WEBVTT - Fed Minutes, Meta, Rivian, and Student Loans (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:05.280 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moven news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets podcast called Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.480 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:21.160 --> 0:00:23.000 We've got a good block of time here and we're 0:00:23.000 --> 0:00:23.520 gonna need it. 0:00:23.600 --> 0:00:24.000 Daniel D. 0:00:24.120 --> 0:00:28.160 Martino Booth joins us here on our Bloomberg Interactive Broker's studio. 0:00:28.360 --> 0:00:30.120 You know her, you know her work. 0:00:30.040 --> 0:00:34.000 CEO and chief strategists at QI Research. Daniel, thanks so 0:00:34.080 --> 0:00:36.760 much for joining us here, Boyd. A lot of economic 0:00:36.800 --> 0:00:39.559 data coming out over the last several days. I don't know, 0:00:39.600 --> 0:00:42.720 the economy seems pretty darn strong to me. I'm not 0:00:42.760 --> 0:00:45.440 sure if the recession talk is off the table. What 0:00:45.600 --> 0:00:46.960 does our Federal Reserve do? 0:00:47.400 --> 0:00:48.960 Look at some of the eco data we've seen over 0:00:48.960 --> 0:00:50.000 the last several days. 0:00:50.320 --> 0:00:52.199 Well, you have to bear in mind, I'm of the 0:00:52.240 --> 0:00:54.840 mind that the Federal Reserve wants a reason to keep 0:00:54.920 --> 0:00:59.440 raising rates. Okay, and we follow one metric at QI 0:00:59.520 --> 0:01:03.520 Research the most closely because it's got the least noise 0:01:03.560 --> 0:01:09.000 in it, so not statistically not seasonally adjusted continuing claims. 0:01:09.080 --> 0:01:11.080 Okay, So I'm gonna make this really simple. 0:01:11.160 --> 0:01:13.679 Last September, there were zero states in the United States 0:01:13.680 --> 0:01:17.640 of America that had rising year over year continuing claimants. 0:01:17.760 --> 0:01:21.240 So the number of individuals in zero states in terms 0:01:21.280 --> 0:01:26.000 of rising beneficiaries. Okay, last September, forty six states as 0:01:26.080 --> 0:01:33.240 of this morning's data have rising continuing claimants. That's ninety 0:01:34.080 --> 0:01:35.240 ninety four percent of the population. 0:01:35.319 --> 0:01:38.399 Wow, Okay, so what's that tell you that? 0:01:38.640 --> 0:01:40.240 And it's been gradual, by the way, this is not 0:01:40.319 --> 0:01:43.000 like from September and a light flipped on in July. 0:01:43.080 --> 0:01:46.840 It's a very gradual move. And it tells me that 0:01:46.959 --> 0:01:50.160 even though the data is not fast moving, that seasonality 0:01:50.240 --> 0:01:52.640 is really giving a lot of trouble to a lot 0:01:52.680 --> 0:01:54.760 of these other data sets. And it just tells you 0:01:54.800 --> 0:01:58.680 that there's been a steady, a steady degradation in the 0:01:58.800 --> 0:02:03.200 US economy viewed through the purest prism of people continuing 0:02:03.640 --> 0:02:07.200 to claim jobless benefits. Not initial, they're not they're not applying, 0:02:07.440 --> 0:02:08.720 they're they're collecting. 0:02:09.080 --> 0:02:10.880 What is eighty I don't know what to do with 0:02:10.919 --> 0:02:11.680 ad you. 0:02:11.680 --> 0:02:12.760 Know, you know, what do you do with ADP? 0:02:12.840 --> 0:02:14.320 I tell you what with ADP? 0:02:14.480 --> 0:02:17.200 You go, Look, we've had about four hundred and we've 0:02:17.200 --> 0:02:19.919 we've had about three hundred and forty eight thousand last 0:02:19.960 --> 0:02:23.720 six months NFP non farm payrolls YEP ADPs three hundred 0:02:23.720 --> 0:02:26.680 and sixty three last six months. Okay, fine, it's caught up. 0:02:27.120 --> 0:02:29.799 Moving on some of that. Some of the aberrations in. 0:02:29.760 --> 0:02:30.880 The data are bizarre. 0:02:31.760 --> 0:02:35.720 Leisure in hospitality, mining. Did we discover copper in America? 