WEBVTT - Surveillance: Fed Tightening with Jones 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg surveillance podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment and international relations. 0:00:18.960 --> 0:00:24.000 Find Bloomberg surveillance on Apple podcast, Suncloud, Bloomberg Dot Com and, 0:00:24.079 --> 0:00:29.920 of course, on the Bloomberg terminal. Kathy changes hits away 0:00:29.960 --> 0:00:34.760 and she's not Kathy staying with us that way. I'm 0:00:34.760 --> 0:00:36.599 not coming to you on that, Kathy. We all want 0:00:36.600 --> 0:00:39.040 to know. A ten year, three, three fifty, a two 0:00:39.120 --> 0:00:43.040 year approaching four, Kathy, these big buys. Either one of 0:00:43.080 --> 0:00:47.640 them for you. Well, we like extending duration here. I 0:00:47.640 --> 0:00:51.479 think it's unsustainable to have the Fed hiking rates at 0:00:51.479 --> 0:00:56.160 a very rapid rate, doing qt with, you know, the 0:00:56.240 --> 0:00:59.840 economy slowing. We've had six months of declining ALII, which 0:00:59.880 --> 0:01:04.920 the housing market decline. Uh. These are unsustainable trends. At 0:01:04.959 --> 0:01:06.920 some stage of the game the FAD will have to 0:01:07.040 --> 0:01:10.240 shift and or, you know, we're just going to go 0:01:10.319 --> 0:01:13.559 into a deeper recession than we may already be in. 0:01:14.080 --> 0:01:18.360 And so we do like expanding duration. Albeit yeah, rates 0:01:18.400 --> 0:01:21.000 could continue to move up, but I think all we're 0:01:21.000 --> 0:01:22.959 getting is a deeper and deeper in version of the 0:01:23.000 --> 0:01:25.880 ill curve here. And, Kathy, this cold and extended duration 0:01:26.160 --> 0:01:29.160 ultimately has to be a call on economy rolling over. 0:01:29.360 --> 0:01:31.080 Do you have an idea of the pain threshold the 0:01:31.080 --> 0:01:35.160 Fed is willing to go through? Well, I did mention 0:01:35.319 --> 0:01:38.520 pain for households and businesses last time and I think 0:01:38.600 --> 0:01:42.759 there's a willingness to let it continue and and worsen, 0:01:42.880 --> 0:01:47.600 particularly Um. I think the Fed wants to see unemployment rise. 0:01:47.960 --> 0:01:49.880 They won't say that out loud, but I think they 0:01:49.920 --> 0:01:54.400 want to see Um Labor conditions not as tight as 0:01:54.480 --> 0:01:56.000 the way that they'll put it, and they want to 0:01:56.000 --> 0:01:59.560 see wages slow down. Right now, average hour learning is 0:01:59.640 --> 0:02:02.280 running at five point two percent a year over year. 0:02:02.600 --> 0:02:05.560 It's leveled off, it's stabilized, but we haven't seen it 0:02:05.600 --> 0:02:08.600 decline and I think their comfort zone is closer to 0:02:08.720 --> 0:02:11.920 three percent in terms of wage gains than five percent. 0:02:12.080 --> 0:02:16.960 So that is probably what you know. They're willing to tolerate. Um. 0:02:17.000 --> 0:02:20.600 The question is whether you know whether risk assets can 0:02:20.600 --> 0:02:23.840 tolerate that sort of pain. Cathy, do care about the 0:02:23.880 --> 0:02:28.639 DUB plot? Well, we have to write because I put 0:02:28.639 --> 0:02:32.080 it out there, UM, but it's a moving target. I 0:02:32.200 --> 0:02:34.639 just look at it as a moment in time. Guesses. 0:02:36.000 --> 0:02:38.160 I'm not going to take it too seriously. I think 0:02:38.440 --> 0:02:43.440 it's a messaging tool. Um, simply the FAD will show 0:02:43.480 --> 0:02:45.480 that they want of hype grades and keep them there 0:02:45.480 --> 0:02:48.880 for a long time. But it's a moving target. Kathy, 0:02:48.880 --> 0:02:51.520 I asked this because there's a question about the credibility 0:02:51.520 --> 0:02:54.560 of this Fedu reserve, the credibility that they're actually coming 0:02:54.639 --> 0:02:56.679 up with a thesis that they can follow through on, 0:02:56.800 --> 0:02:59.440 versus just following the market and doing what the market 0:02:59.520 --> 0:03:02.800 is dictated day. How much has that shifted your view 0:03:02.880 --> 0:03:05.120 of how to operate and how much volatility is going 0:03:05.160 --> 0:03:07.359 to be injected in these markets at a time when 0:03:07.400 --> 0:03:10.280 the feed is not leading anymore, it is apparently following 0:03:10.480 --> 0:03:14.119 much more with the markets already doing. Yeah, I think 0:03:14.120 --> 0:03:17.160 the fat is in a position now actually following the 0:03:17.200 --> 0:03:21.000 inflation data, and we know the inflations are lagging indicator. 