WEBVTT - Surveillance: Paradigm Shift with Eisman 0:00:05.120 --> 0:00:08.440 This is the Bloomberg Surveillance podcast. I'm Tom Keene, along 0:00:08.480 --> 0:00:12.320 with Jonathan Farrell and Lisa Abramowitz joined us each day 0:00:12.360 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.239 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.479 anywhere you get your podcasts, and always I'm Bloomberg dot Com, 0:00:26.600 --> 0:00:31.920 the Bloomberg Terminal and the Bloomberg Business app. This is 0:00:31.960 --> 0:00:34.479 a joy. So lean forward Global Wall Street and for 0:00:34.520 --> 0:00:36.680 those of you are removed from Global All Street, this 0:00:36.720 --> 0:00:39.520 will be a clinic. His name is Steven Eisman. He's 0:00:39.520 --> 0:00:43.159 senior portfolio manager at New Burger Berman and the Icemand 0:00:43.159 --> 0:00:45.960 Group and has a nodded acquaintance with a movie of 0:00:46.000 --> 0:00:48.239 a few years ago. Big short. Thank you so much 0:00:48.240 --> 0:00:50.320 for joining us in studio. It's been like, you know, 0:00:50.400 --> 0:00:55.240 I think it's been three years and and and such, 0:00:55.320 --> 0:00:56.680 and it's good to have you here. And we're gonna 0:00:56.680 --> 0:00:59.560 have Mr Eisman with us for the entire at half hour, 0:00:59.720 --> 0:01:03.400 I to go to what you and I studied. And 0:01:03.520 --> 0:01:06.240 he's always been associated with your Harvard but the fact 0:01:06.360 --> 0:01:09.840 is he wrote his scientific Revolution at Berkeley and that 0:01:09.959 --> 0:01:13.760 as Thomas Coon and the paradigmatic shift. It's a word 0:01:13.840 --> 0:01:18.200 that I think is just hugely misused in investment and financing. 0:01:18.280 --> 0:01:22.920 You're talking about a new paradigm. What is the new paradigm? Well, 0:01:23.000 --> 0:01:26.000 let me just add potential new paradigm. I'm not smart 0:01:26.120 --> 0:01:28.360 enough to know necessarily if it's going to happen, but 0:01:28.400 --> 0:01:31.480 I think it's something people need to think about. You know, 0:01:31.480 --> 0:01:37.520 what's a paradigm. It's something it's basically the assumptions about 0:01:37.520 --> 0:01:41.399 how you think. They're so embedded in your brain that 0:01:41.520 --> 0:01:45.240 it's similar to how you breathe. You don't even think 0:01:45.240 --> 0:01:48.080 about how you breathe. And your paradigm you don't just 0:01:48.200 --> 0:01:52.360 live it, you inhabit it. And paradigms and investing seem 0:01:52.440 --> 0:01:55.360 to last about oh eight to ten years or so. 0:01:55.360 --> 0:01:57.560 So if you go back to the nineties, you know, 0:01:57.560 --> 0:02:02.720 people invested in law conglomerates like ge until that story 0:02:02.800 --> 0:02:05.600 began to fall apart during the recession. You know, then 0:02:05.600 --> 0:02:09.519 they turned to large financial institutions. From two thousand and 0:02:09.600 --> 0:02:13.120 one through early two thousand and eight. They assumed that 0:02:13.400 --> 0:02:15.920 the people who ran those companies were geniuses until they 0:02:15.960 --> 0:02:21.160 realized that they weren't, and then with the FED lowering 0:02:21.280 --> 0:02:24.000 rates to zero and keeping them there, you were essentially 0:02:24.160 --> 0:02:28.359 paid to take risk, and so people invested in growth stocks, 0:02:28.440 --> 0:02:31.639 largely to net technology stocks, and within technology stocks, the 0:02:31.720 --> 0:02:34.519 stock that the stocks that did even the best were 0:02:34.560 --> 0:02:39.040 those with large revenue growth but negative earnings. And that's 0:02:39.080 --> 0:02:40.760 a parent and we've been living in for the last 0:02:40.760 --> 0:02:44.360 ten years. So what could change it? I mean, obviously 0:02:44.400 --> 0:02:46.560 the Feds at some point, and I don't have no 0:02:46.639 --> 0:02:49.120 idea when that point is, will stop raising rates. The 0:02:49.280 --> 0:02:52.480 real operative question is will they cut or will they 0:02:52.560 --> 0:02:55.440 leave them up there? Now Powell keeps