0:02:36.200 --> 0:02:36.399 Mining? 0:02:36.440 --> 0:02:40.040 Because that was a huge pop in mining. So and 0:02:40.040 --> 0:02:43.880 we've seen the Baylor, We've seen the Baker, Riggs, Hughes, 0:02:43.919 --> 0:02:46.560 rigcount I can't speak this one. I've had too much coffee. 0:02:46.600 --> 0:02:49.720 We've seen rig counts come down. Okay, So there's no 0:02:49.760 --> 0:02:51.680 reason to think that there's a whole bunch of shale 0:02:51.760 --> 0:02:54.720 formation that's pulling people into the energy patch. 0:02:55.160 --> 0:02:56.760 So you think the economy is weaker than some of 0:02:56.760 --> 0:02:59.440 the underlying some of the headline data is showing. 0:02:59.639 --> 0:03:01.320 I think the economy is weaker if you look on 0:03:01.400 --> 0:03:01.800 a grant. 0:03:02.800 --> 0:03:04.360 When I give the Fed some reasons that just to 0:03:04.400 --> 0:03:05.320 pause if not, I. 0:03:05.280 --> 0:03:07.520 Don't think the Fed wants to pause Okay, I think 0:03:07.520 --> 0:03:09.919 the Fed is looking for reasons to keep going. I 0:03:10.000 --> 0:03:13.480 think if you pay attention to how they will not 0:03:13.560 --> 0:03:17.160 discuss the balance sheet. We're not talking about quantitative tightening. 0:03:17.560 --> 0:03:20.240 It's like Voldemort. They won't talk about it. But they 0:03:20.240 --> 0:03:22.840 can't have quantitative tightening. They can't continue to shrink the 0:03:22.840 --> 0:03:26.320 balance sheet. If a discussion is even entered into about 0:03:26.320 --> 0:03:29.240 easing where rates are they have to keep rights high 0:03:29.280 --> 0:03:30.399 to keep shrinking the balance sheet. 0:03:30.400 --> 0:03:32.360 So we're getting all of this labor data ahead of 0:03:32.480 --> 0:03:35.920 tomorrow's important jobs report, and it's interesting. I'm looking at 0:03:35.960 --> 0:03:38.320 Ecogo and the terminal and it looks like the unemployment 0:03:38.360 --> 0:03:40.200 rate it's actually going to tick down from three point 0:03:40.280 --> 0:03:43.680 seven percent through three point six percent based on analysts 0:03:43.720 --> 0:03:45.840 that we're pulling in the terminal. You look at the 0:03:46.480 --> 0:03:48.720 when it comes to non farm payrolls about two hundred 0:03:48.720 --> 0:03:51.800 and twenty five thousand. What is your take on what 0:03:52.000 --> 0:03:55.080 we could see tomorrow and obviously how that could potentially 0:03:55.160 --> 0:03:57.480 relate to how US stocks are moving on the back 0:03:57.520 --> 0:03:59.680 of this type of data that clearly not even just 0:03:59.720 --> 0:04:01.360 the stuf Bock market, but looking what's happening with a 0:04:01.400 --> 0:04:03.440 two year and the. 0:04:03.360 --> 0:04:05.760 Two year really is where it is all at at 0:04:05.760 --> 0:04:10.000 this point, right, you know, I think I can't tell 0:04:10.000 --> 0:04:13.080 you what NFP is going to do tomorrow. I had 0:04:13.080 --> 0:04:14.680 a friend of Mit, Peter Sheher, he's a good friend 0:04:14.840 --> 0:04:17.680 of Bloomberg's, you know, he made the comment, what are 0:04:17.680 --> 0:04:20.279 the statistically speaking, what are the odds that fourteen months 0:04:20.320 --> 0:04:22.560 in a row all the economists missed the estimate? 0:04:23.680 --> 0:04:24.520 And what are the odds? 0:04:24.560 --> 0:04:27.680 I mean, the bls will tell you that forty two 0:04:27.760 --> 0:04:30.240 percent of the jobs created in the last forty two 0:04:30.320 --> 0:04:35.119 months are against a backdrop of the fastest bankruptcy cycle 0:04:35.160 --> 0:04:37.479 since two thousand and nine. So how do we have 0:04:37.520 --> 0:04:40.120 a birth death adjustment that adds forty two percent net 0:04:40.160 --> 0:04:43.200 net of all non farm payroll jobs. Forty two percent 0:04:43.240 --> 0:04:45.280 is not a small number over the last