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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. We begin this out

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Speaker 2: with markets on hold, as a strong September payrolls report

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Speaker 2: put stocks on a four week winning street. Edgardenny, I

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Speaker 2: of Yourdenny Research things the Fed can take the rest

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Speaker 2: of the year off. Following Friday's strong September employment report,

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Speaker 2: Federal fun Futures Markets predicts five or six ray cuts

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Speaker 2: over the next twelve months. We're predicting none and done

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Speaker 2: for the rest of this year. Edgar Denny joined us

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Speaker 2: now for more EDGM Danny, let's talk about that. Is

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Speaker 2: that one jobs report enough to say they're done for

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Speaker 2: the year.

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Speaker 3: I think it wasn't just the jobs report. We also

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Speaker 3: had a very strong purchasing manager's index for the services economy,

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Speaker 3: and that's where the strengthen the economy has been. Initial

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Speaker 3: unemployment claims have remained very low, and so I think

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Speaker 3: there have been actually quite a few numbers. As you know,

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Speaker 3: the City Group Economic Surprise indexes positive again, and that's

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Speaker 3: one of the reasons the body yield is back up.

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Speaker 3: It's a good indicator of the direction of the body yield.

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Speaker 2: And if you're right and they are done, and we

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Speaker 2: reprice this yield curve higher and we reduce how many

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Speaker 2: interest rate cuts a price for the next twelve months.

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Speaker 2: How well does this equity market perform in your opinion?

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Speaker 3: Well, I think it performs differently. I think we've currently

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Speaker 3: seen that this bull market has been led by the pe.

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Speaker 3: The evaluation multiple has gone up dramatically. Earnings have also

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Speaker 3: been going up, which she wouldn't really have a bull

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Speaker 3: market unless you really had the earnings trending higher. And

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Speaker 3: for the S and P five hundred, five hundred that

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Speaker 3: are all time record high, that's not the case for

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Speaker 3: this midcaps, the small and MidCap SMP four hundred and

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Speaker 3: six hundred, their earnings have actually been flat. I think

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Speaker 3: the market continues to broaden, but instead of broadening out

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Speaker 3: to the Rustle two thousand, which would would be correlated

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Speaker 3: with interest rates going down, if interest rates stay here,

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Speaker 3: I think it broadens out from the Magnificent seven to

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Speaker 3: the S and P four hundred and ninety three.

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Speaker 4: It's something as different though, this time for this earning

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Speaker 4: season than it was in August. In August, we were

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Speaker 4: talking about the high bar that equities had to reach.

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Speaker 4: This time, it's somewhere below five percent that we're expecting

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Speaker 4: earnings growth for this quarter.

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Speaker 5: The bar is certainly lower. What does that mean?

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Speaker 4: Earning season is about to be upon us? Can this

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Speaker 4: not be the leg of the next bowl market rally?

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Speaker 4: Whether or not rates are being cut.

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Speaker 3: Well, my preference is exactly what's happening here. I would

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Speaker 3: prefer that the market goes up on earnings from here

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Speaker 3: rather than on valuation. This is not a cheap market.

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Speaker 3: We've got the buffet ratio. I think it's two point eight.

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Speaker 3: It's in an all time record high. That's the price

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Speaker 3: to sales ratio. The forward pe for the S and

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Speaker 3: P five hundred is about twenty two, with a Magnificent

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Speaker 3: seven selling at almost thirty and the rest of the

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Speaker 3: market at nineteen, So you know, you're not getting any

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Speaker 3: bargains here. But what the market, I think will do

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Speaker 3: is go up on earnings, and we're going to have

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Speaker 3: another quarter. Earnings are going to go to a record

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Speaker 3: high in the third quarter.

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Speaker 4: It has been a market, though, that has been able

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Speaker 4: to rally without the mag seven, without the megacaps for

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Speaker 4: the most part. In the second half of the year

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Speaker 4: so far, only two point nine percent of the rally

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Speaker 4: is attributed to those mag seven stocks, according to bespoke.

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Speaker 4: Is it a market that, even though it is overvalued,

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Speaker 4: at least is more healthy, at least is more broad Well.