saying I'm leaving 0:02:55.440 --> 0:02:57.720 it up there, and the market keeps saying, we don't 0:02:57.720 --> 0:03:01.000 believe you. So let's just assume, for the sake of 0:03:01.120 --> 0:03:03.080 argument that he does cut. Then we'll go back to 0:03:03.120 --> 0:03:05.640 the old paradigm people invest in growth stocks again. But 0:03:06.000 --> 0:03:08.680 assuming you take him at his word, then I think 0:03:09.320 --> 0:03:12.440 the days of just investing in in growth stocks and 0:03:12.480 --> 0:03:17.600 in hyper growth stocks is over. Now, It's not over yet, 0:03:17.639 --> 0:03:20.240 assuming I'm right. I mean, if you go back to 0:03:20.280 --> 0:03:23.200 two thousand and nine, the financials had their last hurrah 0:03:23.400 --> 0:03:26.880 after the world fell apart and the government bailed everybody out, 0:03:26.919 --> 0:03:28.880 two thousand and nine was a very very strong year 0:03:28.919 --> 0:03:32.120 for pretty much every large financial company, and then in 0:03:32.120 --> 0:03:34.080 two thousand and ten it was over, and it was 0:03:34.160 --> 0:03:39.280 over for ten years. So I mean, where do I think? 0:03:40.160 --> 0:03:44.000 I mean, people don't change their paradigms easily. Um, And 0:03:44.280 --> 0:03:45.840 sometimes they have to be head on the head with 0:03:45.880 --> 0:03:49.640 a two by four multiple times before they realize that 0:03:49.680 --> 0:03:52.080 the way they've been thinking for a long period of 0:03:52.080 --> 0:03:55.600 time is no longer right. Um, So you know what's 0:03:55.600 --> 0:03:58.000 going to happen this year? I have no idea. Is this? 0:03:58.400 --> 0:04:00.400 You know, the FED keeps rates high, will this be 0:04:00.480 --> 0:04:02.760 another great year for tech stocks? And then we'll go 0:04:02.800 --> 0:04:06.280 into a new paradigm. I don't know yet by price section, Steve, 0:04:06.680 --> 0:04:08.560 you know that I get a sense from what you're 0:04:08.560 --> 0:04:10.360 saying that you might think that the running we've seen 0:04:10.440 --> 0:04:12.880 you today is somewhat of a last raph. It might be, 0:04:13.040 --> 0:04:16.839 like I said, if the FED keeps rates high for 0:04:16.880 --> 0:04:21.159 a long period of time, then people are gonna you know, 0:04:21.320 --> 0:04:23.479 I'm not sure what the new paradigm is. I'm not 0:04:23.600 --> 0:04:27.440 Einstein literally who created a new paradigm. I'm not that smart. 0:04:27.600 --> 0:04:30.600 I'm not even close to that smart. Like, let me 0:04:30.640 --> 0:04:35.800 emphasize I'm not even close to that smart. But where 0:04:35.839 --> 0:04:37.919 do I think it could go. I mean, maybe it 0:04:38.000 --> 0:04:42.040 just goes to a much more diversified portfolio. Um. Maybe 0:04:42.080 --> 0:04:45.480 it goes a lot more to infrastructure related companies and 0:04:45.640 --> 0:04:48.560 with the United States doesn't start spent me we're beginning to. 0:04:48.680 --> 0:04:51.520 But if we don't improve our infrastructure, all our bridges 0:04:51.600 --> 0:04:56.279 are going to fold down literally. UM. So I'm guessing 0:04:56.320 --> 0:04:59.560 at this point we go to more diversified portfolios. I 0:04:59.560 --> 0:05:01.400 don't think tech will be dead, but it will be 0:05:01.440 --> 0:05:05.720 more focused on companies with actual earnings. Um. People will 0:05:05.720 --> 0:05:10.159 focus on infrastructure companies, They'll be stock picking. That's where 0:05:10.200 --> 0:05:11.880 I think it will go. Call me in a year 0:05:12.240 --> 0:05:14.440 and I'll have a better idea of a different story. 