twelve months 0:04:45.279 --> 0:04:49.640 in the aggregate, assuming that this is all berths, when 0:04:49.839 --> 0:04:52.560 you can pull up BCY, go on the terminal and 0:04:52.600 --> 0:04:55.200 see the biggest number since two thousand and nine. 0:04:55.480 --> 0:04:57.880 So when you see the two year at a sixteen 0:04:58.000 --> 0:05:00.040 year high, what do you think the bond market it 0:05:00.160 --> 0:05:00.720 is telling us. 0:05:00.720 --> 0:05:02.440 It's telling you that Fed's going to keep raising rates 0:05:03.720 --> 0:05:04.600 come what may. 0:05:05.360 --> 0:05:10.279 So we've got ninety percent priced in for the next meeting, 0:05:10.600 --> 0:05:12.560 they go again after that, you think it's September. 0:05:13.520 --> 0:05:16.040 I think it really becomes data dependent at that point, 0:05:16.200 --> 0:05:18.240 unless there's going to be an investigation launched to the 0:05:18.279 --> 0:05:21.800 Bureau of Labor Statistics, because they're already questioning the inflation data. 0:05:22.000 --> 0:05:25.560 That's a matter of public knowledge. So I mean, barring that, 0:05:26.279 --> 0:05:29.960 you don't get to forty six states with rising continuing 0:05:29.960 --> 0:05:32.880 claimants without somebody starting to notice that there's a problem 0:05:32.960 --> 0:05:33.520 in the country. 0:05:34.480 --> 0:05:37.240 So what is the I mean, what is your overall 0:05:37.279 --> 0:05:39.880 take of this economy that there is in fact more 0:05:39.880 --> 0:05:42.960 weakness than the I guess the headline data would show. 0:05:43.760 --> 0:05:46.320 But yet they're still going to rate raise rates. 0:05:46.720 --> 0:05:50.240 It's the butt Yet remember the employee Retention credit they 0:05:50.320 --> 0:05:53.480 advertise all the time. It just pumped twenty eight point 0:05:53.520 --> 0:05:56.240 eight billion dollars into the US economy in the month 0:05:56.279 --> 0:05:59.200 of June alone. It's been about twenty billion dollars a 0:05:59.240 --> 0:06:02.480 month now for about eighteen months. There's a massive form 0:06:02.720 --> 0:06:05.720 of COVID fiscal stimulus that continues to make its way 0:06:05.720 --> 0:06:08.640 into this economy. You see it in international travel. But 0:06:08.720 --> 0:06:10.839 his tourist and slack came out in his morning note 0:06:10.839 --> 0:06:13.560 this morning and said the US consumer slowing. I think 0:06:13.560 --> 0:06:15.680 it pained him to say that, But if you look 0:06:15.720 --> 0:06:19.000 beyond the recipients of this employee retention credit, kind of 0:06:19.000 --> 0:06:22.640 the wealthiest, the highest income earners, you're seeing decided signs 0:06:22.640 --> 0:06:23.920 of slowing in consumption. 0:06:24.360 --> 0:06:27.240 So then with this jobs report tomorrow, we have CPI 0:06:27.400 --> 0:06:30.640 on July twelfth, so next week, and then we'll have 0:06:30.720 --> 0:06:34.120 the FED meeting on July twenty fifth and twenty six, 0:06:34.240 --> 0:06:37.520 So those are the last major data points before that. 0:06:37.720 --> 0:06:41.160 Is that enough for them to decide to potentially hike Oh? 0:06:41.320 --> 0:06:41.920 I think it is. 0:06:42.360 --> 0:06:42.880 I really do. 0:06:43.839 --> 0:06:44.080 Again. 0:06:44.120 --> 0:06:47.320 He's focused on an inflation metric of his own design, 0:06:48.160 --> 0:06:51.480 the core CPI net of shelter, and it is a 0:06:51.560 --> 0:06:54.320 slow moving animal. We've gone back and looked at it historically, 0:06:54.400 --> 0:06:56.839 prior to the pandemic, it was usually running at about 0:06:56.839 --> 0:06:59.799 two to three percent, but two percent was a rarity, 0:07:00.200 --> 0:07:04.080 that isolated metric that J. Powell has conceived out of 0:07:04.080 --> 0:07:08.159 thin air. So in that he's looking at that, I 0:07:08.200 --> 0:07:11.120 think that it's very conceivable. We're you know, O Mayr 0:07:11.200 --> 0:07:14.040 Sharif is saying, you know, look for used cars prices 0:07:14.080 --> 0:07:17.480 to come down, you know, look for shelter to continue falling. 