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Speaker 3: I think it's healthier if the stocks that go up

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Speaker 3: that it broadens out to the rest of the market,

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Speaker 3: the abreast of the S and P five hundred, beyond

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Speaker 3: the Magnificent seven. But again, you know, those multiples which

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Speaker 3: are at nineteen could easily get over twenty here very quickly.

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Speaker 3: And so I think the health of the stock market's

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Speaker 3: going to depend on earnings. I'm a little nervous that

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Speaker 3: everybody's turning so bullish and all of a sudden, everybody's

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Speaker 3: talking about six thousand. I started out the year talking

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Speaker 3: at fifty four hundred for the S and P five

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Speaker 3: hundred by year end, and that was an outlier. I

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Speaker 3: had to raise that to fifty eight hundred. And now

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Speaker 3: you know that's a kind of number where people are

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Speaker 3: talking about six thousand. So I think there's a little bit,

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Speaker 3: you know, I had a steam here building up that

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Speaker 3: could be disappointed.

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Speaker 5: Ed you were ahead of the curve.

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Speaker 1: In your note today, you also talk about before we

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Speaker 1: get too cocky, you say we should know it that

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Speaker 1: we aren't completely rolling out the possibility of recession. What

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Speaker 1: could trigger a recession for the US economy right now?

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Speaker 3: Yeah, Well, we had been thinking that the economy was

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Speaker 3: surprise to the upside. We've been saying that for two

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Speaker 3: and a half years. Don't underestimate the economy, don't underestimate

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Speaker 3: the consumer. Looking ahead here, we're thinking that the economy

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Speaker 3: is going to continue to perform quite well. And so

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Speaker 3: I think that's consistent with where the bond yield is.

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Speaker 3: I think interest rates have normalized. I think the Fed

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Speaker 3: really has to reconsider what is the neutral rate, which,

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Speaker 3: by the way, I think is a fairy tale number.

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Speaker 3: It doesn't exist. It's totally a theoretical construct. But all

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Speaker 3: in all, I think the market goes higher on earnings.

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Speaker 1: Okay, but what about the geopolitics. You also have one

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Speaker 1: eye looking at.

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Speaker 3: Yeah, well twenty percent. You know, I don't want to

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Speaker 3: get cocky about this thing. As I wrote, I think

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Speaker 3: there is a chance of a recession here, which is

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Speaker 3: a twenty percent probability in our minds, and it is

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Speaker 3: geopolitically related. I know it's a little bit hard to believe,

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Speaker 3: but you look at the history of geopolitical crises, and

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Speaker 3: more often than that they've actually been buying opportunities. The

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Speaker 3: reality is this geopolitical crisis so far really hasn't given

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Speaker 3: anybody a buying opportunity. So there's still a possibility that

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Speaker 3: with this war between Iran and between Iran and Israel

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Speaker 3: getting to be a more direct confrontation, that there could

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Speaker 3: be a sell off related to that.

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Speaker 2: Youthin is a part of the market, then there's a

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Speaker 2: little bit too stretch. Is an index level coal a sector? Coal?

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Speaker 3: What is it? Well? I think that it's stretched in

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Speaker 3: terms of valuation, and I think that part of that

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Speaker 3: is because we do have a very passive investment orientation

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Speaker 3: in the marketplace when people get into the market. More

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Speaker 3: often than not, they're getting into ETFs, and ETFs really

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Speaker 3: don't get very concerned about diversification. If you know, if

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Speaker 3: you have an S and P five hundred ETF and

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Speaker 3: thirty percent of that is the magnificence of and that's

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Speaker 3: what you're buying, whereas managed portfolios might be more conservative,

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Speaker 3: and so that's not enough diversification.

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Speaker 2: I just want to walk away with the right impression

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Speaker 2: of where you stay, and I don't want to mischaracterize

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Speaker 2: you for the rest of the weekend. At the moment,

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Speaker 2: it sounds like you're bearish. Is that fair?

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Speaker 3: No, I'd say that our view is that it's we're

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Speaker 3: at the right place in the market relative to evaluation

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Speaker 3: and earnings. I think we're we could get to six thousand.

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Speaker 3: I guess what I'm saying is I hope we don't

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Speaker 3: see a melt up here because I don't like melt ups.

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Speaker 3: They forced me to have to figure out when to

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Speaker 3: tell people to sell. And I think earnings are going

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Speaker 3: to continue to drive the market higher at a slower pace.

