WEBVTT - US Equity Bullishness as Concerns Mount in Europe 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.800 --> 0:00:14.880 This is the Bloomberg Surveillance Podcast. I'm Paul Sweeney along 0:00:14.880 --> 0:00:17.240 with Tom Keene. Join us each day for insight from 0:00:17.239 --> 0:00:20.760 the best in economics, geopolitics, finance, and investment. You can 0:00:20.800 --> 0:00:24.439 also watch the show live on YouTube. Visit the Bloomberg 0:00:24.480 --> 0:00:27.760 Podcast channel on YouTube to see the show weekday mornings 0:00:27.760 --> 0:00:30.360 from seven to ten Eastern Remark Global Headquarters in New 0:00:30.440 --> 0:00:33.720 York City. Subscribe to the podcast on Apple, Spotify, or 0:00:33.760 --> 0:00:36.800 anywhere else you listen, and as always on Bloomberg Radio, 0:00:36.880 --> 0:00:39.360 the Bloomberg Terminal, and the Bloomberg Business App. And liz 0:00:39.360 --> 0:00:41.400 Anne Sanders, she's not sitting one hundred eighty nine bion 0:00:41.440 --> 0:00:41.840 os a cash. 0:00:41.880 --> 0:00:42.520 She puts it to work. 0:00:42.560 --> 0:00:46.600 Liz Ane Sonder's chief investment strategist for Charles Schwab. I 0:00:46.600 --> 0:00:48.839 don't know, Lizanne, if you're sitting one hundred and eighty 0:00:48.920 --> 0:00:51.640 nine billion dollars of cash this morning, what would you 0:00:51.680 --> 0:00:52.159 do with it? 0:00:53.040 --> 0:00:53.199 Oh? 0:00:53.280 --> 0:00:55.160 Bill and Chill, I kind of agree with that, but 0:00:55.800 --> 0:00:59.120 you know the real answer to that, leaving Warren, Buffett 0:00:59.120 --> 0:01:01.520 and Berkshire. How theway is, you know, we also have 0:01:02.480 --> 0:01:04.880 a decent size in terms of client assets at what 0:01:05.000 --> 0:01:08.520 nine point one trillion dollars. But the answer to ascid 0:01:08.560 --> 0:01:11.520 allocation how much to have in cash? That's obviously specific 0:01:11.600 --> 0:01:15.880 to each investor. There's no sort of blanket comment about that. 0:01:15.920 --> 0:01:20.880 But there's income and fixed income and therein lies this story. 0:01:21.640 --> 0:01:23.640 So there in lies the story lives. It's great to 0:01:23.680 --> 0:01:26.959 see you. So Lzianne, where does that leave us? 0:01:27.000 --> 0:01:27.160 Then? 0:01:27.280 --> 0:01:29.479 How long does that story go on for? 0:01:30.959 --> 0:01:33.240 Well, I think you know. Key to the equity market 0:01:33.480 --> 0:01:35.960 is more on the longer end of the bond spectrum. 0:01:36.000 --> 0:01:39.520 You've seen this pretty tight inverse relationship between the ten 0:01:39.600 --> 0:01:44.000 year yield and the US equity market, and the really 0:01:44.080 --> 0:01:47.360 acute inverse correlation dates back to the middle part of 0:01:47.480 --> 0:01:50.280 last year when you saw the big move up in 0:01:50.320 --> 0:01:52.760 the ten year yield from sub four percent to five 0:01:52.800 --> 0:01:56.120 percent from late July to late October, and that led 0:01:56.160 --> 0:01:59.280 to almost during the exact same period of time, a 0:01:59.360 --> 0:02:02.000 ten percent in the s and p twelve percent in 0:02:02.080 --> 0:02:05.080 the Nasdaq, and then of course yield started to move down, 0:02:05.120 --> 0:02:06.920 and the early part of that moved down, it was 0:02:06.960 --> 0:02:09.800 to the benefit of equal weight, it was to the 0:02:09.840 --> 0:02:13.480 benefit of small caps, and then we saw the yield 0:02:13.600 --> 0:02:16.919 move up from three point eight to more recently four 0:02:16.960 --> 0:02:20.760 point seven. The first part of that was largely to 0:02:20.840 --> 0:02:24.359 the detriment of smaller cap stocks of equal weight sort 0:02:24.400 --> 0:02:26.560 of down the spectrum, But then when you got up 0:02:26.560 --> 0:02:29.639 to the four to seven it obviously caused some trouble 0:02:29.680 --> 0:02:32.360 for the market more broadly. Now I think we're back 0:02:32.360 --> 0:02:35.000 in that more nuanced part of the cycle where moves 0:02:35.080 --> 0:02:37.639 up and