Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the All Thoughts Podcast.
Speaker 2: I'm Tracy Alloway and I'm Joe.
Speaker 3: Wasn't thal Joe?
Speaker 2: Look at the screen. That's that's painful.
Speaker 3: So if you're just tuning in right now, we are
Speaker 3: recording this. It is four to twenty one pm at
Speaker 3: twelve on twelve, eighteen, twenty twenty four. So we just
Speaker 3: had a FED decision. They cut raids, but you know,
Speaker 3: they call it a hawkish cut because various reasons which
Speaker 3: we'll get into, and Stockscott, cloudbird s andp ended down
Speaker 3: two point nine to five percent. Again that we're doing this,
Speaker 3: we're recording this after the bell on Wednesday.
Speaker 2: Yeah, I guess maybe we fixed that breadth problem at
Speaker 2: a minimum. But yeah, everything is read bonds down too
Speaker 2: as well, which is kind of interesting to see them
Speaker 2: go in the same direction. All of which means we
Speaker 2: need to talk about markets. It's been a while since
Speaker 2: we've had like a chunky market discussion.
Speaker 3: It has been a while since we've just talked about markets.
Speaker 3: I mean, we sort of talked about them. We did
Speaker 3: an episode with the top strategist at Goldman recently, but
Speaker 3: what I would say, the sort of defining aspect of
Speaker 3: markets right now and you hinted at them, is how
Speaker 3: narrow this You know, we've had extraordinary gains inequity markets
Speaker 3: in twenty twenty four, but the gains have become incredibly narrow.
Speaker 3: So basically, if you looked outside of anything that is
Speaker 3: an AI, chips, crypto and quantum computing, things have been
Speaker 3: sputtering for a while. A lot was really writing on
Speaker 3: a handful of sort of hot momentum names. You sort
Speaker 3: of wondered how long that could last. And again, if
Speaker 3: you look at the NAS deck as of right now,
Speaker 3: up twenty nine percent on the air dowd Jones as
Speaker 3: we're talking about ten straight days, longest sellout since nineteen
Speaker 3: seventy four.
Speaker 2: That's a crazy stat I know.
Speaker 3: It's a great statu isn't it only up twelve percent
Speaker 3: for the year.
Speaker 2: It's one of those days where we get to trot
Speaker 2: out all these superlainness because everything's moving all at once.
Speaker 2: But we need to talk about why this is happening,
Speaker 2: how long it might last, and what it means for
Speaker 2: next year. Obviously, and we do have the perfect guests
Speaker 2: to be talking to. We are speaking with Jim Karn,
Speaker 2: the Chief investment Officer of the Multi Asset Portfolio Solutions
Speaker 2: Group at Morgan Stanley Investment Management. It's quite a title, Jim,
Speaker 2: Welcome to the show.
Speaker 4: Thank you, Thank you for having me.
Speaker 2: So let's start with the basics. You know, Joe described
Speaker 2: it as a sort of hawkish cut. Was that your
Speaker 2: takeaway as well?
Speaker 4: Well, yeah, I mean I would say that it was
Speaker 4: even more than that. So, for example, we have to
Speaker 4: put this into context. Right, so today December the FED meeting,
Speaker 4: we have to go back to the September FED meeting.
Speaker 4: That's when the Fed basically laid out the plan that
Speaker 4: they were on a mission to cut interest rates, that
Speaker 4: the terminal policy rate, that they were on a mission
Speaker 4: to get down towards a three percent fund FED funds rate,
Speaker 4: possibly even lower than that. Today they reverse course to
Speaker 4: an extent that they actually if when we look at
Speaker 4: their dot plots, that they actually raise the dots by
Speaker 4: about fifty basis points across the board. Let me say
Speaker 4: that again, they raise the dots by fifty basis points
Speaker 4: across the board, and the dots are really just an
Speaker 4: estimation of what many of the of the Fed governors
Speaker 4: are thinking. The voting members on the FED are actually
Speaker 4: thinking about policy going into the future. So instead of
Speaker 4: having about four or five rate cuts in twenty twenty five,
Speaker 4: now it's closer to two rate cuts in twenty twenty five,
Speaker 4: so they've cut that in half. This is probably I've
Speaker 4: been doing this for thirty two years. This is probably
Speaker 4: one of the sharpest reversals, or I should say adjustments.