0:03:21.080 --> 0:03:24.240 We know that monetary policy works with the leg and 0:03:24.320 --> 0:03:26.960 so they've shifted instead of saying, Hey, we're on top 0:03:27.000 --> 0:03:30.000 of this, you know, we're we're taking action, we've got 0:03:30.080 --> 0:03:34.040 qt on top of a rapid tightening cycle. Um, they 0:03:34.120 --> 0:03:37.600 shifted instead of saying, okay, we know that what we're 0:03:37.640 --> 0:03:41.040 doing will make progress in the future, to reacting to 0:03:41.320 --> 0:03:44.280 numbers that are coming out today, and that's why the 0:03:44.400 --> 0:03:48.480 risk is for a deeper and deeper slowdown in the economy, 0:03:48.560 --> 0:03:51.360 and this is compounded globally. You know, we're seeing this 0:03:51.520 --> 0:03:54.760 all over the world and that that makes it even 0:03:54.800 --> 0:03:57.720 more of a problem for people who are trying to 0:03:57.720 --> 0:04:01.160 look forward and look at what the is saying versus 0:04:01.200 --> 0:04:03.920 what the fet is doing. How much conviction do you have, Kathy? 0:04:03.920 --> 0:04:05.280 You are saying it is a good time to go 0:04:05.320 --> 0:04:07.720 into duration, and how much conviction do you have that? 0:04:07.800 --> 0:04:09.760 We've seen the highs were at some of the higher 0:04:09.840 --> 0:04:12.880 levels for longer term treasuries at a time when you're 0:04:12.960 --> 0:04:15.520 questioning whether or not we're actually already in a recession, 0:04:15.560 --> 0:04:19.159 let alone headed for one? You know, we feel pretty 0:04:19.160 --> 0:04:21.840 confident in moving out the curb. We're not all in buying, 0:04:21.880 --> 0:04:24.440 you know, thirty year bonds or ten year bonds here, 0:04:24.520 --> 0:04:27.640 but we do think that it's unsustainable. We're starting to 0:04:27.640 --> 0:04:30.800 see credit spreads widen't a bit, the straints in the economy, 0:04:31.480 --> 0:04:35.360 the strains in the marketplace. Liquidity isn't what it used 0:04:35.360 --> 0:04:38.560 to be, and so you feel pretty confident that this 0:04:38.640 --> 0:04:41.240 is the time to start taking advantage of yields where 0:04:41.279 --> 0:04:43.640 you can lock in, you know, an investment grade portfolio 0:04:44.320 --> 0:04:47.400 right now. You can lock at fortified percent yields without 0:04:47.440 --> 0:04:50.560 taking a tremendous amount of duration risk. We think that 0:04:50.560 --> 0:04:53.320 that's a good alternative compared to some of the other 0:04:53.520 --> 0:04:56.320 asset classes out there. Kathy, thank you. They're putting in 0:04:56.400 --> 0:05:04.440 Kathy John's a child swap on the bond market. Christopher Ryan, 0:05:04.720 --> 0:05:07.719 partner had a technical mat try strategistic to take us 0:05:07.760 --> 0:05:10.200 some bad company. Great Co Chris. I mean, we're so 0:05:10.400 --> 0:05:13.800 close three. I think we came even closer than that. 0:05:14.400 --> 0:05:18.280 When next, I guess? And just the B L J blank. Well, 0:05:18.320 --> 0:05:19.480 I think they have to. I mean when you look 0:05:19.520 --> 0:05:21.640 at yields around the world, US tends, as we mentioned, 0:05:21.680 --> 0:05:24.719 our three fifty three. This morning German tens are basically 0:05:24.760 --> 0:05:27.800 two percent. We've seen UK tens absolutely run away and 0:05:27.880 --> 0:05:31.800 we sit here and Japanese tenure yields are Bass points. 