets expecting, and we're optimists is 0:13:30.760 --> 0:13:32.520 gonna be able to find plenty of those opportunities in 0:13:32.520 --> 0:13:36.480 twent twenty two. So do you expect a big dip 0:13:36.520 --> 0:13:40.120 a correction? Is there is there an opportunity for investors 0:13:40.120 --> 0:13:43.160 to buy? So yeah, I mean, I think we're kind 0:13:43.160 --> 0:13:45.360 of looking at it here. There's going to be continued 0:13:45.440 --> 0:13:49.240 choppinists over the next month or so. You'll probably see 0:13:49.280 --> 0:13:53.160 a spike in O Macron cases crowd crowding out Delta, 0:13:53.880 --> 0:13:57.679 but thus far the disease looks to be more mild 0:13:57.880 --> 0:14:01.800 than Delta. We're probably going to have a vaccine ready 0:14:01.880 --> 0:14:04.680 in the next days and people are gonna start to 0:14:04.720 --> 0:14:07.720 look through that. The FED doesn't have much room to 0:14:07.840 --> 0:14:11.720 raise race it looks like without invarying the curve, but 0:14:12.360 --> 0:14:15.160 the market is basically saying that it's transitory, and that's 0:14:15.280 --> 0:14:18.080 how we're thinking about it. What are some of the 0:14:18.080 --> 0:14:21.200 sectors that you think investors should be looking at in 0:14:21.240 --> 0:14:24.280 their portfolios in two again, given what looks like to 0:14:24.320 --> 0:14:27.080 be a at least for some period of time at 0:14:27.080 --> 0:14:32.560 a rising interest rate environment, So we're overweight, and we've 0:14:32.560 --> 0:14:36.280 been overweight for the last nine months or so. Cyclical names, 0:14:36.320 --> 0:14:41.360 so that would include financials, industrials, consumer stocks, and then 0:14:41.400 --> 0:14:46.640 also some semi stocks. Valuation is more important in a 0:14:46.760 --> 0:14:50.520 rising rate environments, particularly in small cup growth um so 0:14:50.640 --> 0:14:53.480 you want to own names that are cheaper on traditional 0:14:53.560 --> 0:14:56.360 valuation metrics like price to earnings. A lot of growth 0:14:56.400 --> 0:15:00.040 investors tend to look at enterprise value two revenues and 0:15:00.040 --> 0:15:02.560 and when you have to discount the terminal value out more, 0:15:03.400 --> 0:15:06.080 that can make those stocks riskiers. That's why you've seen 0:15:06.480 --> 0:15:09.120 software names, for example, pull back a lot and biotech 0:15:09.160 --> 0:15:11.960 pull back a lot in this environment because in rising 0:15:12.040 --> 0:15:15.800 rates environments is tougher on those valuations. What do you 0:15:15.800 --> 0:15:18.520 expect to hear from Jerome Powell today? Do you think 0:15:18.560 --> 0:15:21.640 we'll get any surprises or does he telegraph everything pretty well? 0:15:23.400 --> 0:15:26.560 He tends to telegraph everything pretty well, and River were 0:15:26.560 --> 0:15:30.600 not exactly said watching experts were focusing on bombs up, 0:15:30.600 --> 0:15:35.320 stock picking and s pundamentals there. But but my sense 0:15:35.360 --> 0:15:37.120 is that he's had to get track wickers there and 0:15:37.400 --> 0:15:40.480 they'll just announce an accelerated taper, which I think is 0:15:40.520 --> 0:15:43.400 what the markets expecting. Is there a risk in your 0:15:43.400 --> 0:15:47.840 mind as you listen to and read FED Chairman Pale's 0:15:47.840 --> 0:15:51.880 comments over the last several months, that perhaps he feels 0:15:51.880 --> 0:15:53.720 he's a little bit behind the curve and maybe needs 0:15:53.760 --> 0:15:56.240 