Speaker 4: Not really a reversal, but an adjustment. The FED still
Speaker 4: cutting interest rates, so it's not a reversal to that extent.
Speaker 4: They're not going from cutting to hiking, but it is
Speaker 4: significant in that they've really made a big adjustment from
Speaker 4: just where they were three months ago. They typically are
Speaker 4: a little bit more longer term thinking, but I guess
Speaker 4: they're reacting to some of the inflation data, some of
Speaker 4: the equity market performance, and potentially even President Alec Donald Trump.
Speaker 3: It's a tricky moment. You know, there was a good summary.
Speaker 3: I'm just going to read it real quickly from the
Speaker 3: Bloomberg Tea live blog from end of current. You know,
Speaker 3: he says there are a few different needles in this
Speaker 3: press conference to thread explaining why disinflation remains on track,
Speaker 3: but why they will slow their cuts, explaining why the
Speaker 3: job market is not a source of inflation even though
Speaker 3: it's strong, Explaining why they're thinking about Trump's new policies yet,
Speaker 3: even though they don't know the specifics. These are all
Speaker 3: tricky questions. It occurs to me. I was thinking about
Speaker 3: late twenty eighteen when we had a very intense sell
Speaker 3: off at the time, but they was kind of simple.
Speaker 3: Paul had said, oh, we're a long way from neutro.
Speaker 3: I started getting this sell off at the end of
Speaker 3: the year. All they had to do was say, we're
Speaker 3: actually not going to hike as much as we thought.
Speaker 3: There really are a lot of crosswinds.
Speaker 4: Now, yeah, there are. And I think that comment on
Speaker 4: the jobs market is really what the key is, because look,
Speaker 4: you can make the argument. You can basically say that
Speaker 4: wait a minute, and inflation's coming down, but it's really
Speaker 4: kind of stalling out at this point. It's making some
Speaker 4: progress lower but not a lot, so that might be
Speaker 4: a concern. You could potentially look at the equity markets
Speaker 4: and say, well, equity markets have done pretty you know,
Speaker 4: pretty pretty well. Credit markets, credit spreads have been very
Speaker 4: very tight, so financial conditions are are very easy, So
Speaker 4: why would the FED continue to cut interest rates in
Speaker 4: this environment, albeit at a slower pace. And I think
Speaker 4: the answer is actually in the jobs market. So my
Speaker 4: suspicion is that the jobs market is actually much weaker
Speaker 4: than what the published data is suggesting. Now that's an
Speaker 4: outlier view because I can't back that up with the data,
Speaker 4: because look, I'm not the BLS. I don't have the
Speaker 4: information all the information. But what I do know is
Speaker 4: that the QCEW data, which as a quarterly census of
Speaker 4: employment in wages, that data is a longer term series
Speaker 4: of jobs that are created in What it's been showing
Speaker 4: over the past eighteen months is that on a monthly basis,
Speaker 4: there's been significant downward revisions to the non farm payroll
Speaker 4: data that gets released every single month. So I think
Speaker 4: the FED believes that the jobs data is actually or
Speaker 4: the job environment is actually weaker than what's actually being
Speaker 4: stated by the economic statistics. It will eventually come out
Speaker 4: into the future, and what they're worried about is an
Speaker 4: accelerated rise in the unemployment rate, which they call reflexivity,
Speaker 4: which could create a more severe downturn. So why are
Speaker 4: they still cutting interest rates? Is really an exercise and
Speaker 4: risk management. They'd rather get closer to their neutral policy
Speaker 4: rate at this stage because it might avoid them having
Speaker 4: to move faster later.
Speaker 2: But then, what does that mean for the inflation outlook,
Speaker 2: because you think, I hear weaker job numbers and maybe
Speaker 2: the official data is hiding some weakness, and we have
Speaker 2: seen those big revisions that you just talked about. But
Speaker 2: on the other side, you know, inflation still very much
Speaker 2: stubbornly above the two percent target.
Speaker 4: Yeah, look, it's a great question. So really it's a tradeoff.
Speaker 4: It's a trade off of basically saying that they are
Speaker 4: willing to tolerate slightly higher inflation above target. They're willing
Speaker 4: to tolerate it's stalling, not rising, but stalling out right now,
Speaker 4: just to make sure that the jobs market will be
Speaker 4: hopefully a bit stronger going forward. Because still what they're
Speaker 4: looking for in their forecasts are about four point two
Speaker 4: percent unemployment rates. That's a pretty low rate. That's where
Speaker 4: we are right now. They don't have a lot of
Speaker 4: room for error. So I would say that as long
Speaker 4: as inflation doesn't start to move higher, that they're going
Speaker 4: to continue on a slow path and pace of of
Speaker 4: rate cuts, and they're going to be laser focused on
Speaker 4: that labor market.