0:05:14.480 --> 0:05:15.760 You can come back in a year. Well, I look 0:05:15.800 --> 0:05:19.080 forward to that start. And it's not just about what 0:05:19.120 --> 0:05:21.359 the FED wants to do, it's what they should have 0:05:21.360 --> 0:05:23.560 shouldn't do based on the incoming information. So, as you 0:05:23.680 --> 0:05:26.520 pointed out, in the last regime, the last paradigm wasn't 0:05:26.520 --> 0:05:29.120 just low rates with low inflation, low growth, and their 0:05:29.160 --> 0:05:31.960 reasons to believe based on what you've seen that the 0:05:32.000 --> 0:05:34.919 inflation regime of the next couple of years will be 0:05:35.000 --> 0:05:37.520 higher stickier than what we've seen in the previous ten 0:05:37.600 --> 0:05:40.039 and the reasons to believe that, oh, I definitely think 0:05:40.040 --> 0:05:42.679 there is um. I mean, one of the major reason 0:05:42.720 --> 0:05:44.680 why inflation has been low and it wasn't the less 0:05:44.720 --> 0:05:48.400 ten years is more like the less twenty five is 0:05:48.720 --> 0:05:51.520 that the supply chain of the United States and all 0:05:51.640 --> 0:05:56.200 developed countries moved out of those countries to Asia China, 0:05:56.480 --> 0:06:02.039 where the labor and the costs were much cheaper. What 0:06:02.240 --> 0:06:06.160 COVID proved to everyone was that while that supply chain 0:06:06.240 --> 0:06:10.240 was cheap, it was also incredibly brittle. And that's been 0:06:10.680 --> 0:06:14.240 This is a two by four multiple times. So companies 0:06:14.320 --> 0:06:17.520 realize they can't have a brutal supply chain because it 0:06:17.560 --> 0:06:20.960 means that if something happens, they'll have no products. So 0:06:21.000 --> 0:06:24.039 you're getting supply chain moving back to the United States 0:06:24.080 --> 0:06:27.599 and other developed countries. That means that you know the 0:06:27.680 --> 0:06:31.320 underlying so you have a more resilient price chain, but 0:06:31.440 --> 0:06:34.640 prices will be higher. You are famous for the big 0:06:34.640 --> 0:06:39.039 short back during the whole mortgage crisis. I was, is 0:06:39.040 --> 0:06:45.320 there another big short type of trade in this paradigm shift. Well, 0:06:45.360 --> 0:06:47.559 it's not. In the financial sector. If you're talking about 0:06:47.640 --> 0:06:53.120 negative the I mean I would give applause to the 0:06:53.240 --> 0:06:57.280 vice Chairman of Supervision, the first one, Daniel Trullo, who 0:06:57.279 --> 0:07:03.560 completely changed the banks, lowering d killing leverage. So whatever happens, 0:07:03.640 --> 0:07:05.760 it's not going to happen in the banks. I mean, 0:07:05.760 --> 0:07:09.080 maybe it happens in private equity, but I don't think 0:07:09.560 --> 0:07:11.960 given that this will probably be just if there is 0:07:12.000 --> 0:07:14.600 a recession, it'll just be a run of the mill recession, 0:07:14.680 --> 0:07:19.840 not a calamity. I don't see a crisis in the 0:07:19.840 --> 0:07:22.000 banks now. Maybe it happens like in the UK and 0:07:22.040 --> 0:07:24.119 the pension funds. I don't know yet. I mean, maybe 0:07:24.120 --> 0:07:25.920 nothing happens and we just have a plane run of 0:07:25.920 --> 0:07:27.800 the mill recession. That's my bet at this point, if 0:07:27.840 --> 0:07:29.840 we have a recession, I want to go to a 0:07:29.960 --> 0:07:32.920 chapter in the Michael Lewis book, The Big Short, which 0:07:32.960 --> 0:07:35.400 is a long quiet. Some would say the long Quiet 0:07:35.920 --> 0:07:39.000 was the artificiality of low, low real rates that we've 0:07:39.000 --> 0:07:42.440 seen for well in excess of ten years. We return 0:07:43.000 --> 0:07:46.000 to a real rate environment. On the paradigm story, we 0:07:46.040 --> 0:07:48.520 can go from Thomas Coon to say someone look not 0:07:48.680 --> 0:07:51.160 seeing teleb who says the gravity has come back into 0:07:51.480 --> 0:07:53.600 our financial physics, and then we go on to you 0:07:53.720 --> 0:07:56.920 that say we have to deal with a new paradigm, 0:07:56.960 --> 0:08:00.840 which to me is potentially but okay, I will, like 0:08:00.880 --> 0:08:05.200 I said, not Einstein, not Einstein, but let's what's potentially 0:08:05.280 --> 0:08:08.360 here as a resurgence of real rates. Do you think 0:08:08.400 --> 0:08:10.920 we're going to see a sustainable real rates that gets 0:08:10.960 --> 0:08:13.800 us back to an environment like two thousand six when 0:08:13.840 --> 0:08:18.360 you started the big short. I mean, look, I first 0:08:18.360 --> 0:08:20.720 of all, I think there's a possibility that inflation goes 0:08:20.720 --> 0:08:23.880 back up. You know you were mentioning before use cars. 0:08:23.960 --> 0:08:26.880 I just sold my use car and at eight five 0:08:26.920 --> 0:08:28.760 thousand miles on it, and I got a price that 0:08:28.840 --> 0:08:32.240 I was shocked by. So I mean, I'll tell you 0:08:32.280 --> 0:08:34.600 one thing that I've been doing lately, which I haven't 0:08:34.640 --> 0:08:38.280 done in fifteen years of I've been You know, our 0:08:38.320 --> 0:08:42.360 groups are actually buying bonds, at least some bonds, and 0:08:42.600 --> 0:08:44.959 when we have cash, we either park it in a 0:08:45.000 --> 0:08:48.880 money market fund that yields over four percent shocking, or 0:08:48.960 --> 0:08:53.080 we even by you know, three months treasuries with the 0:08:53.160 --> 0:08:55.520 yield of four point six percent. I'll say it again, 0:08:55.640 --> 0:08:59.199 four point six percent. So you know, there as long 0:08:59.240 --> 0:09:02.600 as rights stay hi. The old paradigm of what was 0:09:02.640 --> 0:09:06.800 it called Tina. There is nothing, There is no alternatives. 0:09:07.000 --> 0:09:09.000 It's not true that there is norm alternative. I mean 0:09:09.840 --> 0:09:12.760 we tell our clients you can have something in very 0:09:12.800 --> 0:09:15.880 short term duration with a yield of four point five 0:09:15.920 --> 0:09:19.160 percent with zero risk. You know they're happy to park 0:09:19.280 --> 0:09:21.679 some cash. Dan Scaly and Morgan Stanley said the same 0:09:21.720 --> 0:09:24.079 thing this morning. Get paid to white now quite literally. 0:09:26.040 --> 0:09:27.600 So we've had these big moves in the equity market. 0:09:27.600 --> 0:09:29.000 Can we talk about the mix of what you like 0:09:29.000 --> 0:09:31.320 and equities At the moment, the likes of Rio more 0:09:31.400 --> 0:09:33.920 than thirty percent from the lows at the end of October. 0:09:33.960 --> 0:09:37.760 We're starting to see the miners outperformed. We've bought a 0:09:37.800 --> 0:09:41.240 couple of We've bought some minors very recently. I mean, 0:09:41.240 --> 0:09:43.560 it's partially an infrastructure story. And if you look at 0:09:43.559 --> 0:09:45.439 the chart of those stocks, I don't think they've done 0:09:45.440 --> 0:09:48.520 anything in twenty years. So, you know, assuming that the 0:09:48.600 --> 0:09:51.800 resurgence of infrastructure continues to occur, the miners will do 0:09:51.840 --> 0:09:55.920 pretty well here. Do you think that there is a 0:09:56.000 --> 0:09:58.360 bet to really go much more into bonds in cash 0:09:58.920 --> 0:10:01.560 even as you play and some of the old economy 0:10:01.600 --> 0:10:03.320 that's coming to the four again. In other words, can 0:10:03.360 --> 0:10:06.760 you give us a distribution that you're looking for. I mean, look, 0:10:06.760 --> 0:10:08.480 I think you can still invest in tech, but you 0:10:08.480 --> 0:10:10.959 have to be much more selective. We have a much 0:10:10.960 --> 0:10:15.320 more diversified portfolio right now. There's some infrastructure, there are 0:10:15.320 --> 0:10:19.079 a few financials, there's healthcare, there's some utilities, which is 0:10:19.120 --> 0:10:23.760 a story also of infrastructure. So I mean, I just 0:10:23.840 --> 0:10:26.600 like I said before, the days where somebody has of 0:10:26.600 --> 0:10:30.960 their portfolio in tech, I think is might be in 0:10:31.000 --> 0:10:34.240 the past. I want to talk about the short termism 0:10:34.280 --> 0:10:36.439 that's out there. You guys made a battles mentioned in 0:10:36.480 --> 0:10:40.240 the Quiet, the chapter that was a long quiet in 0:10:40.320 --> 0:10:42.800 the Big Short there's a short termism out there. We 0:10:42.880 --> 0:10:45.120 see the last time since we've seen you in here, 0:10:45.160 --> 0:10:48.520 there's the whole meme stop things back thing blah blah blah. 0:10:48.880 --> 0:10:52.120 The answers, how does our audience get back to responsible 0:10:52.200 --> 0:10:56.480 