0:05:31.960 --> 0:05:34.840 I'm just not sure how much longer the B O 0:05:34.960 --> 0:05:38.560 j can sustain this cap on yield without losing total 0:05:38.600 --> 0:05:43.599 control of the end. So we like dollar yen higher until, frankly, 0:05:44.120 --> 0:05:46.279 someone breaks, and I think that's the B O j. 0:05:46.520 --> 0:05:49.159 So whether that's one fifty or one fifty five or 0:05:49.200 --> 0:05:52.160 some other level, Um, I think we're on a collision 0:05:52.160 --> 0:05:56.360 course here that ends with B o j capitulating, raising 0:05:56.360 --> 0:05:58.640 the cap on yields to get more in step with 0:05:58.720 --> 0:06:00.880 what we're seeing a around the world. And Chris, if 0:06:00.880 --> 0:06:03.000 you've thought much about how the dominoes fall from that, 0:06:03.360 --> 0:06:06.080 if that headline drop that they stepped away from your control, 0:06:06.120 --> 0:06:07.600 what it makes for Buns, what it makes to try 0:06:07.640 --> 0:06:10.960 to race? I mean I think the initial reaction is 0:06:11.000 --> 0:06:13.880 maybe you then you get your blow off in yield. 0:06:13.960 --> 0:06:16.599 But our experience just has been, I think the historical 0:06:16.640 --> 0:06:19.320 experience has been, bond yields tend to go up until 0:06:19.360 --> 0:06:21.479 something breaks, and that's why I just don't think that 0:06:21.520 --> 0:06:24.279 we're done here yet on yields. Our view on yields 0:06:24.279 --> 0:06:27.320 has simply been they're going to remain stickier and higher 0:06:27.320 --> 0:06:31.240 than the consensus believes until there's an accident, and I'm 0:06:31.279 --> 0:06:33.880 not convinced we've quite seen that accident yet. And the 0:06:33.920 --> 0:06:37.120 accident comes with longer term yields rising in addition to 0:06:37.240 --> 0:06:40.480 short term yields. Possibly what you're talking about with the 0:06:40.640 --> 0:06:42.920 yield curve control being abandoned in the bank Japan and 0:06:42.960 --> 0:06:45.560 the ripple effects through the rest of the world. What 0:06:45.720 --> 0:06:48.200 kind of downside are you looking at? How do you 0:06:48.240 --> 0:06:51.279 sort of hedge against that scenario at a time when 0:06:51.279 --> 0:06:53.880 it could take a lot longer than people could afford 0:06:53.880 --> 0:06:56.960 to keep that position on? Well, I think it just 0:06:56.960 --> 0:07:00.240 speaks to our overall positioning here, which is placed ball, 0:07:00.520 --> 0:07:03.719 go slow, be prudent. Caution is still the word of 0:07:03.800 --> 0:07:05.720 the day and you know, where you really see, at 0:07:05.760 --> 0:07:09.080 least the impact of yields is on what the leadership 0:07:09.080 --> 0:07:11.160 framework of this market looks like. You have yields up 0:07:11.160 --> 0:07:14.240 and utilities continue to dominate. So I look at that 0:07:14.280 --> 0:07:16.320 as a very lead cycle message. You know, when you 0:07:16.320 --> 0:07:18.800 look at the top of the market, the big stocks, 0:07:18.840 --> 0:07:21.240 the big weights, the one everyone owns right, a lot 0:07:21.280 --> 0:07:23.559 of those are already below where they were in June, 0:07:23.560 --> 0:07:26.520 whether it's Google or whether it's Microsoft. So you know, 0:07:26.600 --> 0:07:29.840 you see the impact of yields continuing to hit Tech 0:07:30.360 --> 0:07:32.160 Um and I think that's going to remain the story 0:07:32.800 --> 0:07:35.400 until yields peak, which I just don't think's here. So 0:07:35.440 --> 0:07:37.520 when you look out to what's going to happen in 0:07:37.560 --> 0:07:39.800 the next couple of months. What I'm wrapping my head 0:07:39.840 --> 0:07:43.040 around is what's the downside here, right? I mean an accident? 0:07:43.160 --> 0:07:45.320 How does that ripple through a market when people are 0:07:45.320 --> 0:07:47.440 saying there isn't the same kind of leverage, you're not 0:07:47.480 --> 0:07:50.120 seeing the fragility in banks. You have a much more 0:07:50.200 --> 0:07:53.720 stable base of consumers and their savings and corporate savings. 