Speaker 3: The real thing that we all noticed, Tracy mentioned it
Speaker 3: is just that big move in the equity market. But
Speaker 3: as we talked about, you know, there's been this like
Speaker 3: I would hate to be a portfolio manager. I would
Speaker 3: hate to even in an up year, because I'm only
Speaker 3: beating the market if I were more concentrated in tech
Speaker 3: than the market, which is already heavily concentrated in tech.
Speaker 3: And if our portfolio manager, I'd probably consider myself to
Speaker 3: be a very intelligent, intellectual person and I would swim
Speaker 3: away from the crowd. So I probably was not overly
Speaker 3: invested in tech. And so I'm in this situation which
Speaker 3: is middle of December, and the only thing that's doing
Speaker 3: well up until the century today has been tech. Talk
Speaker 3: to us just about the dynamics and how tricky that
Speaker 3: is for an investor here in mid December of twenty
Speaker 3: twenty four.
Speaker 4: Yeah, this really gets to the heart of portfolio management.
Speaker 4: So in many of the portfolios that we manage, we
Speaker 4: come across this risk a lot. We call it concentration risks.
Speaker 4: So what you're referring to is that it's a very
Speaker 4: narrow breath, meaning that the several tech names, big big
Speaker 4: names that are out there that have really been responsible
Speaker 4: for driving a lot of the performance this year. So
Speaker 4: if you want to have a more diversified portfolio, which
Speaker 4: is a good thing to do, what that meant is
Speaker 4: that you actually slightly underperform the market because the tech
Speaker 4: sector and those and those and those seven names, the
Speaker 4: Magnificent seven as we call them, have actually done really
Speaker 4: really well. So what has those started to happen? And
Speaker 4: I think will happen. And this is what our view
Speaker 4: is going into twenty twenty five is we're starting to
Speaker 4: look away from those big mag seven names. We're not
Speaker 4: going underweight, we're going more neutral weight like those top
Speaker 4: ten performers, but we're starting to broaden out and we're
Speaker 4: starting to go into more of the MidCap sectors. So
Speaker 4: when we look at MidCap, MidCap is an area that
Speaker 4: we're looking at pe multiples that are around sixteen or
Speaker 4: seventeen versus the twenty two or twenty three forward pees
Speaker 4: that the that you know that the index sits at around. Now,
Speaker 4: these are companies that you've know. These are companies know
Speaker 4: anywhere between five billion in twenty billion in market cap
Speaker 4: that have better earnings potential, and essentially, especially in the
Speaker 4: new administration that is seemingly more business friendly. If you
Speaker 4: get some deregulation, this can also feed down to the
Speaker 4: MidCap sectors that get better access to capital, cheaper access
Speaker 4: to capital that were maybe under banked, and can also
Speaker 4: lead to better performance there as well as the cyclic
Speaker 4: cyclicality of the economy, meaning that we're not forecasting a
Speaker 4: recession in twenty twenty five. As long as there's some
Speaker 4: decent growth, we think that the MidCap sector will actually
Speaker 4: do better, so that diversification may start to pay dividends
Speaker 4: going forward.
Speaker 2: Why didn't it this year though, Because markets, we are
Speaker 2: told at nauseum are always forward looking, presumably they could
Speaker 2: see this positive MidCap environment coming. But if you look
Speaker 2: at the performance so far this year, I think the
Speaker 2: SMP four hundred is up, well, this was before the
Speaker 2: big drop today, but it was up something like sixteen
Speaker 2: percent versus like the twenty seven percent jump in the
Speaker 2: S and P five hundred.