0:07:17.600 --> 0:07:20.800 Look for that next CPI print to be very bond 0:07:20.840 --> 0:07:24.400 market friendly unless Ja Powel's just going to look through 0:07:24.400 --> 0:07:27.160 it as you go forty eight hours into blackout right 0:07:27.200 --> 0:07:27.960 before the next for. 0:07:28.120 --> 0:07:30.360 MC, what are one of the many reasons we're like 0:07:30.360 --> 0:07:32.520 speaking to you is you rip out some data points 0:07:32.560 --> 0:07:34.000 that quite frankly, I've never heard of. 0:07:34.200 --> 0:07:35.920 What are some of the data points that you and 0:07:36.000 --> 0:07:37.640 your team are kind of looking at here to get 0:07:38.120 --> 0:07:39.920 a sense that maybe aren't on eco go. 0:07:40.560 --> 0:07:42.120 So we actually. 0:07:41.800 --> 0:07:46.400 Follow weekly data from light Cast. They started tracking the 0:07:46.480 --> 0:07:49.360 data as of January twenty twenty to get a benchmark 0:07:49.400 --> 0:07:51.800 for which types of job openings there are in the nation, 0:07:52.360 --> 0:07:56.360 so jobs with minimal education required, I mean they needed 0:07:56.360 --> 0:07:58.880 a new scale in order to track how many job 0:07:58.920 --> 0:08:01.960 openings there were for lee, your hospitality, bus boys, you 0:08:02.040 --> 0:08:06.200 name it. That's recently through the week of June twenty 0:08:06.240 --> 0:08:09.480 fourth come down to zero, so there are effectively no 0:08:09.600 --> 0:08:12.760 job opening Using a benchmark of January of twenty twenty, 0:08:12.960 --> 0:08:17.840 I follow trueflation very closely truflation. We actually were able 0:08:17.880 --> 0:08:20.440 to get their full data set back to twenty twelve. 0:08:20.680 --> 0:08:24.720 We ran a correlation analysis with the headline CPI last Friday, 0:08:25.040 --> 0:08:29.000 ninety seven percent since twenty twelve. The correlation where it's 0:08:29.040 --> 0:08:32.680 trueflation today two point two percent. Okay, it's thirty million 0:08:32.720 --> 0:08:35.640 real time prices. It's a daily inflation print, but a 0:08:35.720 --> 0:08:40.200 ninety seven percent correlation since twenty twelve. With headline CPI 0:08:40.400 --> 0:08:42.280 tells you exactly where inflation is headed. 0:08:42.480 --> 0:08:45.760 So inflation's headed lower, much lower. And isn't that good 0:08:45.800 --> 0:08:47.839 news for Jpal? And that's what he wants to see. 0:08:47.920 --> 0:08:50.480 Ran, It's not good news for that Jpal That Japal 0:08:50.559 --> 0:08:53.160 wants to continue shrinking that balance sheet, oh Man, and 0:08:53.200 --> 0:08:55.920 he wants a reason to continue shrinking that balance sheet. 0:08:56.080 --> 0:08:58.600 So he's going to focus on job openings remaining high, 0:08:58.840 --> 0:09:00.560 even though work out of the Dallas Fed shows that 0:09:00.640 --> 0:09:03.520 ninety percent of those job openings are written for the 0:09:03.920 --> 0:09:07.880 specific purpose of poaching your closest competitors employees so you 0:09:07.880 --> 0:09:09.640 don't have to spend the money training them. The other 0:09:09.679 --> 0:09:13.920 ten percent actually reflect organic demand in the economy for 0:09:14.080 --> 0:09:17.520 new job openings. That's being reflected in indeed dot com 0:09:17.559 --> 0:09:19.920 as well. You're seeing in d dot com job postings 0:09:19.960 --> 0:09:22.920 have come down tremendously over the last twelve months. That's 0:09:22.960 --> 0:09:25.040 another big one that we follow. And again it's a 0:09:25.080 --> 0:09:28.000 weekly data set and they're speaking to thousands and thousands 0:09:28.040 --> 0:09:30.160 of companies across the country. That's what you want. You 0:09:30.200 --> 0:09:32.120 want people who are speaking to people on the ground. 