down and yields is likely to have more 0:02:37.639 --> 0:02:40.080 of a direct impact down the cap spectrum, where you 0:02:40.120 --> 0:02:43.480 have the zombie companies, the companies that are more at 0:02:43.480 --> 0:02:45.799 the mercy of what happens with yields. You know, you've 0:02:45.800 --> 0:02:48.680 been reporting on it a lot this morning. Many of 0:02:48.680 --> 0:02:52.560 the larger companies earn more interest on their cash and 0:02:52.600 --> 0:02:55.200 they pay interest on debt. So I still think that 0:02:55.280 --> 0:02:58.480 the bond market is in large part in the driver's 0:02:58.480 --> 0:03:01.359 seat for the equity market market, even more so than 0:03:01.919 --> 0:03:04.679 this parlor game of when's the Fed, you know, going 0:03:04.720 --> 0:03:09.000 to cut rates? When's the first meeting? And how quickly 0:03:09.080 --> 0:03:09.960 and how many. 0:03:10.480 --> 0:03:12.760 Lizenne, We're I guess about eighty percent away through the 0:03:12.760 --> 0:03:14.680 earnings for the S and P five hundred here any 0:03:14.960 --> 0:03:16.839 takeaways for you one way or the other. 0:03:17.840 --> 0:03:20.800 Yeah, So the beat rate on earnings is above the 0:03:20.840 --> 0:03:23.560 long term average, but below the average over the last 0:03:23.680 --> 0:03:26.840 four quarters, although the percent by which companies have beaten 0:03:27.520 --> 0:03:30.880 is decent, but it's the top line number where the 0:03:30.880 --> 0:03:35.600 beat rate has been well below long term and shorter term. 0:03:36.000 --> 0:03:38.240 So I think the real key is the companies that 0:03:38.320 --> 0:03:41.080 have been beating on the bottom line. Particularly if they 0:03:41.080 --> 0:03:43.880 haven't beaten on the top line, it's largely because of 0:03:44.480 --> 0:03:47.480 cost cutting methods in order to protect margins, so I 0:03:47.480 --> 0:03:50.240 think that's part of the underlying story. But we are 0:03:50.240 --> 0:03:52.200 looking at about a ten percent growth rate, and that 0:03:52.240 --> 0:03:55.520 excludes the big one time charge for Bristol Myers Squib 0:03:55.520 --> 0:03:57.640 It would be two or three percentage points lower than that, 0:03:57.720 --> 0:04:00.920 but since that's one company, one time nature, I'm using 0:04:00.960 --> 0:04:04.240 more the ten percent number. But we're not seeing much 0:04:04.320 --> 0:04:08.640 movement in terms of extrapolating that better than expected first 0:04:08.680 --> 0:04:11.320 quarter into the latter part of the year. So I 0:04:11.400 --> 0:04:13.480 still think the outlooks are important. And then, as has 0:04:13.480 --> 0:04:17.680 been the case in recent quarters, companies stocks of companies 0:04:17.720 --> 0:04:22.880 that have missed earnings are getting disproportionately hurt relative to 0:04:22.960 --> 0:04:27.919 the reward accrue to companies outperforming expectations, so it just 0:04:27.960 --> 0:04:29.839 tells you that the market's in a little bit of 0:04:29.839 --> 0:04:30.679 a skittish state. 0:04:30.920 --> 0:04:33.120 Yeah, I mean sometimes those drops like I'm on the 0:04:33.120 --> 0:04:36.240 closing bell, we report earnings and man, sometimes that punishment 0:04:36.360 --> 0:04:39.039 as an understatement, so we like a little bit tab 0:04:39.160 --> 0:04:40.720 in two bill and chill. I've been trying to come 0:04:40.800 --> 0:04:43.000 up with something really clever and it's not happening, but 0:04:43.040 --> 0:04:46.640 like large and lush like? Is it large caps and bust? 0:04:46.920 --> 0:04:47.000 Like? 0:04:47.120 --> 0:04:47.400 Is that? 0:04:47.520 --> 0:04:49.800 Is that where you have to just I think it's Yeah. 0:04:49.839 --> 0:04:53.560 I think where the factor focus needs to be in 0:04:53.640 --> 0:04:57.160 things like interest cover strength and balance sheet strong, free 0:04:57.160 --> 0:05:00.719 cash flow to enterprise value. High return on equity does 0:05:00.800 --> 0:05:04.000 tend to generally correlate up the cap spectrum, but that 0:05:04.040 --> 0:05:08.760 doesn't mean that there aren't opportunities outside of those megacap areas. 