0:07:53.760 --> 0:07:56.080 So that's the reason why you have this bid, you 0:07:56.120 --> 0:07:59.320 have this range. What's going to break that? Will anything 0:07:59.440 --> 0:08:01.760 or is that so going to be the reality? You know, 0:08:01.840 --> 0:08:06.000 I think that's unclear. The narrative or the consensus is 0:08:06.040 --> 0:08:08.120 that there's no ice to banks or that consumers are 0:08:08.120 --> 0:08:10.040 in better shape than we've seen. But I'm gonna let 0:08:10.080 --> 0:08:12.760 the market be the judge of that. When I look 0:08:12.800 --> 0:08:14.800 kind of a different pockets around the world, I could 0:08:14.840 --> 0:08:17.160 show you plenty of weak consumer stocks that would suggest, 0:08:17.720 --> 0:08:19.800 Um that the market might have a very different opinion 0:08:19.800 --> 0:08:22.040 of that. Are Plenty of weak bank stocks that would 0:08:22.040 --> 0:08:24.080 suggest the market has a different opinion to that. So 0:08:24.280 --> 0:08:26.000 we let the market kind of dictate that. What I 0:08:26.000 --> 0:08:28.360 think is most important for investors is, you know, the 0:08:28.400 --> 0:08:30.880 debate on the street is okay, SMP gonna, you know, 0:08:30.960 --> 0:08:33.880 revisit or retest or undercut the Jew lows. And the 0:08:33.920 --> 0:08:36.160 only thing I would add to that conversation is a 0:08:36.200 --> 0:08:38.920 lot of important stocks already have right when we talk 0:08:38.960 --> 0:08:41.680 about the top of the market, Microsoft has, Google has 0:08:42.360 --> 0:08:44.520 Um Meta is back to where it was at the 0:08:44.520 --> 0:08:46.840 covid loans right. So kind of go down the line 0:08:46.960 --> 0:08:48.600 and a lot of big names, a lot of big 0:08:48.640 --> 0:08:51.920 weights have already, I think, started to reflect that risk. 0:08:52.160 --> 0:08:55.800 Chris lost decades on, unheard of. You can have much 0:08:55.800 --> 0:08:58.640 thought to that. That's so recently. When it comes to 0:08:58.640 --> 0:09:03.240 the UITY market, it's it's funny that that you mentioned that, Jonathan. 0:09:03.760 --> 0:09:06.000 Earlier in the year we wrote something to the effect of, 0:09:06.080 --> 0:09:08.680 you know, the most provocative thing we could say is 0:09:08.720 --> 0:09:11.640 not that the SMP is going to go a ton lower, 0:09:11.640 --> 0:09:14.080 because I think everyone was pretty bearish, but that the 0:09:14.160 --> 0:09:15.880 SMP is not going to make much progress for a 0:09:15.920 --> 0:09:18.480 long period of time. And that's a view that that 0:09:18.480 --> 0:09:20.880 that that we've kind of embraced here as you kind 0:09:20.880 --> 0:09:23.719 of make this transition from que e to qt. I 0:09:23.760 --> 0:09:26.120 think at a minimum, when you look at the very 0:09:26.200 --> 0:09:30.880 liquidity sensitive assets out there, new I P O, s, bitcoin, 0:09:31.440 --> 0:09:34.439 high multiple software stocks. I think those things are done 0:09:34.440 --> 0:09:36.760 as your leadership. For a very, very long time that's 0:09:36.760 --> 0:09:39.040 been our view that remains our view. So I think 0:09:39.080 --> 0:09:41.760 when you look at those, uh, you know, very speculative 0:09:41.760 --> 0:09:44.280 corners of the market, they are saying, even if the 0:09:44.360 --> 0:09:47.319 SMP loads are in here, there is no new liquidity 0:09:47.320 --> 0:09:50.000 cycle in front of us. The reason I bring this up, 0:09:50.040 --> 0:09:51.880 and I imagine it's the reason you're thinking about it too, 0:09:51.960 --> 0:09:54.880 is that we've just blown up a decade of Quei 0:09:55.040 --> 0:09:58.200 forever and serve and I just struggle, Chris, and we're 0:09:58.400 --> 0:10:00.480 living this in real time. I just struggle to understand 0:10:00.480 --> 0:10:03.120 why twelve months of race and interest rates in turn 0:10:03.160 --> 0:10:04.560 a bit of cute and then we go back to 0:10:04.600 --> 0:10:07.000 where we were before. These are big moves. It's not 0:10:07.040 --> 0:10:09.040 just the Fed, it seems to be pretty much everyone, 0:10:09.040 --> 0:10:11.560 with the exception of, say, the B O J. I mean, 0:10:11.559 --> 0:10:14.120 why would it take just twelve months to reverse ten 0:10:14.200 --> 0:10:16.480 years of that? And then the consequences are, oh yeah, 0:10:16.480 --> 0:10:18.520 we just got back to the old playbook in about 0:10:18.520 --> 0:10:22.720 six nages. I'm with you, I think, to kind of 0:10:22.760 --> 0:10:24.839 maybe use a little bit of a cliche this, this 0:10:24.920 --> 0:10:27.040 does look and feel like regime change, and I think 0:10:27.080 --> 0:10:28.920 that the one chart of the one exhument that speaks 0:10:28.920 --> 0:10:32.280 to that, it's on the Bloomberg terminal, is that dollar 0:10:32.360 --> 0:10:35.199 value of negative yielding debt. You know, we went from 0:10:35.320 --> 0:10:38.120 eighteen trillion dollars of negative building debt as recently as 0:10:38.120 --> 0:10:40.760 a year ago. It's down to about one trillion dollars today. 