Speaker 4: Yeah, well, it didn't happen this year. That's a great question,
Speaker 4: and the one word answer is earnings. Effectively, when we
Speaker 4: talk about the Magnificent seven and we talk about those
Speaker 4: great performers. They've also had great earnings, and really the
Speaker 4: earnings growth rate was down to those magnificent few stocks
Speaker 4: that were out there, and that's what really stood out
Speaker 4: this year. So they've earned the title of being magnificent
Speaker 4: just through their earnings. The earnings, though, have been in
Speaker 4: much more of a lagged space in the mid cap sector. So,
Speaker 4: for example, if you look at the S and P
Speaker 4: five hundred, that index is going to have a very
Speaker 4: very large weighting towards those large cap tech stocks. When
Speaker 4: you look at the SMP four hundred or the SNP
Speaker 4: six hundred, those indices are going to have a more
Speaker 4: diversified weighting towards the mid cap sectors. If you look
Speaker 4: at the earnings trend of the S and P five
Speaker 4: hundred over the past two years, it's been straight up.
Speaker 4: It's been absolutely magnificent. But if you look at the
Speaker 4: earnings trend in the S and P four hundred or
Speaker 4: the S and P six hundred, it would look like
Speaker 4: the economy was in a mild recession or a slowdown.
Speaker 4: It's been very very flatlined. So what we think is
Speaker 4: that as these as these multiples and as the earnings
Speaker 4: growth rates for these bigger tech stocks have really reached
Speaker 4: maturity at this point that there's going to be a
Speaker 4: shift in a reallocation into these better earning potential sectors
Speaker 4: and stocks in the marketing.
Speaker 3: Over the years. You know, there are these hot names
Speaker 3: for baskets of stocks these days. It's the Meg seven now,
Speaker 3: the old days used to be. You know, there was
Speaker 3: the dot com stocks, there was the nifty to fifty,
Speaker 3: there were the radio stocks, and the nineteen twenties things going.
Speaker 3: First of all, has there ever been the historical parallel
Speaker 3: to what we see in the Mag seven of such
Speaker 3: big companies also putting up such big year over year
Speaker 3: EPs growth numbers?
Speaker 4: The answer is not, really, it is it is a
Speaker 4: pretty rare event to see this type of deviation or
Speaker 4: just distinction of a handful of stocks really performing so
Speaker 4: well relative to their peers for this long of a period, And.
Speaker 3: What's going to happen in twenty Why do we why
Speaker 3: do more people seem to think that in twenty twenty
Speaker 3: five something is going to pivot on this?
Speaker 4: You know, it's really not that people are turning negative
Speaker 4: on these on these on these mag seven stocks as
Speaker 4: we're talking about it. It's just that when you look
Speaker 4: at their earnings growth rates, it is starting to and
Speaker 4: we've seen this in the recent you know, the fourth
Speaker 4: quarter and it's right third quarter earnings and you'll probably
Speaker 4: see in the fourth quarter earnings too. Is that what
Speaker 4: you've started to see is that the earnings growth rate
Speaker 4: is now starting to flatline. So, as I was saying earlier,
Speaker 4: what made these stocks magnificent was that their growth rates,
Speaker 4: We're magnificent. If their growth rate is just average, well
Speaker 4: then I'm not willing to pay a thirty pe a
Speaker 4: high multiple for these things anymore. And as long as
Speaker 4: as long as you believe their earnings growth rate will
Speaker 4: be fantastic, well then yes, maybe, you know, maybe a
Speaker 4: thirty pe multiple for many of these stocks is worth it.
Speaker 4: But if it just turns out that it's more of
Speaker 4: a flat, flatter trajectory in their growth rate, I mean,
Speaker 4: still a good, solid, you know, growth rate, but nothing magnificent,
Speaker 4: you're not going to pay those high valuations, and the
Speaker 4: markets are going to turn towards these other sectors that
Speaker 4: have been left behind.
Speaker 2: So a bunch of the outperformance from you know, the
Speaker 2: mag seven stocks, the big tech stocks has come as
Speaker 2: a result of enthusiasm around AI, and we have seen
Speaker 2: this bifurcation in the market where it seems like anything
Speaker 2: that is attached to AI or chips or something like
Speaker 2: that has seen this massive outperformance and then everything else
Speaker 2: is sort of doing fine but kind of left in
Speaker 2: the dust relatively. Is there a moment and would it
Speaker 2: be next year where you would assume that, like some
Speaker 2: of the productivity gains from AI would eventually leach into
Speaker 2: smaller companies or companies that are not directly at the
Speaker 2: sort of forefront of that technology.