to catch up and maybe maybe more aggressive than the 0:15:56.240 --> 0:16:01.680 market's discounting. I think that's for sure a risk. He 0:16:01.800 --> 0:16:04.040 basically acknowledged the fact that he had to take the 0:16:04.080 --> 0:16:07.800 word transitory out of their vocabulary. And when you talk 0:16:07.880 --> 0:16:10.000 to companies, that's what we're doing every quarter. We're talking 0:16:10.040 --> 0:16:14.320 to foreign companies every quarter. They're seeing real inflation that 0:16:14.360 --> 0:16:16.120 they have to handle day to day, and there's no 0:16:16.200 --> 0:16:21.280 guarantee that that is transitory. So it's not responsible for 0:16:21.320 --> 0:16:24.040 the FED to handle it that way, and they're gonna 0:16:24.040 --> 0:16:26.440 have to make some adjustments and see how see how 0:16:26.440 --> 0:16:29.520 it pleased, all right? Brian great having on the program. 0:16:29.520 --> 0:16:32.880 Thanks very much for joining us. Another Harvard NBA by 0:16:32.920 --> 0:16:35.120 the way, but I would say more importantly a University 0:16:35.120 --> 0:16:38.480 of Virginia undergrad. He's Oahu. But but he's also a 0:16:38.560 --> 0:16:43.400 fellow alum of Solomon Brothers like me. Wow. Yeah, the 0:16:43.560 --> 0:16:46.240 solid team, all right? Excellent. Brian Smallock is the chief 0:16:46.280 --> 0:16:50.960 investment officer at hood River Capital Management, talking to us 0:16:51.000 --> 0:16:59.040 about the future of growth and markets. Enough of this 0:16:59.240 --> 0:17:04.800 tri state areas stuff out a little bit. Dan Gander 0:17:04.880 --> 0:17:08.800 joins us CEO of r n C Genter Capital Management 0:17:08.840 --> 0:17:13.960 to talk about his expectations for UM, the FED, the markets, 0:17:14.080 --> 0:17:18.000 and the economy. Dan, we had a very strong pp 0:17:18.160 --> 0:17:22.359 I number UM nine point six, nine point seven percent. 0:17:22.400 --> 0:17:26.160 I think after a huge CPI number six last week. 0:17:26.640 --> 0:17:30.800 Is this gonna push Jerome Powell to be faster with 0:17:30.920 --> 0:17:34.320 his taper. Well, I think he's in a position that 0:17:34.440 --> 0:17:36.960 he just can't ignore it. I mean, they took an 0:17:37.280 --> 0:17:40.159 early position that inflation was going to be transitory. I 0:17:40.200 --> 0:17:42.680 think that they're frankly being honest that that's what they thought. 0:17:43.160 --> 0:17:45.600 They didn't really know how things were gonna flesh out 0:17:46.119 --> 0:17:48.160 now with the CPI number, as you mentioned at six, 0:17:48.240 --> 0:17:50.639 eight with pp I at nine six. You know, we 0:17:50.680 --> 0:17:53.199 don't have the new PC number, which is one of 0:17:53.200 --> 0:17:55.920 the main things that they look at, the personal consumption 0:17:55.920 --> 0:17:58.200 at spendature index, but that was five percent in October. 0:17:58.560 --> 0:18:00.399 So we're no matter how you look at it, we're 0:18:00.480 --> 0:18:03.399 running double to triple really where they'd like to be 0:18:03.520 --> 0:18:05.720 at two to three percent. So I know, I don't 0:18:05.720 --> 0:18:07.680 know how you ignore it. I think it's it's a 0:18:07.720 --> 0:18:09.119 matter of what do you do about it? And the 0:18:09.359 --> 0:18:12.199 you know, they're the tools are there. You know, you 0:18:12.200 --> 0:18:15.639 you finish out the taper even faster, obviously, start to 0:18:15.720 --> 0:18:18.040 raise FED funds, and we don't you know, certainly don't 0:18:18.040 --> 0:18:19.640 