0:09:32.920 --> 0:09:35.280 And so even though we see the Fed's preferred gauge 0:09:35.320 --> 0:09:38.160 PCE moving in the right direction, to you, that's still 0:09:38.200 --> 0:09:40.000 not enough when you're looking at what's happening with the 0:09:40.000 --> 0:09:41.000 strength on the labor's side. 0:09:41.000 --> 0:09:42.920 And I'm going to quote Powell here, until the job 0:09:43.000 --> 0:09:46.120 is done, yep, until we get to two percent. 0:09:46.480 --> 0:09:48.480 And two percent, what is the two percent number? That 0:09:48.600 --> 0:09:49.440 is the core x. 0:09:50.800 --> 0:09:53.240 He's looking for core PCE to be two percent. That 0:09:53.320 --> 0:09:55.640 is typically the gauge that you're talking about internally. 0:09:55.800 --> 0:09:57.840 Okay, all right, and we're not there yet. 0:09:58.280 --> 0:10:01.160 No, we got no excluding food and energy. 0:10:01.440 --> 0:10:03.720 But he's going to keep you also, like to house weeds, 0:10:03.760 --> 0:10:06.120 we get data out today at just after four o'clock. 0:10:06.240 --> 0:10:08.400 You're going to see a big chunk of quantitative tightening 0:10:08.480 --> 0:10:10.559 when that data hits late after the bill today. 0:10:10.760 --> 0:10:12.960 All right, Danielle Dee Martine Booth, thank you so much 0:10:13.080 --> 0:10:15.760 for joining us. He know, Danielle de Martino Booth, she 0:10:15.960 --> 0:10:18.200 is the CEO, and she is the chief. 0:10:18.120 --> 0:10:19.800 Strategist at QI Research. 0:10:19.880 --> 0:10:22.480 She's also did a stint at the Dallas Federal Reserve, 0:10:22.640 --> 0:10:24.679 so you know about the Dallas Federal Reserve and how 0:10:24.679 --> 0:10:27.320 the central bankers think across the board. So I always 0:10:27.320 --> 0:10:29.679 appreciate getting some of Danielle's thoughts here. 0:10:31.120 --> 0:10:34.959 You're listening to the Team Ken's live program Bloomberg Markets 0:10:35.000 --> 0:10:38.080 weekdays at ten am Eastern on Bloomberg dot Com, the 0:10:38.160 --> 0:10:41.280 iHeartRadio app, and the Bloomberg Business App, or listen on 0:10:41.360 --> 0:10:43.320 demand wherever you get your podcasts. 0:10:45.800 --> 0:10:48.720 To our next guest, Michael Green, portfolio manager in chief 0:10:48.720 --> 0:10:52.160 Strategists at Simplify Asset Management. Michael, thank you for joining us. 0:10:52.200 --> 0:10:55.200 Before we get more into what you're going to talk about, 0:10:55.240 --> 0:10:57.440 as far as what you like about sectors in the 0:10:57.520 --> 0:10:59.080 S and P five hundred, I have to get your 0:10:59.120 --> 0:11:01.640 take as far as these massive moves in the bond market, 0:11:01.679 --> 0:11:04.120 especially with the two year treasury trading round its highest 0:11:04.240 --> 0:11:07.040 level in about sixteen years. 0:11:07.520 --> 0:11:10.040 Well, I have to confess that I actually see the 0:11:10.200 --> 0:11:13.440 current level of the two year as being remarkably attractive. 0:11:13.720 --> 0:11:15.760 But I have been wrong in thinking that for a 0:11:15.840 --> 0:11:19.640 while now. So you know my general belief is that 0:11:19.760 --> 0:11:23.240 the economy is slowing. The inflation problem is for seeing 0:11:23.280 --> 0:11:26.920 in the ism services today is largely one that's in 0:11:27.200 --> 0:11:29.920 very mirror, and the risk that we're actually creating and 0:11:29.960 --> 0:11:33.839 through interest rate policy is the higher level of interest 0:11:33.920 --> 0:11:36.440 rates themselves are actually now the key risk. 0:11:36.520 --> 0:11:39.400 This is exactly what we saw with the banking system. 0:11:39.120 --> 0:11:42.800 Earlier in here. I think it's working its way. 0:11:42.600 --> 0:11:45.440 Through the corporate sector where we're seeing a dramatic rise 0:11:45.480 --> 0:11:46.319 in bankruptcies. 