0:05:08.760 --> 0:05:10.800 And that's why we continue to think you want to 0:05:10.839 --> 0:05:14.840 have that factor orientation around some of those characteristics that 0:05:15.000 --> 0:05:18.000 I just mentioned. I think what you really want to 0:05:18.040 --> 0:05:22.960 avoid is the ultra low quality zombie company not profitable 0:05:23.240 --> 0:05:26.000 segment within indexes like the Wrestle two thousand. 0:05:26.880 --> 0:05:29.600 Listen and talk to us about valuation. What's your call here. 0:05:30.400 --> 0:05:31.720 You know, we've had a big run up off those 0:05:31.760 --> 0:05:34.400 October lows and the stock prices. Earnings, as you mentioned, 0:05:34.440 --> 0:05:36.920 have come in better than expected. Is that enough to 0:05:36.920 --> 0:05:38.000 support valuations here? 0:05:38.960 --> 0:05:39.120 Well? 0:05:39.200 --> 0:05:41.479 Last year was a year where at the at least 0:05:41.520 --> 0:05:44.360 at the index level, the market did quite well, but 0:05:44.480 --> 0:05:46.839 we had very little learnings growth. So most of last 0:05:46.920 --> 0:05:50.320 year was valuation expansion. The recent draw down that we 0:05:50.400 --> 0:05:52.240 got in the S and P and the nasdact to 0:05:52.320 --> 0:05:55.640 a greater degree indexes like the Wrestle two thousand, that 0:05:55.920 --> 0:06:00.000 was largely multiple contraction. Because we're now in positive earnings territory, 0:06:00.279 --> 0:06:04.000 although importantly not for the Rustle, we're still in negative territory. 0:06:04.160 --> 0:06:06.760 So valuations are on the rich end of the spectrum. 0:06:06.800 --> 0:06:09.640 But as I always say, much like I say about sentiment, 0:06:10.400 --> 0:06:13.720 valuation is a terrible market timing pool. You could talk 0:06:13.760 --> 0:06:17.000 about it as a backdrop. Markets are still fairly rich, 0:06:17.160 --> 0:06:20.520 but that is not the same thing as it's sending 0:06:20.560 --> 0:06:23.520 a message that you need to sell stocks because of 0:06:23.640 --> 0:06:27.120 rich valuation. Valuations can get rich, centement can get frothy, 0:06:27.160 --> 0:06:28.800 and it can stay that way for quite some time. 0:06:28.839 --> 0:06:31.040 As we all learned in the late nineteen nineties, yep. 0:06:31.080 --> 0:06:33.480 Absolutely all right, Luzanne, thank you so much for joining us. 0:06:33.480 --> 0:06:36.440 As always, Lizzie Saunders, folks, she is a chief investment 0:06:36.520 --> 0:06:38.359 strategist at Charles Schwabi. 0:06:38.360 --> 0:06:40.080 Appreciate getting a few minutes of her time. 0:06:50.600 --> 0:06:53.080 We have lots of FEDS speak out today, three two 0:06:53.120 --> 0:06:55.800 FED speakers, eleven this week. Those are really going to 0:06:55.839 --> 0:06:58.280 be the main event. We also have some ECV speakers 0:06:58.800 --> 0:07:01.880 talking today as well, talking about how rates will be 0:07:01.960 --> 0:07:05.520 lowered gradually over time. One is looking at three interest 0:07:05.640 --> 0:07:09.480 rate cuts so far this year and again saying that 0:07:09.640 --> 0:07:13.320 the ECB is independent of FED decisions and that the 0:07:13.440 --> 0:07:16.040 impact will be contained on the euro Area. Let's get 0:07:16.080 --> 0:07:18.840 more insight into all this. Jackie Bowie is managing partner 0:07:18.880 --> 0:07:24.200 and head of EA firm Chatham Financial. Jackie, do you 0:07:24.280 --> 0:07:26.120 do you agree with that idea that, look, the ECB 0:07:26.240 --> 0:07:28.240 can cut three times, if they can do what they want, 0:07:28.400 --> 0:07:30.880 the ECB in Europe is going to be relatively insulated, 0:07:31.000 --> 0:07:31.640 no problems. 