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Speaker 4: So ed if you think that we can continue to

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Speaker 4: move forward, but there's some distortions in the market, it's overvalued.

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Speaker 4: Are you in the Cliff Assness camp of AQR that

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Speaker 4: this is a less efficient market and that these types

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Speaker 4: of mispricings can continue on for longer because of forces

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Speaker 4: like passive management.

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Speaker 3: I think that's a very good point, you know, I

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Speaker 3: agree with that. But at the end of the day,

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Speaker 3: that's the theoretical notion. And the line is is this

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Speaker 3: market going higher? And I think it is going higher. Look,

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Speaker 3: we've got six trillion dollars sitting in money market mutual funds.

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Speaker 3: They are all time record high, and so is the

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Speaker 3: stock market. In other words, the stock market got to

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Speaker 3: a record high without people actually panicking out of money

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Speaker 3: market funds and getting into the stock market. So there's

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Speaker 3: a tremendous amount of liquidity in the system and there's

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Speaker 3: a lot of buying. On a global basis, I would

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Speaker 3: continue to overweight the US on a global portfolio. I

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Speaker 3: think the China things kind of running out of steam here,

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Speaker 3: and I think people are going to go back to overweighting.

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Speaker 3: The US's kind of the safe haven in the global

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Speaker 3: stock market. Arena.

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Speaker 2: John Danny, let's finish there. What is it about Shina

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Speaker 2: you dounbelieve in?

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Speaker 3: Well, they've got some major structural problems they created. The

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Speaker 3: government created its own mess here with the demographics. They

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Speaker 3: got very rapidly aging demographic profile. The consumers are stretched.

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Speaker 3: I don't think they're going to be going buying additional apartments.

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Speaker 3: So even if they managed to stop the debacle in

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Speaker 3: the property market, that's not going to be a source

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Speaker 3: of economic growth. All in all, it's a it's a

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Speaker 3: government run. It's an autocratic government running an economy that's

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Speaker 3: done extremely well when they capitalism flourish. Now they're not.

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Speaker 2: If your Anny research, i'd appreciate itself between the down

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Speaker 2: to a Franklin template of right, we continue to believe

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Speaker 2: in a self landing, which is bullish for equities compared

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Speaker 2: with the more bearish expectations of an imminent recession. Katrina

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Speaker 2: is whether it's around a table here in New York

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Speaker 2: KA training co Mornic, good morning, let's start on Friday.

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Speaker 2: It's like Friday never ended. What did you make of that?

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Speaker 6: I think that we've had We've had some bullish momentum

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Speaker 6: in the market. We have been in the self landing

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Speaker 6: camp for a long period of time in terms of

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Speaker 6: we think that there are so many tools that have

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Speaker 6: been available to be able to kind of land this

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Speaker 6: economy on that landing strip and do something in terms of,

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Speaker 6: you know, managing the inflation and getting that down, which

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Speaker 6: I think we can kind of check mark on that.

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Speaker 6: We'll see the data that comes later this week. You

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Speaker 6: look at the employment outlook, it's been bullish. People are good,

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Speaker 6: and so I think that the Fed has actually done

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Speaker 6: a very very good job here.

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Speaker 2: There's a feedling on Friday that good news is still

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Speaker 2: good news. Equities will hire. Bond yards were two, They're

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Speaker 2: up again this morning by seven basis points at the

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Speaker 2: front end on a ten year, up by three. Should

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Speaker 2: they be anxious? Should equity bills be anxious about what's

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Speaker 2: developing in the bond market?

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Speaker 6: Again, I think that we've all I grew up where

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Speaker 6: we used to look at the bond market and it

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Speaker 6: would inform us as equity investors, And now I think

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Speaker 6: that the narrative has shifted. I think that we've got

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Speaker 6: so many indicators coming out of equity markets, and I

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Speaker 6: think that the equity markets have been at the forefront

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Speaker 6: of some of the bond markets.

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Speaker 4: So, Katrina, you also, though mentioned some of the bearishness

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Speaker 4: and the technical backdrop, the fact that hedge funds need

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Speaker 4: to take down their exposure with the volatility that corporates

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Speaker 4: are in a blackout period, how much does that weigh

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Speaker 4: on a potential rally in this equity market.