0:11:46.920 --> 0:11:48.840 The odd thing for me is simply that it's not 0:11:48.880 --> 0:11:49.840 reflected in spreads. 0:11:49.880 --> 0:11:51.640 It doesn't seem to be reflected in. 0:11:51.600 --> 0:11:55.600 Any way in the federal reserves calculations, and candidly, when 0:11:55.640 --> 0:11:56.559 we look at the job. 0:11:56.520 --> 0:12:00.880 Data today, certainly coming from the ADP, I have to 0:12:00.920 --> 0:12:04.120 confess that I'm pot off sides in terms of that strength. 0:12:04.360 --> 0:12:06.120 I cannot reconcile the data. 0:12:06.760 --> 0:12:07.600 If I look. 0:12:07.520 --> 0:12:10.600 At the numbers for twenty twenty three on a non 0:12:10.720 --> 0:12:13.920 seasonally adjusted basis and compare them to the data from 0:12:14.480 --> 0:12:17.120 twenty twenty two, they're lower. 0:12:16.880 --> 0:12:19.920 In every category. So oddly we. 0:12:19.960 --> 0:12:23.199 Have this seasonal adjustment factor that again is raising its 0:12:23.200 --> 0:12:25.760 head and just making me really question whether the data 0:12:25.800 --> 0:12:27.280 that we're receiving is accurate. 0:12:28.760 --> 0:12:32.040 So I guess let's let's look at it the economy 0:12:32.040 --> 0:12:32.840 from a different way. 0:12:33.360 --> 0:12:34.439 Earnings, corporate earnings. 0:12:34.520 --> 0:12:36.400 I'm looking at the you know, the earnings for the 0:12:36.440 --> 0:12:39.880 S and P five hundred consensus of analysts about two 0:12:39.960 --> 0:12:42.320 hundred and twenty two dollars per share for this year. 0:12:43.280 --> 0:12:45.360 How much risk, if any, do you see in that 0:12:45.440 --> 0:12:47.400 earnings number for corporate America. 0:12:48.360 --> 0:12:51.400 Well, I think that there's a remarkable disconnect between the 0:12:51.800 --> 0:12:55.760 expectations data and the actual data that we're experiencing in 0:12:55.800 --> 0:12:58.800 the gap form, right, so they generally accepted accounting principles 0:12:58.840 --> 0:13:01.520 earnings for the S and P or down one seventy nine. 0:13:01.960 --> 0:13:03.960 That's off of a level of about two zho nine 0:13:04.000 --> 0:13:06.959 from last year. It shows no dynamic that would suggests 0:13:06.960 --> 0:13:09.959 that the rebound that analysts are forecasting is in play. 0:13:11.040 --> 0:13:14.040 Much of what I would argue we're seeing is basically. 0:13:13.679 --> 0:13:19.360 An attempt to ignore the one time costs associated with 0:13:19.559 --> 0:13:22.760 either unemployment or layoffs. 0:13:22.960 --> 0:13:26.600 And in many ways, again, it just feels like data is. 0:13:26.600 --> 0:13:29.319 Being created to match a narrative of rising prices with 0:13:29.440 --> 0:13:32.800 the reality of rising prices and stock markets, versus what 0:13:32.840 --> 0:13:34.520 we're actually seeing empirically in the. 0:13:34.480 --> 0:13:37.560 Economy, Michael, the S and P five hundreds trading around, 0:13:37.600 --> 0:13:39.480 it's the lowest level in about a week. Something I 0:13:39.600 --> 0:13:41.480 was curious about when we're looking at some of this 0:13:41.640 --> 0:13:45.840 stronger than expected labor data, is this potentially a reason 0:13:46.040 --> 0:13:49.600 for certain stock investors to sell after what was a 0:13:49.760 --> 0:13:51.319 very strong first half. 0:13:53.360 --> 0:13:56.840 Well, I think that there is very much a focus, 0:13:56.920 --> 0:13:59.480 correctly on what the FED is going to do, and 0:13:59.520 --> 0:14:00.120 so we're. 0:14:00.080 --> 0:14:02.040 Clearly seeing, as you let into the. 0:14:01.920 --> 0:14:06.520 Discussion here, indications that interest rates are moving higher. That 0:14:06.760 --> 0:14:09.520 Lori Logan came out today and said she expects additional 0:14:09.559 --> 0:14:13.920 interest rates going forward. I think, broadly speaking that that 0:14:14.120 --> 0:14:17.319 is really what's powering the market as of this immediate 