0:07:33.200 --> 0:07:33.360 Yeah. 0:07:33.440 --> 0:07:38.560 There certainly seems to be some transatlantic divergence and monetary policy, 0:07:39.440 --> 0:07:42.920 and that really reflects the very different economic conditions in 0:07:43.000 --> 0:07:45.920 the US versus Urope. You know, we've been talking a 0:07:46.120 --> 0:07:49.240 year about the strength of the US economy. You know, 0:07:49.360 --> 0:07:52.280 despite all those rate increases in the last two years, 0:07:52.320 --> 0:07:55.480 the economy has been very resilient. In the Euro Area, 0:07:56.040 --> 0:07:59.400 it's the opposite, the economies are extremely weak. The UK 0:07:59.600 --> 0:08:01.880 had the COVI session at the end of last year, 0:08:02.360 --> 0:08:05.320 so the divergence and monetary policy I think reflects those 0:08:05.440 --> 0:08:06.920 underlying economic conditions. 0:08:07.920 --> 0:08:10.720 So Jackie, let's start with the UK. What is the 0:08:10.800 --> 0:08:13.160 Bank of England saying these days? What does a market 0:08:13.280 --> 0:08:15.600 believe the Bank of England will do. 0:08:17.240 --> 0:08:17.440 Well? 0:08:17.520 --> 0:08:20.280 There's certainly an expectation that a rate cut is coming 0:08:21.080 --> 0:08:23.080 early in the summer. So we have the Bank of 0:08:23.120 --> 0:08:26.160 England meeting and this week, so we'll get the announcement 0:08:26.240 --> 0:08:29.120 on the ninth of May. The market is really now 0:08:29.200 --> 0:08:32.800 pricing in a hold for this meeting and the first 0:08:32.880 --> 0:08:36.120 cut to come slightly later. And I guess that's been 0:08:36.160 --> 0:08:38.720 the story all year with all the central banks, where 0:08:39.200 --> 0:08:42.520 you know, the FED and the ECB and the Bank 0:08:42.559 --> 0:08:45.800 of England. We were all expecting these quite significant rate 0:08:45.880 --> 0:08:48.679 cuts to come, and what's happened is the timing of 0:08:48.720 --> 0:08:51.559 the first cut is getting pushed further out and the 0:08:51.720 --> 0:08:54.760 extent of the cuts being reduced down is to save 0:08:54.840 --> 0:08:56.200 story for the Bank of England. 0:08:56.600 --> 0:08:59.640 But you know, come May nineteenth, there could be a 0:08:59.720 --> 0:09:03.160 save in Europe that will help growth and maybe boost inflation. 0:09:03.400 --> 0:09:05.800 What is that. She goes by the name of Taylor Swift. 0:09:06.000 --> 0:09:09.640 Oh boy, and I say that jokingly, but there was 0:09:09.679 --> 0:09:13.000 an argument that Taylor Swift's concert schedule in the US 0:09:13.120 --> 0:09:15.800 last year did a tremendous amount for the economy, and 0:09:15.880 --> 0:09:18.360 many economists have actually put numbers on it. She kicks 0:09:18.400 --> 0:09:22.319 off for European tour May ninth. Do you think it's 0:09:22.360 --> 0:09:26.559 going to materially help like services spending, really help boost 0:09:26.600 --> 0:09:29.440 growth or at least provide a floor. Joking but serious question. 0:09:31.040 --> 0:09:33.199 Well, interestingly, if you look at the two sides of 0:09:33.240 --> 0:09:37.000 the economy, between the manufacturing industrial side and the services 0:09:37.120 --> 0:09:40.520 sector side, the services sector side has actually been holding 0:09:40.679 --> 0:09:44.200 up slightly better. And that's the argument as to why 0:09:44.280 --> 0:09:47.719 inflation hasn't come down quite so much across Europe, and 0:09:47.880 --> 0:09:51.320 that that services sector wage inflation has been slightly sticky. 0:09:51.840 --> 0:09:54.360 So if we get the Taylor Swift about here in Europe, 0:09:54.520 --> 0:09:57.319 actually it's on the wrong side of the economy. What 0:09:57.480 --> 0:10:02.640 the European economy, especially Germany, is an improvement in the 0:10:02.880 --> 0:10:05.560 heavy industrial construction side of the economy. 0:10:06.040 --> 0:10:09.120 So Todd gives an update Jackie on on Germany. We 0:10:09.800 --> 0:10:12.400 know that that's a challenging situation. They have kind of 0:10:12.440 --> 0:10:16.760 the double whammy, the exposure to Russian from the energy perspective, 0:10:16.760 --> 0:10:19.280 and then number two, they're you know, exposure to China 0:10:19.400 --> 0:10:22.320 on the export side. Where is the German economy now 0:10:22.360 --> 0:10:25.600 and how are the how's the European Center Bank viewing Germany. 