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Speaker 6: I think if you combine those two things, which are

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Speaker 6: the kind of the hedge fund exposure, you look at

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Speaker 6: the fact that that we've got this blackout period and

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Speaker 6: buybacks have been a big driver of some of the

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Speaker 6: earnings growth as well as the incremental buyer in the market.

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Speaker 6: And then we cannot forget about the election. The election

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Speaker 6: is causing uncertainty because we actually don't know who's going

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Speaker 6: to win this time.

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Speaker 5: And for a lot of people that's.

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Speaker 6: Good news because it means it's still up in the

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Speaker 6: air and there's still a chance for one candidate to

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Speaker 6: pull ahead. But when you have uncertainty, the market doesn't

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Speaker 6: like it. You'll see, you know, the kind of those

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Speaker 6: spikes in volatility, and you'll see that uncertainty get priced in.

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Speaker 4: But for risk with a really strong backdrop, how much

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Speaker 4: does the election really matter?

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Speaker 5: Besides the rhetoric?

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Speaker 4: The potential volatility doesn't really change the long term outcome

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Speaker 4: when you have earnings and expectations are really low, a

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Speaker 4: potential bar to.

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Speaker 5: Be and again a labor market that's very strong.

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Speaker 6: I think in terms of the election, First of all,

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Speaker 6: I think on tariffs, we're in agreement that both parties

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Speaker 6: have got incentives to continue that tariff regime. So I

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Speaker 6: think that way we can kind of say, doesn't matter

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Speaker 6: which side. But think about taxes, that is the area

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Speaker 6: and taxes. I always look at an income statement. It's

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Speaker 6: a big number, and so if you have any discs,

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Speaker 6: you've got a lot of disparity in policy, particular as

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Speaker 6: it relates to corporate taxes. And obviously if you have

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Speaker 6: a regime where there's a reduction in the corporate tax rate,

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Speaker 6: that is bullish for equities and the offset. So I

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Speaker 6: think that that's the unknown that we have. And no,

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Speaker 6: I don't think we're going to have the next day

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Speaker 6: change in tax rates, but it could happen fairly quickly,

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Speaker 6: particularly if you get a Republican's fleite.

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Speaker 1: Well, also because TCJA is expiring next year, so taxes

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Speaker 1: are completely in focus. But if you're concerned about the

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Speaker 1: corporate tax rate, do you care more about the composition

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Speaker 1: of Congress than you care about who's in the White House.

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Speaker 6: I still do care about who is in the White

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Speaker 6: House because I think that that is the driving force,

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Speaker 6: that is a representation of America, and I think that

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Speaker 6: they're the person who kind of drives where we end

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Speaker 6: up as a policy. I think, you know, as a country,

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Speaker 6: we have this kind of tension in that we do

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Speaker 6: believe that lower taxes.

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Speaker 5: Are good for America. They're good for American business.

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Speaker 6: But we do obviously have some fairly high deficits out there.

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Speaker 1: We do, and there's new projections actually what those deficits

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Speaker 1: would look like from Washington from the Grecial Budget Office.

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Speaker 1: About whether tariffs or Trump. You mentioned inflation and tariffs.

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Speaker 1: If you think both of these candidates are interested in

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Speaker 1: using tariffs as a policy, and we just got data

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Speaker 1: that showed wage growth accelerated by next year, shouldn't we

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Speaker 1: be concerned again with inflation?

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Speaker 6: I think on the wage growth that's a really big

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Speaker 6: lagging indicator in terms of the inflation outlook. So I

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Speaker 6: would say that any kind of job related inflation lags

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Speaker 6: what we expect to see. In terms of how do

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Speaker 6: we expect tariffs to impact It really depends on how

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Speaker 6: we respond to them. If I have a company, a

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Speaker 6: small company and the alternative is to buy something domestically

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Speaker 6: versus a cheaper Chinese import that suddenly gets inflated up.

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Speaker 6: It's good for America because I'm you doing.

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Speaker 5: That in house. So I think that the inflation number

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Speaker 5: is not.

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Speaker 6: Directly a collery of the fact that I'm increasing tariffs

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Speaker 6: and then suddenly I'm going to see inflation in America.