0:10:40.800 --> 0:10:44.120 So if you're looking for regime change, I think there's 0:10:44.160 --> 0:10:48.200 no better exhibit of it than that. Is this a 0:10:48.320 --> 0:10:51.240 resume change when it comes to nominal yield or is 0:10:51.280 --> 0:10:53.439 this a regime change when it comes to real yields? 0:10:53.480 --> 0:10:55.480 Are we going to see real yields continue to climb 0:10:55.760 --> 0:11:01.800 as people price in a very different response from central banks? Well, 0:11:01.840 --> 0:11:04.280 it's both. And I think the thing about real yields 0:11:04.360 --> 0:11:08.760 right it's it's it's Um it's somewhat fashionable to say 0:11:08.800 --> 0:11:11.280 that that that really yields are positive or that, you know, 0:11:11.400 --> 0:11:14.360 really yield are above one percent, but not not really. 0:11:14.440 --> 0:11:16.880 I mean the Fed funds rate is still well below 0:11:17.200 --> 0:11:20.720 the rate of inflation. So in kind of in any 0:11:20.720 --> 0:11:24.240 practical sense for savers, really ills are not positive here yet. 0:11:24.280 --> 0:11:26.880 So I think ultimately, as we've seen in every single 0:11:26.960 --> 0:11:29.959 cycle going back the last fifty years, the Fed funds 0:11:30.040 --> 0:11:33.640 rate will overcome the rate of inflation. That's when the 0:11:33.640 --> 0:11:35.920 Fed has done enough, and I think there's certainly time 0:11:36.480 --> 0:11:38.960 before we get there. Lisa, are people position for what 0:11:39.000 --> 0:11:43.360 you're expecting, Chris, this sort of accident or something breaking? No, 0:11:43.640 --> 0:11:46.640 I think you know. When you look at what positioning 0:11:46.679 --> 0:11:51.439 looks like, there is a decade of residual positioning at 0:11:51.440 --> 0:11:53.280 the top of the market, the big weights that have 0:11:53.400 --> 0:11:56.760 been so reliable for so long and kind of our 0:11:56.840 --> 0:11:59.560 viuew is again. Whether it's market up or market down, 0:11:59.679 --> 0:12:03.360 that's actually less important. What's more important here is this 0:12:03.640 --> 0:12:07.960 massive leadership change that we've seen. I'm very reminded of 0:12:08.520 --> 0:12:12.640 in two thousand two, when the NASDACK bottomed in October. 0:12:12.679 --> 0:12:15.280 Bow Two right in bottomed with everything in October vow two. 0:12:16.000 --> 0:12:20.000 It continued to underperform for the next four years. So 0:12:20.120 --> 0:12:23.480 your price low in NASDAC, I don't think, will be 0:12:23.559 --> 0:12:27.320 your price low in relative performance. That is the big 0:12:27.360 --> 0:12:32.000 takeaway from us. The leadership picture has changed dramatically here. Interesting. Hi, Chris, 0:12:32.360 --> 0:12:34.160 great cold on the end, buddy, and I'm sorry for, 0:12:34.240 --> 0:12:37.079 like you, I'll never laugh again. I Will Christopherry let's 0:12:37.080 --> 0:12:48.640 just take it. Let's get straight to relation of a 0:12:48.720 --> 0:12:51.080 in the head of equities and Capital Market Advisory at 0:12:51.120 --> 0:12:53.920 Ben why? Madam Mouth Management, Alicia, how big is the 0:12:54.040 --> 0:12:58.680 risk that we're heading back towards something like thirty? Look, 0:12:58.679 --> 0:13:02.720 I think it's it's a, you know, fifty percent odds 0:13:02.800 --> 0:13:06.160 on that. We go there simply because, all you're the 0:13:06.160 --> 0:13:09.800 the equity market has really been following the bond market 0:13:09.840 --> 0:13:13.439 here and as tenure yields move