0:10:26.840 --> 0:10:30.040 Yeah, so there has been some flash data just in 0:10:30.120 --> 0:10:33.320 the last few weeks which is showing a little bit 0:10:33.440 --> 0:10:37.320 of signs of recovery, but it's very marginal and generally, 0:10:37.800 --> 0:10:40.240 you know, economists are still seeing this isn't the start 0:10:40.320 --> 0:10:43.600 of a recovery trend. And you've hit on the exact 0:10:43.679 --> 0:10:47.720 two points. Germany's getting squeezed. They have They're very dependent 0:10:47.920 --> 0:10:53.000 on energy coming from elsewhere Russia pre the war. Those 0:10:53.160 --> 0:10:56.079 energy prices now they know and year increase in those 0:10:56.120 --> 0:10:59.120 prices is coming back down, but they're still quite inflated. 0:10:59.440 --> 0:11:02.240 And as you is an expert led economy led by 0:11:03.120 --> 0:11:06.160 heavy industrial, the auto sector, and where you're going to 0:11:06.160 --> 0:11:08.480 have a whole other conversation about the EB market and 0:11:08.559 --> 0:11:11.240 what's happening there. But Germany's really stuck in the middle. 0:11:11.600 --> 0:11:14.120 So you're right, the European Central Bank has a bit 0:11:14.160 --> 0:11:18.400 of a dilemma because the peripheral European economy, so poachspin 0:11:18.440 --> 0:11:23.199 in Italy, are actually doing a bit better service sector tourism, 0:11:23.800 --> 0:11:27.280 but then the biggest economy in Germany obviously not doing 0:11:27.360 --> 0:11:30.280 quite so well. So trying to find a monetary policy 0:11:30.360 --> 0:11:34.520 stance that can fit both those scenarios is pretty challenging. 0:11:35.000 --> 0:11:39.000 What's interesting, though, is that President Jijenping didn't go to Germany, 0:11:39.600 --> 0:11:42.160 so I went to France and then going to Hungary, 0:11:42.559 --> 0:11:46.360 basically other countries that have a tangentile tie in essence 0:11:46.640 --> 0:11:49.520 to rush up. Do you make anything of the fact 0:11:49.720 --> 0:11:51.640 that president did not go to Germany. 0:11:53.480 --> 0:11:56.120 I didn't read into that too much. I'm sure there 0:11:56.200 --> 0:11:59.719 might have been an underlying message there, but certainly in 0:11:59.800 --> 0:12:03.160 the in the London headlines this morning, it was very 0:12:03.280 --> 0:12:07.480 much all around, you know, the Chinese French relationship and 0:12:07.600 --> 0:12:10.199 how this could be, you know, a bell weather for 0:12:10.520 --> 0:12:12.640 China and the rest of Europe. It seems like a 0:12:12.679 --> 0:12:14.839 bit of a leap to take it to that conclusion, 0:12:14.920 --> 0:12:17.960 but certainly that's the way it's being reported here in London. 0:12:17.720 --> 0:12:21.240 To you, all right, Jackie, Given that background, that central 0:12:21.280 --> 0:12:25.199 bank background across Europe, where are your clients when you 0:12:25.280 --> 0:12:28.400 talk to them, were they most comfortable allocating capital these days? 0:12:29.920 --> 0:12:33.760 Well, Chatham really works and much more in the private 0:12:33.880 --> 0:12:36.960 capital markets. So we have a lot of clients who 0:12:37.040 --> 0:12:41.199 are heavily invested into real assets, so real estate and 0:12:41.400 --> 0:12:46.560 private equity infrastructure. There certainly is still a fairly negative 0:12:46.679 --> 0:12:50.000 view on big parts of real estate across Europe, and 0:12:50.120 --> 0:12:53.280 that's completely related to where these interest rates are, you know, 0:12:53.440 --> 0:12:56.640 combination of the valuation of those assets and also the 0:12:56.760 --> 0:13:00.240 cost of debt to borrow to fund new investments. So 0:13:00.440 --> 0:13:03.600 still quite a bit of negative sentiment there. I would 0:13:03.679 --> 0:13:05.920 say that on the other side, what we would call 0:13:05.960 --> 0:13:09.760 the infrastructure assets, so that's everything that sits within renewable 0:13:09.920 --> 0:13:14.280 energy and big public sected infrastructure. That's certainly where we're 0:13:14.360 --> 0:13:19.360 seeing clients raising you capital and allocating into those alternative 0:13:19.520 --> 0:13:23.160 energy and infrastructure sectors. So anything in the public markets 0:13:23.240 --> 0:13:25.880 that also relates to that, I would say, is where 0:13:26.000 --> 0:13:27.199 capital is being allocated. 