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Speaker 6: I think it really is going to depend on what

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Speaker 6: that adjustment is. And I think a lot of companies

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Speaker 6: have been doing a lot of actions where they're matching

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Speaker 6: they're manufacturing to where they're selling, so that these tariffs

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Speaker 6: may not be as impactful as we initially thought.

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Speaker 2: Let's get your equity calls the US versus the rest

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Speaker 2: of the world, within the US large versus small, How

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Speaker 2: are you thinking about things?

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Speaker 6: I think in terms of the US market, the momentum

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Speaker 6: of the US market, and that is something that we're

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Speaker 6: bullish on. We are concerned about that concentration. We've looked

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Speaker 6: at the concentration and there's no necessary research that kind

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Speaker 6: of says, well, a highly concentrated market will sell off

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Speaker 6: x percent because you have different situations. So on the concentration, though,

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Speaker 6: that is something that worries US. We do see a

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Speaker 6: situation where you can have some of these large companies

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Speaker 6: flatish means that they're going to grow their ownings, which

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Speaker 6: is what the market's expecting, and they're going to grow.

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Speaker 6: The valuation will decline as the earnings increase, and you

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Speaker 6: kind of had a kind of tempered market return, and

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Speaker 6: that's good for the overall equity market. What we're seeing

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Speaker 6: is that that now that bullishness in the top of

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Speaker 6: the market is starting to filter down, where I think

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Speaker 6: people are focused is going straight to small caps. But

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Speaker 6: I think that there's actually a really big middle in

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Speaker 6: America that is getting ignored, and that's the part of

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Speaker 6: the market that I actually like at the moment. The

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Speaker 6: small caps in a regime where you're anti FTC may

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Speaker 6: not have that takeout premium, so there's a little risk there.

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Speaker 6: But that mid part of the market I think could

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Speaker 6: actually be where.

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Speaker 2: Opperation is to apect a preference within the mid caps.

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Speaker 6: In terms of sector preference, I would go towards some

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Speaker 6: of the industrial names, where I think that they've got

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Speaker 6: that resiliency to be able to take advantage of moving

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Speaker 6: things around that they're not going to be hurt by

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Speaker 6: that rising tariff regim and maybe they've got some ability

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Speaker 6: to benefit from new policy.

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Speaker 4: There has been some of that the mag seven, it's

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Speaker 4: thirty percent weighted in the S and P. Bespoth points out,

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Speaker 4: it's only accounted for two point nine percent of the

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Speaker 4: index has gained so far in the second half.

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Speaker 5: Is it a healthier market now? I don't think it's

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Speaker 5: quite yet healthy.

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Speaker 6: I think you've still got those Magnificent seven still dominating.

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Speaker 5: Even the numbers you.

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Speaker 6: Quote sound very small, but it's still dominating returns and

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Speaker 6: dominating the narrative. I think that what we're seeing, however,

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Speaker 6: is people starting to look at what are the second

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Speaker 6: derivatives of say the AI, and that's where they're going

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Speaker 6: into the MidCap names. I also think that some of

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Speaker 6: the exposure that you're looking at in the Magnificent seven,

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Speaker 6: people are starting to say, well, maybe I don't want

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Speaker 6: an in video, I want an in VideA that you know,

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Speaker 6: the second deriva, So the picks and shovels.

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Speaker 4: Do you understand at this point how big cap tech

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Speaker 4: reacts to lack of FED cuts lack of magnitude of

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Speaker 4: FED cuts at this point.

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Speaker 6: In terms of understanding, I think that we have to

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Speaker 6: go back to find that's one oh one. I'm so sorry,

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Speaker 6: but you know the problem with some of these names

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Speaker 6: when you've got such high earnings growth expectation which they're

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Speaker 6: delivering on. Let's to be very clear, you know, any

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Speaker 6: type of movement in interest rates, you have so much

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Speaker 6: of the value as sitting in that terminal number that

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Speaker 6: you know, interest rates become something that they're very, very

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Speaker 6: sensitive to, even though you would say they're probably the

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Speaker 6: least leathered companies and they would have the least short

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Speaker 6: term exposure, but the valuation component and that terminal formula

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Speaker 6: is what's really driving them.