think along with everyone else that we're going to see 0:18:19.640 --> 0:18:21.800 an increase in rates at this meeting. But you know, 0:18:21.840 --> 0:18:24.000 you you look, you're putting some odds on the table. Now. 0:18:24.480 --> 0:18:26.800 You could see something as early as the first quarter 0:18:26.840 --> 0:18:30.040 of two or certainly by the second quarter, and up 0:18:30.080 --> 0:18:34.520 until recently two was off the table. So things are changing, Dan, 0:18:34.600 --> 0:18:37.439 things are changing it. As you mentioned here, how do 0:18:37.560 --> 0:18:41.480 your clients, how are you positioning your portfolio for what's 0:18:41.480 --> 0:18:43.560 likely to be, you know, a rising interest rate environment 0:18:43.560 --> 0:18:46.879 for the foreseeable future. Well, I think on the equity market, 0:18:46.920 --> 0:18:48.760 there's really not much of a change when you when 0:18:48.800 --> 0:18:51.639 you look at it historically of what you're likely to 0:18:51.640 --> 0:18:53.240 see out of this FED. I mean, when you look 0:18:53.240 --> 0:18:56.040 at it historically, typically when there's a major reversal policy, 0:18:56.400 --> 0:19:00.800 you normally see fifty basis points initially twenty and the 0:19:00.840 --> 0:19:03.160 same thing when they start lowering rates, it's very very similar. 0:19:03.640 --> 0:19:05.639 I don't think you're gonna see anything more aggressive here. 0:19:05.640 --> 0:19:07.360 As a matter of fact, you might even are much 0:19:07.400 --> 0:19:11.480 more likely. You're just gonna see a well telegraphed twenty 0:19:11.520 --> 0:19:14.360 five basis points increase, and they'll do that very steadily. 0:19:14.720 --> 0:19:17.560 Now with that, if you look at it again historically 0:19:17.600 --> 0:19:21.760 from the standpoint of FED policy, is that pees generally 0:19:21.800 --> 0:19:24.040 don't change much. You know, what they were at six 0:19:24.080 --> 0:19:26.560 months before the FED started the rays and where they 0:19:26.560 --> 0:19:30.160 are six months after basically that twelve month window, pea 0:19:30.280 --> 0:19:32.520 stay about the same. So I think the equity market, 0:19:32.640 --> 0:19:35.159 you know, we're you know, it will certainly start to 0:19:35.200 --> 0:19:37.120 buy us more the value stocks. It's going to buy 0:19:37.160 --> 0:19:39.920 us more the sixical stocks. You know, we're we've already 0:19:39.920 --> 0:19:42.400 begun tilting more in that direction. You know, the bond 0:19:42.440 --> 0:19:44.920 markets a different matter altogether. I mean, you're you're gonna 0:19:44.960 --> 0:19:47.440 have to be very active and what you're doing in 0:19:47.480 --> 0:19:49.240 the bond market, you know, as the as the youal 0:19:49.320 --> 0:19:54.800 curves already shifted. What do you expect in terms of hikes? 0:19:54.800 --> 0:19:56.320 I mean you said you don't expect this meeting. I 0:19:56.359 --> 0:19:59.680 don't think anyone does. But um, is the dot plot 0:19:59.720 --> 0:20:02.000 gonna show to this year? Is their possibility for a 0:20:02.000 --> 0:20:05.840 hawk is surprise? Look, it's always there. And I think 0:20:05.880 --> 0:20:09.439 that the good thing about Jerome Powell's he's you know, 0:20:09.480 --> 0:20:11.639 it's not like dealing with green you know, green speak. 