0:13:27.760 --> 0:13:29.400 What are your clients most worried about then? 0:13:29.480 --> 0:13:33.160 Right now, refinancing debt at higher rates. 0:13:33.000 --> 0:13:35.760 Of interest and when is that going to come down? Yet, 0:13:35.960 --> 0:13:38.240 it's a fair point, and when does that strike for them? 0:13:39.840 --> 0:13:42.319 It will be the second half of this year. So 0:13:42.760 --> 0:13:46.280 there's been there was a little half tongue in cheap 0:13:46.320 --> 0:13:49.439 phrase about in real estate that you just had to 0:13:49.520 --> 0:13:52.880 stay alive until twenty five and that would mean that 0:13:53.000 --> 0:13:55.320 interests were coming back down and you would be able 0:13:55.320 --> 0:13:58.480 to refinance. Now that is correct. The interest rates will 0:13:58.559 --> 0:14:01.400 be lower in twenty twenty five than beware at their 0:14:01.440 --> 0:14:04.120 peak of twenty three, but they're still going to be 0:14:04.280 --> 0:14:07.920 significantly higher than they were at the origination of some 0:14:08.080 --> 0:14:12.559 of those loans. So this refinancing avalanche, as it's being described, 0:14:12.840 --> 0:14:15.160 will really start to hit the second half of this 0:14:15.360 --> 0:14:17.599 year and in the next year. So there's been a 0:14:17.760 --> 0:14:21.440 little bit of a delay of some of those borrowers 0:14:21.600 --> 0:14:24.440 refinancing as they wait to see what the interst rate 0:14:24.560 --> 0:14:26.160 market looks like in the second half. 0:14:27.000 --> 0:14:29.280 All right, Jackie, thanks a lot, We really appreciate it. 0:14:29.280 --> 0:14:31.560 Thank you for your time today. Jackie Bowie, Managing partner 0:14:31.640 --> 0:14:35.480 at Chatham joining us there on Europe the UK. What 0:14:35.640 --> 0:14:42.120 clients are worried about? You're in T bills. You're making 0:14:42.240 --> 0:14:44.360 two million dollars a minute, and by you, I mean 0:14:44.480 --> 0:14:47.440 one the general investor. I would love to make two 0:14:47.480 --> 0:14:50.440 million dollars a minute. Here with more is even devitt 0:14:50.680 --> 0:14:54.640 a cheap global market. It is over at Monetta, even 0:14:54.960 --> 0:14:57.320 T bill and chill. When you're taking a look at 0:14:57.320 --> 0:14:59.520 treasury paying at two million dollars a minute, what do 0:14:59.560 --> 0:15:02.520 you make of that? It's where we have been. Cash 0:15:02.640 --> 0:15:03.520 is no longer trash. 0:15:03.600 --> 0:15:06.000 It's a great place to stash money and to sit 0:15:06.080 --> 0:15:08.920 on dry powder. That has certainly been the case for 0:15:09.080 --> 0:15:12.960 the last eighteen months. However, we've seen investors get a 0:15:12.960 --> 0:15:16.080 little certain about that, especially with the FOMO we've seen 0:15:16.120 --> 0:15:20.960 around equity markets and inflation staying hi that hash yield. Remember, 0:15:21.080 --> 0:15:24.400 after inflation what we're thinking about isn't quite as compelling, 0:15:24.800 --> 0:15:27.960 but it has put pressure on bond substitutes, so things 0:15:28.120 --> 0:15:32.280 like infrastructure, real estate, defensive stocks, they are all suffering 0:15:32.360 --> 0:15:34.360 from this. But as we can see from the rally 0:15:34.400 --> 0:15:37.440 in markets, it isn't making any dent in the desire 0:15:37.600 --> 0:15:41.120 for growth participation and some of those higher octane stocks 0:15:41.680 --> 0:15:42.560 you know, I saw over. 0:15:42.400 --> 0:15:45.480 The weekend that out West and Tahoe the skiers. I 0:15:45.520 --> 0:15:47.200 got like two or three feet of snow over the weekend. 