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Speaker 2: Katrina, it's going to see you as always to catch

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Speaker 2: another there's Katrina Downte there. Franklin Sempleton. Bobdah A cross

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Speaker 2: Mark Global Investment suggests it's hard to be bearish monetary

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Speaker 2: policy is now easing, even though there is limited evidence

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Speaker 2: that had been a major drag for the US economy

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Speaker 2: to begin with. Any caution towards equities has admittedly been

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Speaker 2: wrong or at least premature. Bob Doe John just now

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Speaker 2: for more, but welcome back to the program, buddy. Let's

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Speaker 2: just pick it up where we left things on Friday payrolls.

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Speaker 2: Big blowout jobs report is good news, good news when

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Speaker 2: you're seeing this repricing in the bond market.

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Speaker 7: First of all, it was one month. Look at all

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Speaker 7: the prior months. How many downward revisions have we had.

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Speaker 7: I'm not saying it wasn't a good number. It was

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Speaker 7: an outstanding number, no question about it. But when you

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Speaker 7: look at the unemployment data around the isms, both manufacturing

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Speaker 7: and services.

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Speaker 8: They were weak. So which is it? Which has it? Right? Time?

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Speaker 8: Will tell?

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Speaker 7: Put the inflation question, as you've all we've just been discussing,

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Speaker 7: is back on the table.

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Speaker 2: So Bobby, just raise an important question. Which one was

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Speaker 2: the headfake? The summer deceleration or the re acceleration coming

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Speaker 2: out of the summer.

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Speaker 8: I think they're both true.

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Speaker 7: Economies don't move in one direction NonStop. So where I

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Speaker 7: think we're going to have this fits and starts. Some

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Speaker 7: people call it a bumpy landing. I like that term,

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Speaker 7: and I think that's what we're in for.

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Speaker 8: It be a good number and that are not so

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Speaker 8: good number, and they'll confuse all of us.

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Speaker 4: Yeah, great, wonderful, Great to hear that, Bob. I know

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Speaker 4: in the meantime, you are looking for a significant economic

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Speaker 4: slow down or mild recession that had been at least

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Speaker 4: your base case scenario. If this is just one month,

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Speaker 4: does it change it at all?

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Speaker 5: Bob?

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Speaker 8: It certainly lowers the probability of us getting that right.

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Speaker 7: When I look at all the statistics over several months,

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Speaker 7: to me, it's still pretty clear that the economy is slowing.

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Speaker 7: We're seeing that in many of the employment numbers, not

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Speaker 7: we're standing last Fridays. We're seeing that in ability to

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Speaker 7: find jobs, people trying to find full time jobs, settling

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Speaker 7: for part time jobs. Economy slowing. We just don't know

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Speaker 7: how fast that's happening. And of course the FED has

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Speaker 7: seen some of that too, we got fifty basis points.

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Speaker 7: But you know there are numbers still very high relative

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Speaker 7: to other things. How many things can you find that

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Speaker 7: have not nominal growth as strong as the FED funds

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Speaker 7: right now?

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Speaker 6: So it.

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Speaker 8: Is leaning on the economy even with this cut.

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Speaker 4: Can you just help me sort out then, what kind

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Speaker 4: of economic environment we're dealing with here, Bob? If you're

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Speaker 4: worried about a slow down, but now we need to

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Speaker 4: worry about inflation again, how do you square all.

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Speaker 7: Of those oh, that can happen in many many cases

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Speaker 7: in the past, economy slows and inflation's picking up. I'm

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Speaker 7: not arguing for stagflation, but we've had that many times before,

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Speaker 7: and I guess I should enter the fact that pees

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Speaker 7: are in the twenties. When the pees are that high,

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Speaker 7: things better be nearly close to perfect. So if there's

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Speaker 7: fly in the oint, man, whatever that fly is, that

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Speaker 7: twenty two pe has got to be questioned somewhat hard

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Speaker 7: to see a lot of upside frequities, maybe not downside,

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Speaker 7: but hard to see upside.

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Speaker 5: Bob.

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Speaker 1: I know you keep trying to stress it. This is

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Speaker 1: just one month, but how do we reconcile how good

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Speaker 1: this month was, which all the survey data showing that

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Speaker 1: actually jobs plentiful, that's coming down, jobs hard to find.

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Speaker 1: More people are saying that's what their picture is right

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Speaker 1: now in the labor market.

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Speaker 7: That's why I'm raising the question that it's one month

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Speaker 7: and all the other things the same statistic prior months.