0:20:12.080 --> 0:20:14.800 I mean he telegraphs it right out in front. Everything's 0:20:15.840 --> 0:20:17.360 I think he's going to give the market a lot 0:20:17.400 --> 0:20:20.520 of indication, uh to some degree. Frankly, you know, the 0:20:20.560 --> 0:20:22.800 market may even breathe a sigh of relief when we 0:20:22.880 --> 0:20:25.320 have that, you know, because the market will take good 0:20:25.320 --> 0:20:28.200 news bad news. It just doesn't like no news. And 0:20:28.280 --> 0:20:32.520 so this this unknown limbo right now is making people nervous. 0:20:32.560 --> 0:20:35.040 So you know, I doubt that we're gonna be see 0:20:35.160 --> 0:20:37.920 something that's going to surprise the market. But him well 0:20:38.000 --> 0:20:40.600 telegraphing in advance that they're going to start with the 0:20:41.119 --> 0:20:43.280 basis point to increase and FED funds, you know, I 0:20:43.280 --> 0:20:46.040 think is what we're going to see. So Dan, all right, 0:20:46.080 --> 0:20:48.400 that's the Fed. And again we're gonna get a lot 0:20:48.400 --> 0:20:51.359 more information later on today. The other aspect there are 0:20:51.400 --> 0:20:53.399 One of the other aspects that the market tends to 0:20:53.440 --> 0:20:55.440 focus on is kind of what's coming out of Washington, 0:20:55.560 --> 0:20:59.639 d c Um. How important is that to you to 0:20:59.760 --> 0:21:01.600 this market or do you think the markets again is 0:21:01.600 --> 0:21:05.000 pricing in some kind of build back better But there's 0:21:05.040 --> 0:21:07.960 other things to focus on. Well, I think the market 0:21:08.000 --> 0:21:10.680 is definitely pricing it in and the build back better. 0:21:10.680 --> 0:21:12.800 We're look, we're gonna have something now, whether it's a 0:21:12.800 --> 0:21:16.040 two trillion dollar number or a two trillion that really 0:21:16.119 --> 0:21:19.000 is four point two trillion when you take the time 0:21:19.040 --> 0:21:21.359 limits off. I mean, we're gonna have something that's going 0:21:21.400 --> 0:21:23.160 to come out of that. They're gonna make some kind 0:21:23.160 --> 0:21:26.639 of a deal. But but now, I don't think you're 0:21:26.640 --> 0:21:29.840 gonna see anything very radical, and the reason being is 0:21:29.880 --> 0:21:32.960 that the Democrats right now are in trouble. Look the 0:21:32.960 --> 0:21:35.560 way the numbers stack up now is redistricting. They're gonna 0:21:35.600 --> 0:21:38.719 lose the House two and so you have a lot 0:21:38.760 --> 0:21:41.440 of people that are midstream that you know, they're they're 0:21:41.480 --> 0:21:44.880 just not going to go hardcore against radical democratic policy 0:21:45.000 --> 0:21:46.360 because they don't want to. They don't want to get 0:21:46.400 --> 0:21:49.560 washed out. So I'm not expecting anything dramatic. You know, 0:21:49.600 --> 0:21:51.840 we were probably the biggest thing the market will be 0:21:51.840 --> 0:21:55.640 concerned about, and that's waning is significant tax increases. But 0:21:55.920 --> 0:21:58.480 I mean that that's frankly, it's really dropping off. You're 0:21:58.480 --> 0:22:00.560 just you know that that's going down to a whisper 0:22:00.640 --> 0:22:04.080 right now. So we don't think right now, barring something unforeseen, 0:22:04.119 --> 0:22:06.720 which can always happen, there's going to be a dramatic 0:22:06.800 --> 0:22:09.360 change of change in policy that will have a significant impact. 0:22:12.440 --> 0:22:15.960 All right, thanks very much for joining us. Dan, always 0:22:15.960 --> 0:22:19.479 great talking to you. Dan Genter there, who is the 0:22:19.480 --> 0:22:21.560 CEO as well as the c i O and the 0:22:21.640 --> 0:22:26.080