0:15:47.200 --> 0:15:48.960 They're gonna be skiing to like July fourth here, And 0:15:49.080 --> 0:15:53.640 that was picked up by Ethan. How do you equate 0:15:53.840 --> 0:15:57.640 the snowfall out west to your market? Call Ethan, it's funny. 0:15:57.840 --> 0:16:00.400 I always look for parallels in real life, and we've 0:16:00.480 --> 0:16:01.520 had a bit of a surprise. 0:16:02.280 --> 0:16:02.880 I love skiing. 0:16:02.920 --> 0:16:04.800 I wouldn't say I'm an expert, but I do love it. 0:16:05.240 --> 0:16:07.440 And just what they've said about the I follow all 0:16:07.480 --> 0:16:09.880 the ski resorts and they're saying as long as possible, 0:16:10.120 --> 0:16:12.480 They're staying open as long as possible, and that's that 0:16:12.640 --> 0:16:15.680 open ended the joy that the Springs skiers see. I 0:16:15.800 --> 0:16:18.360 saw parallel to that with some of the rhetoric from 0:16:18.400 --> 0:16:20.880 the FED at last week's meeting that they will leave 0:16:20.960 --> 0:16:23.640 rates high essentially as long as possible. So there's going 0:16:23.760 --> 0:16:26.640 to be not much certainty in terms of the timing 0:16:26.720 --> 0:16:30.560 of rate cuts. And just like the snowpack is looking 0:16:30.600 --> 0:16:32.760 at one hundred and thirty percent of its medium, we 0:16:32.880 --> 0:16:35.400 still have inflation at one hundred and thirty percent of 0:16:35.520 --> 0:16:38.480 its average, so it's around three percent, whereas we would 0:16:38.480 --> 0:16:40.360 hope it'd get closer to just two percent. That's at 0:16:40.440 --> 0:16:43.640 least the target. So we're not there yet. Some are 0:16:43.720 --> 0:16:46.640 making hay and the ski slopes. But for the FED, 0:16:46.840 --> 0:16:49.760 it's that open endedness of it, which I thought didn't 0:16:49.800 --> 0:16:50.960 seem to spook markets. 0:16:51.040 --> 0:16:51.720 I thought it would. 0:16:51.800 --> 0:16:55.200 Actually markets have been surprisingly resilient. I even thought that 0:16:55.320 --> 0:16:58.800 the jobs number on Friday not being as robust would 0:16:58.840 --> 0:17:02.080 spook markets. To have had the opposite effect, and that 0:17:02.200 --> 0:17:04.840 markets seem to have taken from that that the pressure 0:17:04.880 --> 0:17:08.800 on labor is going to be more subdued, that lead 0:17:08.880 --> 0:17:11.440 in to the inflation point is going to be less 0:17:11.440 --> 0:17:13.359 of an issue, and then maybe we will get to 0:17:13.440 --> 0:17:16.760 that soft landing no landing scenario that they've been thinking about. 0:17:17.119 --> 0:17:20.240 So Marcus just seemed to be incredibly resilient. Like the 0:17:20.320 --> 0:17:21.600 snow resorts right now. 0:17:21.680 --> 0:17:23.119 Is is it weird to get snow. 0:17:22.960 --> 0:17:25.359 In May like that? No, No, it is crazy out there. 0:17:25.359 --> 0:17:28.119 They've had some good snow. But when it snows in Tahoe, 0:17:28.440 --> 0:17:30.919 it snows huge because you get the stormsure off the ocean, right, 0:17:31.000 --> 0:17:31.840 So that's not weird. 0:17:32.200 --> 0:17:35.560 But keeping rates this low with the data may be weird. 0:17:35.800 --> 0:17:38.520 I mean this high, I should say, like this high 0:17:38.640 --> 0:17:40.640 versus the data, Like, is that weird? Is that sort 0:17:40.680 --> 0:17:44.159 of an anomaly that financial conditions, for example, continuing to 0:17:44.200 --> 0:17:46.080 get looser. You take a look at sluice in your 0:17:46.119 --> 0:17:49.120 loan Office of Survey and lending standards aren't as tight 0:17:49.200 --> 0:17:51.240 as they might have been other times in the cycle, Like, 0:17:51.320 --> 0:17:53.480 that's weird, No, it is. 0:17:53.560 --> 0:17:55.639 I mean it's interesting. I think that the Fed right 0:17:55.680 --> 0:17:58.119 now is looking at the inflation number, looking at this 0:17:58.359 --> 0:18:01.320 ongoing tightening that they're doing behind the scenes by slowing 0:18:01.359 --> 0:18:03.679 their purchases and actually trying to offload part of their 0:18:03.720 --> 0:18:06.439 balance sheet. So that is a