long term investment given how they're buffeted every day, every week, 0:10:56.520 --> 0:11:00.040 every month by the back and forth two by For 0:11:00.840 --> 0:11:04.840 like I said before, people have I mean people have 0:11:04.960 --> 0:11:06.320 to be hit on the head with the two by 0:11:06.400 --> 0:11:10.000 for multiple times before they start to realize that I 0:11:10.040 --> 0:11:13.079 do think the age of speculation of that intensity is 0:11:13.120 --> 0:11:15.600 probably over. I mean, if you look at charts, SPACs 0:11:15.800 --> 0:11:20.040 died the Like I said before, the high revenue growth 0:11:20.080 --> 0:11:24.959 companies with negative earnings got destroyed last year. They were 0:11:24.960 --> 0:11:28.640 down and people are pointing out that they've gone up 0:11:28.640 --> 0:11:30.719 a lot, but they've got up a lot. When you 0:11:30.760 --> 0:11:33.560 go down and then you go up a hundred percent, 0:11:33.840 --> 0:11:35.920 the chart doesn't look that different. You've mentioned that a 0:11:35.920 --> 0:11:37.640 couple of times being hit by a two by four. 0:11:37.679 --> 0:11:39.079 What does that look like in a market that was 0:11:39.120 --> 0:11:42.600 decimated last year that is facing what is looking like 0:11:42.720 --> 0:11:45.040 one of the biggest pain trades in the wrong direction 0:11:45.320 --> 0:11:47.520 towards the old paradigm that we've become familiar with in 0:11:47.520 --> 0:11:51.119 the past decade. I mean, like we're having a resurgence 0:11:51.240 --> 0:11:54.319 right now. You know, if if inflation starts to come 0:11:54.360 --> 0:11:56.800 back and the FED either raises rates more than people 0:11:56.840 --> 0:12:00.960 expect or keeps it there, people's taste for such speculation 0:12:01.080 --> 0:12:03.720 is going to erode. But like I said before, people 0:12:03.720 --> 0:12:07.520 don't give up paradigms easily. It takes time. So you know, 0:12:07.640 --> 0:12:11.280 maybe this is a year of the last Hurrah, assuming 0:12:11.360 --> 0:12:14.000 rates stay high. I don't know. Yet, But something's going 0:12:14.040 --> 0:12:16.480 to happen. I think some people are guilty of becoming 0:12:16.480 --> 0:12:19.400 married to positions. Do you have a favorite position? How 0:12:19.400 --> 0:12:21.560 do you think about that within the portfolio? Do you 0:12:21.559 --> 0:12:26.800 have one? No? I don't um. I'm not married. I'm 0:12:26.800 --> 0:12:28.720 not married to my stock. Get that tramp. How have 0:12:28.760 --> 0:12:30.560 you avoided that? How do you go about doing that? 0:12:30.760 --> 0:12:32.679 I don't think that I should be married to any stock. 0:12:32.760 --> 0:12:35.079 I mean you can invest long term. You know, people 0:12:35.120 --> 0:12:37.679 have invested in tech stocks for a very long time. 0:12:38.760 --> 0:12:41.760 They love them, they're married to them. But I don't 0:12:41.800 --> 0:12:45.640 see being married to the stocks. Steve Iceman of new 0:12:45.640 --> 0:12:58.160 Berger Burma of the Iceman Group joining us right now 0:12:58.240 --> 0:13:01.480 is John Stolfer's chief investment strategy the Oppenheimer Asset Management. John, 0:13:01.520 --> 0:13:03.160 what if I can't shop with you? I know you're 0:13:03.200 --> 0:13:06.560 more constructive than most, especially coming into three and so far, 0:13:06.920 --> 0:13:09.679 so good. Mike Wilson, a margin standing this morning, says 0:13:09.720 --> 0:13:12.719 price is about its disconnected from reality as it's been 0:13:12.800 --> 0:13:14.880 during this band market. What would you say, bank, John, 0:13:15.840 --> 0:13:19.679 I'd say I'd say dark Vader. I disagree with you. Uh, 0:13:19.720 --> 0:13:23.239 you know a length of force be with us? Uh? Effectively? 