0:14:17.360 --> 0:14:21.120 sell office, compared to kicking gains or anything else. 0:14:21.160 --> 0:14:24.000 You've seen a fairly significant a balance of. 0:14:24.880 --> 0:14:27.440 Disconnect between the S and P five hundred, which is 0:14:27.480 --> 0:14:31.160 obviously market cap weighted and dominated by the large market 0:14:31.200 --> 0:14:34.040 cap names, and what we've seen in said the Russell 0:14:34.080 --> 0:14:37.240 two thousand, which is not up nearly as much on 0:14:37.280 --> 0:14:40.080 a year today basis, and in fact the equal weighted 0:14:40.160 --> 0:14:40.920 Russell two. 0:14:40.720 --> 0:14:42.400 Thousand is barely up for the year. 0:14:42.920 --> 0:14:44.760 So this has been an environment in which the vast 0:14:44.760 --> 0:14:48.080 majority of stocks have been relatively weak, even as a 0:14:48.120 --> 0:14:51.440 few MEGGA cap names, Apple, Microsoft, and Video et cetera 0:14:51.560 --> 0:14:53.120 have been very strong. 0:14:54.040 --> 0:14:57.480 In my view that that would represent mostly. 0:14:57.040 --> 0:15:02.800 A you know, flow store, effectively money going into AI 0:15:02.920 --> 0:15:07.000 and technology space driving performance as compared to any indication 0:15:07.160 --> 0:15:08.640 of real economics display. 0:15:09.800 --> 0:15:14.400 Mike, I'm sensing a distinct tone of cautiousness in your 0:15:14.480 --> 0:15:17.880 view of the markets and the economy. How are you 0:15:17.960 --> 0:15:22.240 allocating your portfolio these days? Stocks, bonds, what sectors, that 0:15:22.280 --> 0:15:22.760 type of thing. 0:15:23.640 --> 0:15:26.200 Yeah, I know, as I indicated, I absolutely have been 0:15:26.240 --> 0:15:30.440 caught in the wrong positioning on this last move. I 0:15:30.520 --> 0:15:34.520 genuinely look at the two year bond at five plus 0:15:34.600 --> 0:15:37.120 right now and say, I can't believe that we're being 0:15:37.160 --> 0:15:40.360 given this opportunity in an environment in which it seems 0:15:40.480 --> 0:15:45.320 very clear that at least the economy has slowed dramatically. 0:15:46.520 --> 0:15:48.760 Whether it continues to slow it is really the question, 0:15:49.320 --> 0:15:54.520 and I see few opportunities for continued growth and expansion. 0:15:55.240 --> 0:15:58.120 Today's ADP is obviously a wrinkle in that. 0:15:58.360 --> 0:16:00.480 But you know, again, I just think. 0:16:00.400 --> 0:16:02.800 The data that we will receive from ADP today is wrong. 0:16:03.320 --> 0:16:06.480 Can't fully explain it, but that's what it appears to be. 0:16:06.560 --> 0:16:07.600 Where the non. 0:16:07.480 --> 0:16:11.880 Seasonally adjusted data is showing a significant divergence from the 0:16:11.960 --> 0:16:15.080 seasonally adjusted data. That's true for the claims data, that's 0:16:15.080 --> 0:16:18.240 true for the unemployment data, that's true for. 0:16:18.200 --> 0:16:19.720 The ADP data. 0:16:20.440 --> 0:16:23.400 Something that struck me just looking at the industries within 0:16:23.440 --> 0:16:25.640 the S and P five hundred, more of those cyclically 0:16:25.680 --> 0:16:28.440 related corners of the market are leading to clients when 0:16:28.440 --> 0:16:32.160 you're looking at energy, also materials, technology down a little 0:16:32.200 --> 0:16:34.760 bit under one percent. Also the NAZAQ one hundred down 0:16:34.960 --> 0:16:37.560 more than one percent. But when you think about the 0:16:37.560 --> 0:16:41.280 correlation between bonds and what's happening when it comes to 0:16:41.440 --> 0:16:44.720 technology stocks in particular or growth shares, would you expect 0:16:44.720 --> 0:16:47.440 them to be more pressured given what we're seeing in 0:16:47.440 --> 0:16:48.680 the bond market. 0:16:49.560 --> 0:16:50.040 So I'm not a. 0:16:50.080 --> 0:16:52.800 Huge believer in this idea that growth stocks or large 0:16:52.800 --> 0:16:55.880 cap growth stocks in particular have a quote unquote high duration, 0:16:55.960 --> 0:16:58.560 in other words, a high degree of sensitivity and interest rates. 