higher and push through 0:13:13.440 --> 0:13:17.400 three point point five percent, that's our trigger for another 0:13:17.600 --> 0:13:21.760 move lower from here. So in thirty nine hundred couldn't hold, 0:13:21.800 --> 0:13:24.520 which was sort of that last vestige of support where 0:13:24.559 --> 0:13:27.560 there was a lot of supply and a lot of 0:13:28.000 --> 0:13:32.440 trading previously. Technically, when that didn't hold, you know, it 0:13:32.559 --> 0:13:34.480 was just kind of clear that as you move on 0:13:34.679 --> 0:13:37.800 yields up, the equity markets are going lower, and and 0:13:37.840 --> 0:13:41.640 really for good reason, because the top of the market, 0:13:42.000 --> 0:13:45.880 or high growth and tech stocks, where the valuations will 0:13:45.960 --> 0:13:48.680 come down as yields move higher. So it's a neat 0:13:48.720 --> 0:13:52.679 little equation. Unfortunately it's playing out uh, and that opens 0:13:52.760 --> 0:13:54.800 up downside from here. But as you say that that 0:13:54.920 --> 0:13:58.560 three sixty six, the June seventeenth below is not that 0:13:58.720 --> 0:14:01.199 far away from here. It's not. It's not a heroic 0:14:01.280 --> 0:14:04.120 call to say that. Anymore, are we pricing in the 0:14:04.160 --> 0:14:06.520 weakness that we're hearing from the likes of Ford, from 0:14:06.559 --> 0:14:08.800 the likes of fed x that already are starting to 0:14:08.880 --> 0:14:12.400 sound some profit warnings? So so, in an interesting way, 0:14:12.440 --> 0:14:16.679 your conversation about. How does this conversation change right? How 0:14:16.679 --> 0:14:19.640 do we move higher from here? It is our view 0:14:20.120 --> 0:14:23.000 that the way the equity market can climb out of 0:14:23.040 --> 0:14:26.120 this hole, but it's kind of got it and gotten 0:14:26.160 --> 0:14:29.720 itself in, is for estimates to finally come down and 0:14:29.720 --> 0:14:33.000 and for realistically to price in the slowdown and growth, 0:14:33.480 --> 0:14:37.000 because it's all been driven by yields. Even now, even now, 0:14:37.600 --> 0:14:40.120 estimates are holding in there. You know, the forward twelve 0:14:40.200 --> 0:14:43.160 month on the SMP is something like seventeen times and 0:14:43.200 --> 0:14:46.160 if you take energy out of it it's nineteen times. 0:14:46.160 --> 0:14:48.360 That is not a cheap market and it's not a 0:14:48.680 --> 0:14:52.240 market reflecting a slowdown and growth. That has to happen 0:14:52.280 --> 0:14:56.920 and I think if you realistically reset growth expectations and 0:14:57.160 --> 0:15:00.560 earnings then you can begin to bottom. But until that 0:15:00.680 --> 0:15:04.400 happens wholesale, then I think we're sort of stuck in 0:15:04.400 --> 0:15:06.760 this purgatory for a while. So this is the part 0:15:06.760 --> 0:15:10.920 of the conversation where equity strategists wear their bond hats, 0:15:10.960 --> 0:15:12.880 because it's all about rates and this is what we've 0:15:12.920 --> 0:15:15.320 been seeing for a long time, and so you have 0:15:15.400 --> 0:15:17.040 to come up with a call whether we're getting to 0:15:17.080 --> 0:15:19.920 peak hawkishness, whether people already pricing in more than the 0:15:19.920 --> 0:15:23.280 Fed could potentially do. Do you have a call on that? 0:15:23.360 --> 0:15:25.360 Is that something that you want to game out, or 0:15:25.440 --> 0:15:28.520 is there some kind of relative trade that seems a 0:15:28.560 --> 0:15:33.320 little bit more insulated from those macro guessing games? UH, 0:15:33.640 --> 0:15:37.280 great question. I think that the risk is actually two 0:15:37.280 --> 0:15:41.680 more hawkishness here, simply because, if you think about uh, 0:15:41.720 --> 0:15:44.800 that that CPI print was pretty devastating for the Fed 0:15:44.880 --> 0:15:48.200 dot plots, I think, and for the terminal rate on 0:15:48.240 --> 0:15:52.000 the Fed funds Um so that likely goes higher. If 0:15:52.040 --> 0:15:56.360 that goes higher, multiples get compressed further. But that hasn't 0:15:56.400 --> 0:15:59.280 happened yet. So I think there