0:13:23.320 --> 0:13:25.320 I think what we're seeing is that things are actually 0:13:25.400 --> 0:13:27.640 improving around the world, and they at least have just 0:13:27.640 --> 0:13:30.719 just mentioned in terms of Europe the way things are 0:13:30.720 --> 0:13:34.520 looking over there. The better than expected earning so far 0:13:35.120 --> 0:13:37.400 last night looked. I think earnings were of from fourth 0:13:37.440 --> 0:13:39.599 quarter for the SSB five hundred around two and a 0:13:39.600 --> 0:13:43.080 half percent versus expectations I think going into it at 0:13:43.120 --> 0:13:45.720 three and a half were cent or worse. I think 0:13:46.000 --> 0:13:50.960 companies are doing their job to navigate a rough environment overall, 0:13:51.640 --> 0:13:54.960 and we have the Federal Reserve doing the doing the 0:13:55.040 --> 0:13:58.520 job to end the period of free money and put 0:13:58.600 --> 0:14:03.040 us back on a more holistic course that should be 0:14:03.040 --> 0:14:08.200 good or fundamentals overcome momentum and high leverage. John, you're 0:14:08.280 --> 0:14:11.480 very articulate about extending a bullish call out tour. We 0:14:11.600 --> 0:14:14.800 finally got a stulfas market. We certainly have a stulfas 0:14:14.880 --> 0:14:18.800 market around. This is the trading and schuring on the market. 0:14:18.840 --> 0:14:21.560 I thought of you when I saw this observation from 0:14:21.600 --> 0:14:25.600 Ben Laidler of Toro. In the old days, we used 0:14:25.680 --> 0:14:29.560 to hold stocks for years. Now we hold them for months. 0:14:29.600 --> 0:14:32.600 We've gone from a five year old to an average 0:14:32.640 --> 0:14:36.440 ten month hold. How do you do stulfus optimism. If 0:14:36.480 --> 0:14:39.480 people on a ten month basis are pretty close to 0:14:39.560 --> 0:14:44.120 day trading, well, gosh, I think that's that's a great question, Tom. 0:14:44.160 --> 0:14:47.760 I think more than ever before, there really is a 0:14:47.840 --> 0:14:52.920 recognition that there are at the starting from point one, 0:14:53.680 --> 0:14:56.000 you have two different types of investors. You've got the 0:14:56.040 --> 0:14:59.040 short term crowd and you've got the intermediate, long term, 0:14:59.080 --> 0:15:03.600 ground term evidence of fear and greed and longer term 0:15:03.680 --> 0:15:08.760 its need and the realization that investing in innovation in 0:15:08.800 --> 0:15:12.800 corporations that that know how to manage their products and 0:15:12.880 --> 0:15:16.920 their services. Uh, this is the way to go for 0:15:17.200 --> 0:15:21.000 a portion of one's portfolio in terms of meeting the 0:15:21.080 --> 0:15:25.320 needs of whether it's a kid's education, whether it's a retirement, uh, 0:15:25.600 --> 0:15:28.240 what have you. The serious goals and the fun stuff 0:15:28.320 --> 0:15:30.760 is the day trading, you know, I mean not for me. 0:15:31.160 --> 0:15:35.480 I'm an intermediate to longer term investor. I'm a buffet guy. Well. 0:15:36.000 --> 0:15:38.040 I am curious, though, John, at what point you start 0:15:38.040 --> 0:15:40.840 to get worried about the Central banks going much further 0:15:41.200 --> 0:15:43.200 than they previously said they would if you do get 0:15:43.200 --> 0:15:45.440 this re acceleration. It seems like that's the pre eminent 0:15:45.480 --> 0:15:49.320 concern among a growing number of investors right now. I 0:15:49.400 --> 0:15:51.880 would say that is a pre eminent at least among 0:15:51.920 --> 0:15:54.680 the training crowded for sure. And remember the traders are 0:15:54.720 --> 0:15:58.520 closer to equity traders, the dare closer to bodity traders. 0:15:59.000 --> 0:16:01.040 UH from the path in terms of the way they 0:16:01.120 --> 0:16:04.760 position themselves on a day to day, minute demented basis. 