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Speaker 7: All the other numbers are showing not so fast, that

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Speaker 7: the economy is great and that there are plenty of jobs.

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Speaker 7: So let's see what next month brings and watch all

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Speaker 7: the other statistics that you just accurately point out do you.

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Speaker 1: Just then take maybe sixty or seventy off this payrolls

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Speaker 1: report because of the revisions we've seen in the past.

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Speaker 8: Oh, that's probably not a bad thought. I had come

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Speaker 8: to grips with that, but that's probably a good idea, Bob.

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00:21:40,040 --> 00:21:41,680
Speaker 2: I want to talk to you about what's happening in

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Speaker 2: this bond market. We're starting to see a reinversion, never

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00:21:45,400 --> 00:21:48,480
Speaker 2: mind a disinversion, and bub. I wonder for an equity

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00:21:48,520 --> 00:21:51,400
Speaker 2: market strategist, for an equity market investor, what they should

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Speaker 2: be doing with what's happening in the bond market. After

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00:21:54,000 --> 00:21:56,400
Speaker 2: we heard from tons of people coming on this program

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Speaker 2: who are saying, get out of cash, deploy it into risk,

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00:21:59,320 --> 00:22:01,879
Speaker 2: go out further along the bond market, take on tour

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00:22:01,960 --> 00:22:04,000
Speaker 2: ration in the bond markets, take on credit risk. But

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00:22:04,320 --> 00:22:05,439
Speaker 2: what's your advice now.

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00:22:06,280 --> 00:22:08,520
Speaker 7: Yeah, I think people that have a lot of cash,

448
00:22:08,600 --> 00:22:11,320
Speaker 7: that have enjoyed high returns, put a little to work.

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00:22:11,400 --> 00:22:13,800
Speaker 7: The ten year over four is a whole lot more

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00:22:13,840 --> 00:22:16,680
Speaker 7: interesting than the ten year that was below three seventy five,

451
00:22:17,000 --> 00:22:18,200
Speaker 7: not but a couple of weeks ago.

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Speaker 8: So I would take periods of weakness in the bond

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Speaker 8: market and do some adding. You don't have to be

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Speaker 8: a hero. Take your time. But that's what's weighing on

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Speaker 8: the stock market.

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00:22:27,880 --> 00:22:31,120
Speaker 7: The rise and interest rates, the rise in oil prices,

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Speaker 7: and you know, maybe the economy isn't okay. The employment

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00:22:35,080 --> 00:22:38,320
Speaker 7: report may say, But on the other hand, why are

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00:22:38,359 --> 00:22:40,840
Speaker 7: earnings revisions so negative for the third quarter?

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Speaker 2: Howld up, Bob, this is an important point you suggested.

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00:22:43,160 --> 00:22:44,680
Speaker 2: We've got to the point in the bond market where

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00:22:44,760 --> 00:22:47,280
Speaker 2: yields up on good news is now band news for requities?

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00:22:48,160 --> 00:22:48,880
Speaker 8: Yes, I think.

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00:22:48,920 --> 00:22:52,080
Speaker 7: You know, most people say when the tenure gets about four,

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00:22:52,560 --> 00:22:54,840
Speaker 7: we begin to have those problems. I don't know if

466
00:22:54,840 --> 00:22:58,000
Speaker 7: it's exactly four, but the pace of the increase in

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00:22:58,480 --> 00:23:02,760
Speaker 7: yields also, John, I think has to be brought into

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00:23:02,800 --> 00:23:05,440
Speaker 7: the equation, and that is weighing on stocks.

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00:23:05,560 --> 00:23:07,560
Speaker 2: So let's get into the stock market, lift a lid

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00:23:07,600 --> 00:23:09,160
Speaker 2: on the index. Where do you want to be? Where

471
00:23:09,200 --> 00:23:10,720
Speaker 2: do you want to avoid? With all of that in mind,

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00:23:11,600 --> 00:23:12,119
Speaker 2: so I'm a.

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Speaker 7: Broken record for quite some time, I've argued for companies

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00:23:15,880 --> 00:23:19,840
Speaker 7: with high earnings, predictability, high earnings.