is some thought that 0:15:59.280 --> 0:16:02.040 we're getting to pe caucushness, but that's not going to 0:16:02.120 --> 0:16:04.120 move the market now. It's the earnings that are going 0:16:04.160 --> 0:16:07.520 to move the market and a realistic reset of where 0:16:07.520 --> 0:16:10.280 we're going in this. So yes, there are relative valuations. Look, 0:16:10.520 --> 0:16:12.920 in the end, this is a short duration market. It 0:16:13.000 --> 0:16:16.080 has been a short duration market, same in equities and 0:16:16.200 --> 0:16:19.600 not just in bonds. So we still like that. Utilities 0:16:19.640 --> 0:16:23.480 are fine, some staples are fine, safety is fine. We 0:16:23.560 --> 0:16:27.240 love real assets. We we are, you know, allocating our 0:16:27.280 --> 0:16:29.760 clients to real assets because we do think we are 0:16:29.760 --> 0:16:34.240 in a regime change where inflation remains higher for longer 0:16:34.520 --> 0:16:38.040 and rates remain higher for longer as a result. And 0:16:38.080 --> 0:16:40.120 all you have to do is listen to some of 0:16:40.320 --> 0:16:42.880 the workers strikes that are going on out there, what 0:16:43.000 --> 0:16:45.720 happened with the rail strike. I mean, these are huge 0:16:45.840 --> 0:16:50.200 wage increases. This will is a change for the economy 0:16:50.280 --> 0:16:52.400 and the rates we're going are going to reflect reflect 0:16:52.440 --> 0:16:54.680 that going forward. I don't think we're going back to 0:16:54.720 --> 0:16:57.720 a world where you have, you know, one percent yields 0:16:57.720 --> 0:17:00.600 on the ten year and let's have a party of by, 0:17:00.720 --> 0:17:03.040 you know, high growth and they're earning tech stocks. So 0:17:03.080 --> 0:17:06.679 we're still in that short duration world. And to your question, 0:17:06.800 --> 0:17:10.000 our bonds an alternative, not on the long end, but 0:17:10.040 --> 0:17:13.080 on the short end. They certainly are doing better. And 0:17:13.119 --> 0:17:15.800 whether a four percent yield on a two year is 0:17:15.880 --> 0:17:19.600 fully reflecting inflation on a real basis. It is not, 0:17:19.840 --> 0:17:21.840 but it's sure of a lot better than losing money 0:17:21.840 --> 0:17:24.239 in the equity market and sh just quickly. What's your 0:17:24.240 --> 0:17:26.680 time and rising for all of this. It's so well 0:17:26.720 --> 0:17:29.399 put together. When you start thinking about these issues sticking 0:17:29.400 --> 0:17:32.600 with us for longer. How much long are we talking? Years? 0:17:32.640 --> 0:17:35.760 We talked five, ten, what is it? So look, I 0:17:35.840 --> 0:17:38.200 was trained as a historian and I look at things 0:17:38.240 --> 0:17:41.280 in big picture ways. In the short term, I think 0:17:41.280 --> 0:17:43.960 we get a nice bump coming out of the election. Okay, 0:17:44.440 --> 0:17:47.600 mid year. Elections are notoriously difficult leading up to it 0:17:47.640 --> 0:17:50.359 and you never lose money in the twelve month after 0:17:50.400 --> 0:17:56.000 the election since so we likely have a rally coming 0:17:56.000 --> 0:17:58.480 out of the election and it could be sustainable because 0:17:58.480 --> 0:18:02.040 we'll get to that peak nastiness heading into it. Right 0:18:02.040 --> 0:18:05.359 we have terrible seasonality. Now better seasonality, but at the 0:18:05.400 --> 0:18:07.840 end of the year. So we're optimistic for how this 0:18:07.920 --> 0:18:12.280 year can stabilize and move higher. Looking forward, I think 0:18:12.320 --> 0:18:17.240 you have to have a more intellectual view of where 0:18:17.440 --> 0:18:20.639 yields can be and where the market is and where 0:18:20.680 --> 0:18:22.919 we can grow, and one of my favorite things to 0:18:22.960 --> 0:18:25.720 do is just look at you know, the top ten 0:18:25.760 --> 0:18:27.840 stocks of the SMP or the top ten stocks of 0:18:27.840 --> 0:18:30.800 the Dow the beginning of every decade to see the 0:18:30.920 --> 0:18:34.159 change of where capital is being allocated and what the 0:18:34.200 --> 0:18:36.439 growth companies are. And I think you can make a 0:18:36.480 --> 0:18:39.720 good case that some of these large pap tech is 0:18:39.720 --> 0:18:42.280 where the risk is here. Let's just avoid the down, 0:18:42.640 --> 0:18:48.080 you know, just stick to the SPENCOURAGE, encourage. Honestly, you know, 0:18:49.119 --> 0:18:57.040 one of the best relation events we management. It's the 0:18:57.080 --> 0:18:59.200 housing market very much in the forefront as we watch 0:18:59.280 --> 0:19:03.040 yields rise because mortgage rates have been climbing so significantly. 