0:16:05.280 --> 0:16:07.360 But we have to see the central banks are doing 0:16:07.360 --> 0:16:12.640 their job and are showing remarkable ability to UH to 0:16:13.320 --> 0:16:16.560 essentially if not pivot or pause, and I don't think 0:16:16.560 --> 0:16:20.120 that's needed right now, but to maintain a view that 0:16:20.160 --> 0:16:22.960 they're going to be vigilant against inflation, they're going to 0:16:23.040 --> 0:16:25.800 take action against this. I don't think any central bank 0:16:25.920 --> 0:16:28.320 or around the world wants to be remembered as Arthur 0:16:28.360 --> 0:16:31.960 Burns is remembered. So what's your target for your end 0:16:32.000 --> 0:16:33.960 and what's the parameters, what's sort of the band that 0:16:34.040 --> 0:16:36.240 you see at this point? And given that it is 0:16:36.280 --> 0:16:39.200 a highly uncertain time, and yet there does seem to 0:16:39.200 --> 0:16:43.400 be this growing sentiment of no landing well well, at 0:16:43.440 --> 0:16:46.640 least I've never known a period in forty years almost 0:16:46.680 --> 0:16:49.280 forty years in the market when there has really been 0:16:49.880 --> 0:16:53.720 UH any certainty in the market Uncertainty is part of life, 0:16:53.720 --> 0:16:55.880 and it certainly moves through the market. There's never an 0:16:55.880 --> 0:16:59.360 all clear signal UH sounded. But we'd have to say, 0:16:59.400 --> 0:17:02.440 you know, our target is forty four hundred for the 0:17:02.560 --> 0:17:06.359 SNP this year with based on what we've seen coming 0:17:06.359 --> 0:17:08.560 out of the box or out of the gates or 0:17:08.640 --> 0:17:11.359 to speak at the beginning of the year, a chance 0:17:11.440 --> 0:17:13.960 that we may see that exceeded. Right now, we'll stick 0:17:14.000 --> 0:17:17.880 with thet D. Our main concerns are on the day 0:17:17.920 --> 0:17:20.520 to day basis, you know, are the ability of the 0:17:20.600 --> 0:17:24.600 market to over sell as well as to over buy UH. 0:17:24.600 --> 0:17:27.640 In the near term. You have to curb enthusiasm somewhat 0:17:28.240 --> 0:17:31.640 UH and keep keep a good business mind in terms 0:17:31.720 --> 0:17:35.640 of what you're investing in and UH and your courage 0:17:35.840 --> 0:17:38.639 of your convictions. Ye, John, great to catch you in 0:17:38.640 --> 0:17:40.520 the make Sandy cant you a white at it FS 0:17:40.600 --> 0:17:43.280 six weeks to this year at John Stelfas staff of Oppenheimer. 0:17:48.119 --> 0:17:50.480 Let's get to one of our most successful guests. She 0:17:50.760 --> 0:17:54.679 nailed bonds in two thousand twenty two Priumr associated with 0:17:54.720 --> 0:17:57.400 a ten year yield of TD securities. Pre I want 0:17:57.400 --> 0:17:59.800 to go inside to the two year yield. How do 0:17:59.840 --> 0:18:02.760 you how do you look at the two year yield? 0:18:03.040 --> 0:18:05.600 How do you establish a color around how the two 0:18:05.680 --> 0:18:09.800 year yield may act? Sure, so thanks for having me on. 0:18:09.920 --> 0:18:12.080 I think the two years all about that endpoint of 0:18:12.080 --> 0:18:14.520 the hiking cycle. How long is the Fed going to 0:18:14.680 --> 0:18:16.480 keep it there? And then when are they going to cut? 0:18:16.600 --> 0:18:18.520 I think we should talk about when they're going to cut, 0:18:18.560 --> 0:18:21.320 because inflation is likely to come down at some point 0:18:21.320 --> 0:18:23.840 and we're looking for cuts next year. But I think 0:18:23.920 --> 0:18:27.320 what is the market pricing off that endpoint? That pause, 0:18:27.840 --> 0:18:29.480 and then when do they cut. It's all going to 0:18:29.560 --> 0:18:32.000 come down to inflation. I think inflation and and and 0:18:32.080 --> 0:18:33.560 later on this year. I think it's going to come 0:18:33.600 --> 0:18:35.720 down to the labor market. The labor market is still 0:18:35.760 --> 0:18:37.840 very strong, so I think that inflation print we get 0:18:37.880 --> 0:18:41.480 one CPI tomorrow. You know, if course services X shelter 0:18:41.680 --> 0:18:44.760 remains strong, which is our view, the Fed is not 0:18:44.920 --> 0:18:47.560 stopping yet. I think they're going in our view two 0:18:47.720 --> 0:18:50.639 or I would say there's a decent chance of another 0:18:50.680 --> 0:18:53.400 twenty five and then they pause again. I think it's 0:18:53.400 --> 0:18:56.440 going to depend on how quickly does that service inflation 0:18:56.520 --> 0:18:59.160 come down, which will allow them to start to cut it. 0:18:59.200 --> 0:19:00.800 So I think it's only and we get into that 0:19:00.880 --> 0:19:05.080 to handle two and a half