Speaker 4: This is the big opportunity. This is a big opportunity
Speaker 4: going forward. So what AI effectively can do is it
Speaker 4: can ring out inefficiencies in many sectors of the market
Speaker 4: that are more inefficient. Let's take healthcare for example. The
Speaker 4: healthcare sector is doing very poorly this year and even
Speaker 4: last year, I mean historically, very very poorly. This is
Speaker 4: a segment of the market that we think that AI
Speaker 4: can bring in a lot of efficiencies. Whether it's on
Speaker 4: the healthcare side. We have to be very very very
Speaker 4: very careful because sometimes you bring in pharma and big
Speaker 4: pharma with this, and that's not exactly what I'm talking about,
Speaker 4: but essentially, you know more in the medical services, you know,
Speaker 4: segments of this. If you're very specific and if you're
Speaker 4: very active in how you manage this, and you're a
Speaker 4: stock picker, not just building in a big index with
Speaker 4: just a bunch of pharmaceutical names, you can actually do
Speaker 4: pretty well. You know, other areas like materials, industrials. You know,
Speaker 4: these are other areas that you know a little bit
Speaker 4: far afield from healthcare, but still can get the benefits
Speaker 4: of some of the AI technologies coming in. And what
Speaker 4: you're going to find is that more and more brick
Speaker 4: and mortar types of companies are going to start to
Speaker 4: incorporate it. The impact of AI is to really bring
Speaker 4: in higher productivity, which is higher growth with lower inflation,
Speaker 4: into sectors that are relatively inefficient. So people look at
Speaker 4: like tech and they look at like financials. Yes, absolutely,
Speaker 4: but you know what financials. Financial companies are already pretty
Speaker 4: efficient just by definition, I mean they're financial companies and
Speaker 4: that's what it effectively operates on. Tech is the engine
Speaker 4: that creates a lot of these things, but again a
Speaker 4: lot of that is in the price. So we have
Speaker 4: to start to move to areas that have been the
Speaker 4: laggards that we think that there could be some technology
Speaker 4: gains that can really drive the earning cycle.
Speaker 3: So one of the things that comes up a lot
Speaker 3: of times when we talk about multisset portfolios is that
Speaker 3: really the only thing. I mean, yeah, you can maybe
Speaker 3: diverse away from big tech into medium tech or medium
Speaker 3: tech into small cap tech. But there's been no jews
Speaker 3: in em There's been no jews in Europe. There's no
Speaker 3: juice really even in treasuries. They haven't done anything to
Speaker 3: even head you on a day like December eighteenth, twenty
Speaker 3: twenty four, what is the role for non US equity
Speaker 3: right now in a multiset portfolio?
Speaker 4: So so non US equity and many people will.
Speaker 3: And no, we're non equity at all. So international equity.
Speaker 4: Or fixing Yeah, okay, okay, Well let's start with international
Speaker 4: equity first of all, and let's start with Europe. Europe
Speaker 4: is really a large cap value play. And what has
Speaker 4: large cap value done? Not so well, right, because the
Speaker 4: growth sectors and the tech sectors have done really, really well.
Speaker 4: So I would say that that the role that international
Speaker 4: equity plays as a large cap value style of looking
Speaker 4: at the markets is it's really more of it's more
Speaker 4: of a stabilizer so it's a diversifier in that when
Speaker 4: you typically have these downturns in markets, those large cap
Speaker 4: value segments actually outperform. They do better than the higher
Speaker 4: beta growth sectors in the marketplace. So there is a
Speaker 4: positive cash flow there. There are dividends there, you know,
Speaker 4: there is there are some opportunities we can move to
Speaker 4: places like Japan. Japanese equities one of my favorite markets.
Speaker 4: So here we are, we have some inflation. Inflation is
Speaker 4: going to drive earnings, and I think the inflation is
Speaker 4: sustainable and durable in Japan. Plus you have changes to
Speaker 4: the corporate governance. It's becoming much more dividend friendly, shareholder
Speaker 4: friendly buybacks, all of the various components there. Pension funds
Speaker 4: are turning into less savings plans which is fixed income,
Speaker 4: and more into investment plans, which is more equity. And
Speaker 4: if the world is going to on shore, particularly in
Speaker 4: the US, and you know Japan is larvae is very
Speaker 4: very well leveraged to large scale cap X. So I
Speaker 4: think there's a lot of things that are pointing in
Speaker 4: the direction to you know, to Japanese equities in the
Speaker 4: long term. I know we've had three bad decades, but
Speaker 4: I think that's this is the decades, this is the decade,
Speaker 4: this is the decade. That's that's going to happen. Let's
Speaker 4: try to fixed income. One thing that you said right
Speaker 4: in the beginning of this podcast is that that there's
Speaker 4: you know, fixed income and equity. There's no place to hide, right.