0:19:03.080 --> 0:19:05.080 And there's no one better to speak to this to 0:19:05.240 --> 0:19:09.679 Jonathan Miller, who has decades studying the industry, President CEO 0:19:09.720 --> 0:19:12.320 of Miller Samuel. He always puts out these fantastic reports 0:19:12.320 --> 0:19:14.960 that gives these real deep dives into what's actually happening 0:19:15.040 --> 0:19:17.680 on the ground. And we're talking about the pain. We're 0:19:17.680 --> 0:19:20.680 talking about home builder sentiment rolling over yesterday. We're talking 0:19:20.720 --> 0:19:23.439 about what it means to have a mortgage rate at 0:19:23.440 --> 0:19:26.280 six percent and you are still seeing bidding wars. Are 0:19:26.320 --> 0:19:29.919 we underestimating the demand, the strength in this housing market? 0:19:30.320 --> 0:19:36.119 Absolutely before the Fed was raising rates, bidding wars in 0:19:36.320 --> 0:19:38.800 most of the markets we cover across the country where 0:19:39.240 --> 0:19:43.160 somewhere in the neighborhood of of all transactions, southern California 0:19:43.200 --> 0:19:47.080 was two thirds of transactions. Uh, there's still bidding wars now. 0:19:47.200 --> 0:19:53.120 So it's just much more muted. Uh. I think the 0:19:52.600 --> 0:19:55.720 the narrative is that, you know, you can hear crickets 0:19:56.040 --> 0:19:58.879 and that is not the case. It's just not what 0:19:58.960 --> 0:20:02.439 it was and what it wasn't sustainable. But how much 0:20:02.480 --> 0:20:05.399 are we speaking about idiosyncratic markets right? I mean the 0:20:05.480 --> 0:20:09.040 market in Connecticut, for example, very different than the market 0:20:09.040 --> 0:20:12.240 in Phoenix, Arizona, or the market in San Francisco? How 0:20:12.320 --> 0:20:15.400 much are we seeing potholes where you are seeing wholesale 0:20:15.440 --> 0:20:19.600 declines and prices in some areas, particularly the sun belt darlings, 0:20:19.720 --> 0:20:24.320 whereas other areas are holding in more significantly? I think 0:20:24.359 --> 0:20:30.320 the the chatter on pricing is more about sellers cutting 0:20:30.359 --> 0:20:36.720 asking prices more than wholesale price declines throughout a region. Uh, 0:20:36.760 --> 0:20:41.639 you know, in aggregate in these regions, uh, because inventory 0:20:41.760 --> 0:20:46.080 is so low, even with the increases that we've seen, 0:20:46.560 --> 0:20:51.399 there's a fairly firm underpinning under price. It's certainly you know, 0:20:51.440 --> 0:20:53.760 I'm not saying we're not looking at some sort of 0:20:54.160 --> 0:20:59.160 price decline a couple quarters out or, you know, sometime 0:20:59.240 --> 0:21:02.919 in but I don't. I don't see this as a 0:21:03.000 --> 0:21:07.679 correction scenario because the market was wildly overweighted on the 0:21:07.760 --> 0:21:12.840 demand side going into this and inventory was literally obliterated. 0:21:12.960 --> 0:21:15.600 You know, a typical market, sub market, might have two 0:21:15.680 --> 0:21:19.439 hundred listings just before the Fed rate increases. In beginning 0:21:19.480 --> 0:21:22.760 a year there might have been ten listings, twelve listings. 0:21:23.119 --> 0:21:27.920 Now there's fifty. It's still sevent below. I mean that's 0:21:27.960 --> 0:21:30.480 sort of the scenario we're seeing Um in the different 0:21:30.480 --> 0:21:33.000 markets that we cover. But just to push back, we're 0:21:33.000 --> 0:21:35.439 seeing the just the volume of sales drop off a 0:21:35.480 --> 0:21:37.960 cliff and a lot of times that's a precursor to 0:21:38.119 --> 0:21:40.879