three percent inflation sustained basis, 0:19:05.280 --> 0:19:07.879 can the Fed start to you know, make policy a 0:19:07.920 --> 0:19:10.639 little less restrictive. So we're looking for the two year. Actually, 0:19:11.240 --> 0:19:13.280 I would say the market is actually pretty well well 0:19:13.359 --> 0:19:15.919 priced for that endpoint of the hiking cycle. I do 0:19:16.040 --> 0:19:17.960 think the pause can be a little longer, so a 0:19:18.800 --> 0:19:21.440 little bit higher to U two arrates is what we're 0:19:21.440 --> 0:19:23.320 looking for. Spray were dancing around it a little bit. 0:19:23.400 --> 0:19:24.960 Let's put you on the spark. Do you think we 0:19:25.040 --> 0:19:29.560 are sufficiently restrictive any evidence of that whatsoever? I think 0:19:29.600 --> 0:19:31.920 we are um and I get a lot of pushback 0:19:31.960 --> 0:19:34.080 on that because the data is strong. So number one, 0:19:34.080 --> 0:19:36.240 there are lags, long and variable lags, you know. I 0:19:36.240 --> 0:19:39.639 think we're in that process of lags. The fact that 0:19:39.680 --> 0:19:42.639 the consumer has so much still accumulated savings. Now these 0:19:42.640 --> 0:19:45.680 savings are coming down, but I think that's actually widened 0:19:45.680 --> 0:19:48.200 that lag. Beer I don't think the lags are shorter. 0:19:48.280 --> 0:19:51.480 I know markets priced in, but for the consumer to 0:19:51.560 --> 0:19:53.879 actually start to cut back on spending, and I think 0:19:53.920 --> 0:19:56.520 they are starting to cut back. But the labor market 0:19:56.560 --> 0:19:59.480 is strong, and I still have accumulated savings. When those 0:19:59.480 --> 0:20:01.480 savings on out, in our view, that happens in the 0:20:01.480 --> 0:20:04.240 second half of the year. That's when the consumer starts 0:20:04.280 --> 0:20:06.880 to cut back. So, you know, I think the policy 0:20:07.000 --> 0:20:10.199 is restrictive. Real rates well not of one percent is 0:20:10.200 --> 0:20:12.960 going to have an impact on the consumer um you know. 0:20:13.040 --> 0:20:14.760 I think it just is going to take some time 0:20:14.800 --> 0:20:17.560 where we haven't had a shock to the system. I 0:20:17.600 --> 0:20:20.080 think the last two recessions have been shocked lead, which 0:20:20.080 --> 0:20:22.160 is why the market is just waiting for the data 0:20:22.200 --> 0:20:24.240 to fall apart. I think it's going to be a 0:20:24.320 --> 0:20:26.680 slow grind. You know. It's like that last mile when 0:20:26.680 --> 0:20:29.159 you're running that marathon. It just you slow down. It 0:20:29.200 --> 0:20:32.080 feels really long. I think we're in that moment of 0:20:32.119 --> 0:20:35.240 the market's impatient. So that's why we're moving from you know, 0:20:35.320 --> 0:20:38.840 hard landing, soft landing, no landing. You know, I still 0:20:38.960 --> 0:20:42.119 think that interest rates real interest rates well north of 0:20:42.200 --> 0:20:44.800 that fifty basis point that we think is normal. That 0:20:45.040 --> 0:20:47.800 is restrictive. It just is taking a while for that 0:20:47.880 --> 0:20:50.520 to slow the US economy down. What does restrictive mean 0:20:50.560 --> 0:20:53.040 in terms of the likelihood of a hard landing of 0:20:53.040 --> 0:20:56.520 a recession that a lot of people have written off sure, 0:20:56.560 --> 0:20:58.800 so I think you know what's going to be tricky 0:20:59.000 --> 0:21:01.320 is as the kind of starts to slow down, can 0:21:01.359 --> 0:21:03.200 the FED respond? You know, I don't think we're gonna 0:21:03.240 --> 0:21:05.520 get any fiscal response. In fact, into the dead ceiling, 0:21:05.720 --> 0:21:08.720 we might actually get some spending cuts. What makes us 0:21:08.800 --> 0:21:12.879 more nervous about about a hard landing is policies restrictive. 0:21:12.920 --> 0:21:14.960 The economy starts to slow down, and then we wait 0:21:15.000 --> 0:21:16.800 for the FED to respond. We wait for the fight 0:21:16.840 --> 0:21:19.600 to stop QT to start to cut trade, and we 0:21:19.680 --> 0:21:22.160