Speaker 4: If we look at the screens today, everything's read bonds
Speaker 4: and equities. When the bond when the equity markets go
Speaker 4: down two or three percent like they're doing today right
Speaker 4: after the FED, you would expect to get some safe
Speaker 4: harbor from bonds. Bonds should definitely do well typically, but
Speaker 4: they're not. And this is the big issue with acid
Speaker 4: allocation going forward, is that the correlation of returns between
Speaker 4: fixed income and equities is very high. It's at multi
Speaker 4: decade highs. What that means is that if the correlation
Speaker 4: of returns are high between bonds and stocks, that means
Speaker 4: it's hard to have a diversified portfolios. Right, It's hard
Speaker 4: to own stocks and bonds, and that hopefully bonds bail
Speaker 4: you out or help you when the equity market turns lower.
Speaker 4: So essentially, what that means is that we all have
Speaker 4: to think very very differently going forward because what's happened
Speaker 4: is that the markets become very complacent on the fact
Speaker 4: that from nineteen eighty one to twenty twenty one we
Speaker 4: were in a forty year bull market in fixed income,
Speaker 4: all you had to be is a passive investor, buy
Speaker 4: and hold, and you did really, really well. It diversified
Speaker 4: your portfolio perfectly. What if today interest rates just move sideways.
Speaker 4: That would be a structural shift in the way that
Speaker 4: we think about a diversified portfolio. That means some years
Speaker 4: bonds do well, some Eurobs bonds don't. They correlate with
Speaker 4: equities many times in many cases. So that would suggest
Speaker 4: that when we think about acid allocating across fixed income
Speaker 4: and equities in a multi acid portfolio, and let's not
Speaker 4: forget about alternatives too, that now we have to think
Speaker 4: about being much more actively managed, particularly in fixed income,
Speaker 4: as opposed to passively, meaning by passive means active managers
Speaker 4: as opposed to passive. Same thing with equities. It's less
Speaker 4: going to be about the beta, it's going to be
Speaker 4: less going to be about multiple expansion and these mag seven,
Speaker 4: and it's going to be much more about sector rotation.
Speaker 4: It's much more about the alpha and picking sectors and
Speaker 4: even picking stocks. So again, more active management versus passive
Speaker 4: management is a big change. Alternatives Alternatives are another way
Speaker 4: to diversify your portfolio because essentially, when we look at that,
Speaker 4: these are longer term investment profiles that typically aren't necessarily
Speaker 4: just trying to track the economic cycle like fixed income
Speaker 4: inequities do. They're really looking at valuations, mergers and acquisitions LBOs.
Speaker 4: They're looking at a very very different timeframe, and your
Speaker 4: returns are coming from different areas. In other words, it's
Speaker 4: orthogonal to your stock and bond portfolio, and that's what
Speaker 4: creates a lot of the diversification. So going forward, you're
Speaker 4: going to have to mix alternatives into this multi assets.
Speaker 4: It's not just stocks and bonds.
Speaker 2: Just out of curiosity, I mean, you are. I'm going
Speaker 2: to say your title one more time, even though it
Speaker 2: is a mouthful, Chief Investment Officer of the Multi Asset
Speaker 2: Portfolio Solutions Group at Morgan Stanley Investment Management. On a
Speaker 2: day like today, when bonds are going down, stocks are
Speaker 2: going down, it feels like just about everything is going down.
Speaker 2: Maybe private credit is doing okay because it's not marked
Speaker 2: to market on a daily basis. Yeah, there we go.
Speaker 2: There's your safe haven. What is a day like today
Speaker 2: actually like for you? Like, what are you doing other
Speaker 2: than here in the studio talking to us.
Speaker 4: Look, I'm excited about today, and I'll tell you why.
Speaker 4: I'm not just saying that because we've been looking for
Speaker 4: a good entry point into the markets. We are not
Speaker 4: bearish going into twenty twenty five. We think the economic
Speaker 4: fundamentals are going to be good. Why is the Fed
Speaker 4: increasing potentially not cutting interest rates as much. It's not
Speaker 4: because of the economy's weakening. It's because I think the
Speaker 4: economy is stronger, so that should be a positive for equities.