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00:23:19,560 --> 00:23:23,000
Speaker 8: Persistence, and strong and growing free cash flow. You might

476
00:23:23,119 --> 00:23:24,520
Speaker 8: call that quality.

477
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Speaker 7: Because all the unknowns we've been discussing and debating back

478
00:23:27,520 --> 00:23:29,879
Speaker 7: and forth here, I want to have companies that are

479
00:23:30,040 --> 00:23:34,200
Speaker 7: somewhat independent of the economy. Those dots have done just

480
00:23:34,359 --> 00:23:36,840
Speaker 7: fine as the market has moved higher. I think if

481
00:23:36,880 --> 00:23:39,880
Speaker 7: we get any kind of selling squall, these names will

482
00:23:40,160 --> 00:23:40,760
Speaker 7: do even better.

483
00:23:41,119 --> 00:23:43,800
Speaker 4: Bob, does I mean this market's ability to broaden out,

484
00:23:43,880 --> 00:23:46,480
Speaker 4: to go beyond the mag seven, go beyond the cash

485
00:23:46,600 --> 00:23:48,399
Speaker 4: rich companies, go into small caps?

486
00:23:48,760 --> 00:23:50,359
Speaker 5: Do not see the market able.

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00:23:50,160 --> 00:23:50,440
Speaker 6: To do that?

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00:23:50,560 --> 00:23:53,000
Speaker 4: Then if you're still looking at this maybe safer part

489
00:23:53,080 --> 00:23:54,000
Speaker 4: of this equity market.

490
00:23:54,800 --> 00:23:58,520
Speaker 7: So I'm not sure that the magnificent seven or five

491
00:23:58,640 --> 00:24:00,920
Speaker 7: or whatever the number is, is this safest part Because

492
00:24:00,960 --> 00:24:05,280
Speaker 7: of the big valuation differential between the top ten if

493
00:24:05,320 --> 00:24:07,840
Speaker 7: you will, more than thirty times earnings and the other

494
00:24:08,119 --> 00:24:10,680
Speaker 7: four hundred and ninety call it eighteen times earnings.

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00:24:11,000 --> 00:24:13,920
Speaker 8: I think the market can continue to broaden. I'd say

496
00:24:14,000 --> 00:24:15,920
Speaker 8: within the S ANDP, within.

497
00:24:18,000 --> 00:24:21,200
Speaker 7: Large cap stocks, not so much down to small We

498
00:24:21,359 --> 00:24:23,600
Speaker 7: need confidence that we have a really good economy for

499
00:24:23,680 --> 00:24:26,520
Speaker 7: the small stocks to do well. As you probably know,

500
00:24:26,640 --> 00:24:30,160
Speaker 7: almost half of the Russell two thousand companies are losing money.

501
00:24:30,359 --> 00:24:31,480
Speaker 7: That's not real attractive.

502
00:24:31,920 --> 00:24:34,720
Speaker 4: So, Bob, in this environment where higher yields can indeed

503
00:24:34,760 --> 00:24:37,600
Speaker 4: punish equity markets. Yet again, how worried are you for

504
00:24:37,680 --> 00:24:38,879
Speaker 4: Thursday CPI report.

505
00:24:39,760 --> 00:24:44,080
Speaker 8: I think we have to have our antenna up on it. Look,

506
00:24:44,280 --> 00:24:46,720
Speaker 8: I never say back to the employment report.

507
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Speaker 7: One month makes a trend, but this notion that the

508
00:24:51,640 --> 00:24:54,920
Speaker 7: Fed had inflation under control it's going to inevitably get

509
00:24:54,960 --> 00:24:58,240
Speaker 7: to two percent has to be in question. I've questioned

510
00:24:58,240 --> 00:25:01,520
Speaker 7: all I think there's anyway we get two percent inflation

511
00:25:01,760 --> 00:25:03,000
Speaker 7: unless we have a recession.

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00:25:03,200 --> 00:25:05,840
Speaker 2: Bubb tell across Mark, Bob, appreciate it, sir, You've been

513
00:25:05,840 --> 00:25:08,600
Speaker 2: pretty consistent on that point. Go to catch up after

514
00:25:08,640 --> 00:25:11,120
Speaker 2: payrolls on Friday, looking ahead to SEEPR on Thursday.

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00:25:12,440 --> 00:25:16,639
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517
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518
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520
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