Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at
Speaker 1: Bloomberg and HUMBLDNNA higher across Acid reporter with Bloomberk and
Speaker 1: this week on the show, well, we've got some bad
Speaker 1: news for you. We're come to think of it, maybe
Speaker 1: it's actually good news. It's hard to tell these days
Speaker 1: if you have your eyes on the market, since we're
Speaker 1: back in an upside down world where strong economic reports
Speaker 1: can cause stocks to drop on concerns that they will
Speaker 1: make the Federal Reserve maintain its aggressive efforts to tame
Speaker 1: inflation through interest rate increases. But it's definitely good news
Speaker 1: that we have a global market strategist at a major
Speaker 1: firm here to help unpack it all for us. But first, Viltano,
Speaker 1: before we get to the guest, I have to ask,
Speaker 1: how was your trip to London? It was really fun
Speaker 1: and I want to thank all of the cross acid
Speaker 1: reporters and editors over in London who were so so
Speaker 1: nice to me and welcome me and we went out
Speaker 1: for drinks and had a really good time. Oh that's good.
Speaker 1: Did did uh? Did they all join your professional network
Speaker 1: on LinkedIn. Yeah, I'm friends with all of them on LinkedIn. Yeah, yeah, yeah, Yeah,
Speaker 1: you've got quite a following on LinkedIn. Yeah. I think
Speaker 1: it's a small type, tight knit group of maybe like
Speaker 1: three thousand people or so, I would say. Yeah, Yet
Speaker 1: I am not yet up to snop to join your
Speaker 1: professional network on LinkedIn? Is that me, the one who's
Speaker 1: edited how many of your stories as a podcast guest's
Speaker 1: even a big LinkedIn guy? I can't even believe I
Speaker 1: actually I'm going to send my request to be in
Speaker 1: your professional network. I wasn't gonna. I think I'm not
Speaker 1: even sure I did it on purpose. I think it
Speaker 1: was like a butt dial. I'm sure rarely on LinkedIn.
Speaker 1: I feel like if you're on LinkedIn, you're looking for
Speaker 1: a job. I don't want my employers to think I'm
Speaker 1: out there looking for a job. And somehow the fact
Speaker 1: that I'm not in your professional network on LinkedIn, I
Speaker 1: don't you think it probably bothers me. It does not
Speaker 1: bother me. I'm going to resend my requestsional I don't
Speaker 1: work on LinkedIn. Yeah no, And you're not welcoming it,
Speaker 1: to be honest, because if for listeners who aren't familiar
Speaker 1: with this. Mike tweeted about this. He called me out.
Speaker 1: I hadn't accepted his friend Is it a friend request?
Speaker 1: I don't know what do they call it on It's
Speaker 1: request to be a member of your professional yes, exactly,
Speaker 1: And and I didn't accept it. And you know what,
Speaker 1: now that you called me out, I'm not going to
Speaker 1: do it. I m dumb. I'm dumbfounded by this. I
Speaker 1: am dumbfounded by this. I will get my revenge on somehow.
Speaker 1: You will find out. I imagine this week's guest is
Speaker 1: a member of your professional note. Oh yeah, for sure. No,
Speaker 1: we've been friends for a really long time. No, but
Speaker 1: I do, I do want to bring it. Bring him in.
Speaker 1: It's Anthony Saglane Benny. He's the global market strategist at
Speaker 1: amery Prise Financial. Anthony, welcome to the show. Welcome to
Speaker 1: the podcast, and welcome to my my LinkedIn network. Yeah,
Speaker 1: thanks thanks for having me. Uh, Like Mike, my my
Speaker 1: LinkedIn network is not nearly as big as yours. So
Speaker 1: for somebody who says they're not, they don't know what
Speaker 1: to do on LinkedIn. It's a little suspicious. It's a
Speaker 1: little suspicious. Keep calling me out. I'm just gonna send
Speaker 1: all I'm gonna decline all of those. Yeah. Yeah, but uh, Anthony,
Speaker 1: maybe just to start you can you send us a
Speaker 1: couple of notes right before we started the podcast, and
Speaker 1: you said that we are entering a good news is
Speaker 1: bad news market and I wanted to ask you why
Speaker 1: that is and if you could just sort of lay
Speaker 1: that up for us. Yeah. Yeah, I mean, I think
Speaker 1: over the last couple of weeks, the markets have really
Speaker 1: kind of settled into this idea um of of a,
Speaker 1: you know, are we headed for a recession? And then
Speaker 1: be is it going to be prompted by the Fed
Speaker 1: raising interest rates too aggressively? And so what I mean
Speaker 1: by a good news is bad news type of market
Speaker 1: environment is the hotter that economic news comes in versus
Speaker 1: expectations kind of implies that maybe the Fed will need
Speaker 1: to continue to raise interest rates more aggressively. And so
Speaker 1: you saw so a little bit of that in the
Speaker 1: reaction on the May employment report on Friday, where you know,
Speaker 1: we created three jobs in May, unemployment rate held steady
Speaker 1: at three point six percent for for the third straight month.