tightening measure. So they 0:18:06.480 --> 0:18:10.080 really are continuing to tighten, and as inflation falls, those 0:18:10.119 --> 0:18:13.320 interest rates will start to pinch more. And simply the 0:18:13.359 --> 0:18:15.760 fact that the longer these high rates are in effect, 0:18:16.080 --> 0:18:18.879 the more consumers and companies will be forced to refinance, 0:18:19.119 --> 0:18:21.680 so that transmission effect is going to start to bite 0:18:21.800 --> 0:18:24.640 even more. So even though they're doing nothing, it's still 0:18:24.680 --> 0:18:28.040 a pretty tight environment. And the question is how long 0:18:28.119 --> 0:18:32.000 can consumers stick with that? And you know, we're already 0:18:32.040 --> 0:18:35.200 feeling the cumulative effect of inflation that hasn't gone away. 0:18:35.280 --> 0:18:37.960 We're seeing the gas price increased at the pumps, and 0:18:38.080 --> 0:18:41.920 this geopolitical uncertainty that is just swirling in the background, 0:18:42.080 --> 0:18:45.200 and as the US election nears, it's going to get 0:18:45.320 --> 0:18:48.680 more and more noisy there, not only domestically, but it 0:18:48.760 --> 0:18:50.440 seems unfortunately internationally. 0:18:50.800 --> 0:18:52.720 So I do see quite a lot of. 0:18:52.800 --> 0:18:56.360 Risks there to this market resilience, and as you said, 0:18:56.440 --> 0:18:58.880 there isn't really that loosening that look to kick off 0:18:58.880 --> 0:18:59.800 anytime soon. 0:19:00.560 --> 0:19:04.639 Given that background, Even where are you suggesting your clients 0:19:04.680 --> 0:19:06.120 allocate capital these days? 0:19:07.160 --> 0:19:10.520 We're definitely more interesting to hear just the notes from 0:19:10.560 --> 0:19:14.439 Warren Buffett about AI and clearly this concentration in markets 0:19:14.520 --> 0:19:17.680 around AI and technology. We can't ignore that we've never 0:19:17.800 --> 0:19:21.080 had a strict thematic approach. We've always been believers in 0:19:21.200 --> 0:19:24.399 more of a core, broad based approach. We were encouraged 0:19:24.480 --> 0:19:27.440 by some of the sectors that rallied in the first quarter. 0:19:27.680 --> 0:19:30.040 It was pretty much across the board, we had strong performance. 0:19:30.359 --> 0:19:33.520 We're also encouraged by a suggestion that a cut in rates, 0:19:33.520 --> 0:19:35.919 when it finally does happen, will be good for mid 0:19:36.000 --> 0:19:38.600 cap and small cap stocks, so that should then again 0:19:38.880 --> 0:19:41.719 add some breath to this rally, which has been very 0:19:41.840 --> 0:19:45.080 large cap focused. So we're pretty keen on equities still 0:19:45.520 --> 0:19:48.600 as before, we've always been diversifying. Right now, around real 0:19:48.720 --> 0:19:51.080 estate we're a little hesitant. We haven't seen the movement 0:19:51.160 --> 0:19:53.960 and prices to suggest we're at of bottom yet, so 0:19:54.119 --> 0:19:56.520 real estate we'd be more hesitant. But as far as 0:19:56.720 --> 0:19:59.879 picking sectors. Another thing we're exploring is around just how 0:20:00.040 --> 0:20:03.240 digital assets are maturing. We're taking a look at Bitcoin 0:20:03.320 --> 0:20:06.400 two point zero. We're still on the education phase. There's 0:20:06.440 --> 0:20:09.320 a lot to learn about how that behaves in a portfolio. 0:20:09.920 --> 0:20:12.159 But since Warren Buffett seems to think that this is 0:20:12.200 --> 0:20:15.800 a casino economy that we're in, we need to know 0:20:16.000 --> 0:20:18.280 what the odds are at that casino and to try 0:20:18.280 --> 0:20:20.760 to put a little bit of fundamental research behind the 0:20:20.840 --> 0:20:24.399 kind of red black conundrum that investors may feel they're facing. 0:20:24.680 --> 0:20:26.640 Which pairs to the point that Paul and I talked 0:20:26.680 --> 0:20:29.480 about Friday, that David Busters is allowing some gambling when 0:20:29.520 --> 0:20:33.320 it comes to physical stuff in their restaurant's total side note, 0:20:33.400 --> 0:20:35.480