Speaker 4: So when I look at equities today and they're down
Speaker 4: almost three percent on the day, I'm pulling out my
Speaker 4: shopping list, right, you know, and I hope you know,
Speaker 4: I'm checking it twice, and I'm going after all these things,
Speaker 4: all the Christmas references. But effectively, this is a very
Speaker 4: interesting opportunity. The other thing, too, is that bond yields
Speaker 4: have spiked. You know, ten year yeels have gotten up
Speaker 4: to four and a half percent. Well, guess what that means.
Speaker 4: As I look at my shopping list for equities, and
Speaker 4: I can look at this, and I can I can
Speaker 4: increase my equity allocation. I can also buy bonds at
Speaker 4: a good yield to actually hedge that. So this is
Speaker 4: actually as long as we're in the context, as long
Speaker 4: as this is not the start of something bigger where
Speaker 4: the FED is now completely going to pivot. They're going
Speaker 4: to surprise the market and start hiking interest rates, which
Speaker 4: is not our forecast, not our base case. That all
Speaker 4: they're making is an adjustment. By the way, this adjustment
Speaker 4: that the Fed made one hundred percent in the price
Speaker 4: bond market was already anticipating this. This is not a
Speaker 4: surprise to the bond mark.
Speaker 2: Yet this actually confused me a little because when I
Speaker 2: saw the headlines, Joe and I were doing some stuff,
Speaker 2: but when I saw the headlines, it was like, okay,
Speaker 2: they cut and then to for next year, Like okay,
Speaker 2: that's pretty much what was expected. And then a little
Speaker 2: while later you had the big reaction. It was like, what,
Speaker 2: how did the press conference go?
Speaker 3: What didn't they say, Racy, I'm going to sell some
Speaker 3: stocks so I have some cash to buy the market.
Speaker 3: That's my plan twenty twenty five.
Speaker 2: All right, all right, well, Jim, I'm so glad that
Speaker 2: we wanted to have you on the show for a
Speaker 2: long time and it just kind of happened to be.
Speaker 3: A perfect time, perfect guest.
Speaker 2: Yeah, absolutely great timing. Thank you so much for coming
Speaker 2: on all thoughts.
Speaker 4: Oh, thank you very much to.
Speaker 2: Joe. I feel better about my my crazy bye like
Speaker 2: terribly inefficient European stocks thesis on the back of AI.
Speaker 2: Oh idea, that's that's my big twenty twenty five trade.
Speaker 3: I like that thesis that basically that you know, some
Speaker 3: random chemical company in Germany they've never heard of, is
Speaker 3: going to be the big winner because they will be
Speaker 3: the users of AI to make their processes more streamlined
Speaker 3: and will does benefit from the rotation to value and
Speaker 3: AI itself very intriguing, very intriguing.
Speaker 2: I'm going to build that index you'll see. Uh No,
Speaker 2: I thought that was great, I mean, truly the perfect
Speaker 2: guest for the perfect moment in time, and it is.
Speaker 2: It is kind of crazy, you know. You you brought
Speaker 2: up that great point of how often we have seen
Speaker 2: in recent years bonds and stocks moving in the same direction,
Speaker 2: and even on a daylight today, that's a pretty big
Speaker 2: move in the SP five hundred, so.
Speaker 3: Gold got hammered today. I don't know if you know
Speaker 3: the really really, there's no really, yeah, for real, there was. Right,
Speaker 3: Let's see how much did gold fall today? Gold was
Speaker 3: down two point two percent, Bitcoin got clavered, it clovered.
Speaker 3: It was like at one hundred and seven thousand yesterday
Speaker 3: or something, down four point nine percent on the day,
Speaker 3: all the other coins truly a day. The only line
Speaker 3: it's really going up the entire world right now is BBDXY,
Speaker 3: the Bloomberg Dollars Spot Index. It is the dollar wrecking ball.
Speaker 2: As they say, America wins again. Yeah, all right, shall
Speaker 2: we leave it there.
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the Authoughts podcast. I'm
Speaker 2: Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 3: Follow our producers Kerman Rodriguez ed Kerman Armann, dash Ol
Speaker 3: Bennett at Dashbod and kel Brooks at Kelbrooks. Thank you
Speaker 3: to our producer Moses Ondem. From our Odd Lags content,
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