0:16:58.600 --> 0:17:01.360 I think we've obviously seen that, you know, with the 0:17:01.360 --> 0:17:03.680 strength of the Apples and the Microsoft's on a here 0:17:03.720 --> 0:17:05.639 to day basis, where despite the fact that we have 0:17:05.720 --> 0:17:10.479 much higher interest rates, they continue to push higher. If anything, 0:17:10.520 --> 0:17:13.440 I think that there's an explanation that has much more 0:17:13.520 --> 0:17:16.800 to do a kind of portfolio allocation dynamics than any 0:17:16.960 --> 0:17:20.040 sort of fundamentals around interest rates and valuation. 0:17:21.680 --> 0:17:23.000 Again, you know, I. 0:17:22.920 --> 0:17:25.960 Would just lean towards the direction that what we're worried. 0:17:25.640 --> 0:17:28.399 About at this point is the FED continuing to be 0:17:28.680 --> 0:17:32.080 overly aggressive with the hikes that are already in the system, 0:17:32.359 --> 0:17:35.479 not in any way reflected in the underlying data that 0:17:35.520 --> 0:17:39.080 we're receiving. Yet, as that moves forward, if the FED 0:17:39.119 --> 0:17:43.840 continues to hike for pauses in its response, that creates 0:17:43.840 --> 0:17:45.040 conditions under which. 0:17:44.920 --> 0:17:47.320 A slowdown could actually. 0:17:47.119 --> 0:17:49.760 End up being much more severe than it's currently being 0:17:49.840 --> 0:17:54.040 priced in or versus expectation, and that unfortunately continues to 0:17:54.080 --> 0:17:57.280 be my rising rates case. If the FED is simply 0:17:57.359 --> 0:18:00.880 behind the curve in the opposite direction again, ism prices 0:18:00.920 --> 0:18:04.280 paid data would suggest that the inflation story as well 0:18:04.320 --> 0:18:04.800 behind us. 0:18:04.840 --> 0:18:07.480 We see this in Europe with the CPI the producer 0:18:07.560 --> 0:18:09.000 price indexes turn negative. 0:18:09.600 --> 0:18:13.440 We're just seeing data that they suggest that the inflation 0:18:13.600 --> 0:18:16.080 story is no longer the operative dynamic. 0:18:17.680 --> 0:18:20.960 Doesn't necessarily mean that that's right, though, all right, So. 0:18:21.240 --> 0:18:23.000 Real quick there, Mike, what do you think we're going 0:18:23.040 --> 0:18:24.840 to hear from our feder Reserve at the next meeting 0:18:24.840 --> 0:18:25.960 and maybe even the meeting after that. 0:18:27.119 --> 0:18:29.879 Well, I think it's hard to argue with the market, right, So, 0:18:29.920 --> 0:18:32.120 when the market suggests that they are more than eighty 0:18:32.119 --> 0:18:35.040 five percent probability of going, and historically it's been about 0:18:35.080 --> 0:18:38.520 seventy percent, it's been very rare for the Fed not 0:18:38.640 --> 0:18:42.600 to take advantage of that. I would expect that they'll 0:18:42.640 --> 0:18:45.920 ultimately hike, and that they'll indicate, as the data suggests 0:18:45.920 --> 0:18:50.359 certainly today, that the economy continues to represent strength. I 0:18:50.359 --> 0:18:53.160 don't really think that they're focused on the inflation story 0:18:53.200 --> 0:18:55.800 as much as they are focused on or the direction 0:18:55.880 --> 0:18:59.119 of inflation story, which is clearly downwards, as much as 0:18:59.119 --> 0:19:02.560 they are focused on the idea we've got to get right. 0:19:02.920 --> 0:19:05.760 That is going to be the real question is, you know, 0:19:05.840 --> 0:19:08.639 do they continue to hip until we get to two percent? 0:19:08.720 --> 0:19:11.440 Which right, just that they're going to be way behind 0:19:11.480 --> 0:19:13.680 the curve opposite direction. All right. 0:19:13.720 --> 0:19:17.960 Michael Green, portfolio manager in chief strategist at Simplify Asset Management, 0:19:18.000 --> 0:19:20.320