Speaker 1: By all accounts, the employment backdrop is very strong. Um.
Speaker 1: But on top of that, those numbers came in above
Speaker 1: the three three thousand that was expected in the markets
Speaker 1: declined because that the idea is is that as long
Speaker 1: as the labor market remains strong, as long as economic
Speaker 1: activity is moving above what I think in census an
Speaker 1: I estimates are, it implies that the Fed may have
Speaker 1: to raise interest rates more aggressively. And so I think
Speaker 1: as we move through the couple of the next couple
Speaker 1: of weeks and a couple of months, um data that
Speaker 1: comes in hotter than expected, you would expect that the
Speaker 1: market would greet that more negatively, and then data that
Speaker 1: comes in a little bit weaker but not too weak
Speaker 1: would be greeted positively. That we call it this goldilocks
Speaker 1: kind of scenario where economic momentum is declining but not
Speaker 1: so much that fears of a recession start to set in.
Speaker 1: I think it's a tall order, but um, I think
Speaker 1: that's where we are in the market environment right now.
Speaker 1: You know, I think the question on a lot of
Speaker 1: people's minds is a there's there's a lot of sort
Speaker 1: of wishful thinking and fingers being crossed all over Wall
Speaker 1: Street that inflation may have peaked, that we may have
Speaker 1: seen the worst of it. But it raises the question
Speaker 1: of well, what's next, and you know, how low does
Speaker 1: it have to go for the Fed to be um
Speaker 1: if not completely done with raising interest rates, at least
Speaker 1: to your point, be a little less aggressive and maybe
Speaker 1: switch back to basis point increases, which some are hoping
Speaker 1: for maybe in the fall. So I'm wondering how you're
Speaker 1: thinking about that, is is a slow, steady grind lower
Speaker 1: in inflation in the cards? Do you think or NFL
Speaker 1: is that? Is that enough to cause the Fed to
Speaker 1: dial it back to basis point increases? Yeah? Uh, you know,
Speaker 1: I think that's it's kind of a loaded question because
Speaker 1: I think it depends on where you're looking at when
Speaker 1: you're talking about inflation. So our view is that yes,
Speaker 1: inflation has likely peaked. When you look at break even spreads, UM,
Speaker 1: you look out two or three years, the bond market
Speaker 1: is telling you that that inflation like likely peaked. However,
Speaker 1: you know, does it really make a difference to a
Speaker 1: consumer if you know, and the CPI number goes from
Speaker 1: eight point five percent in March to say eight point
Speaker 1: two percent in May, um employee, and it's still high.
Speaker 1: Prices at the pump and food are still high, and
Speaker 1: those those parts of inflation are likely to linger longer,
Speaker 1: and so I I think there will be a gradual
Speaker 1: decline in inflation. But even if you look at our
Speaker 1: own estimates, we see CPI kind of ending the year
Speaker 1: at around six percent, that that's still three times higher
Speaker 1: than what the FED wants inflation to be on a
Speaker 1: longer term basis. So I feel that inflation likely moderates
Speaker 1: a supply chains kind of ease the food and energy
Speaker 1: as a separate component, and I think that will remain elevated.
Speaker 1: But as long as wage inflation moves down and some
Speaker 1: of the core components of inflation move moved down, then
Speaker 1: I think that will give the Fed a little bit
Speaker 1: of room to start, like you sacremental moves in the
Speaker 1: in the coming meetings in September UH and then I
Speaker 1: think the markets could react a little bit more positively
Speaker 1: to that, because they'll have gotten to neutral by that point,
Speaker 1: And if they don't have to or getting close to neutral,
Speaker 1: and if they don't really have to move past neutral,
Speaker 1: then I think opportunities are being created in the stock
Speaker 1: market if that doesn't look like it's the case, And
Speaker 1: and maybe we're at seven or seven and a half
Speaker 1: percent by the end of the year, then I think
Speaker 1: the FED will need to be more aggressive and they
Speaker 1: may push into that restrictive zone, which then I think,
Speaker 1: you know, makes odds of further declines in the stock market, Um,
Speaker 1: you know greater. I was actually going to ask you
Speaker 1: about this about the latter half of the year, because
Speaker 1: we've been writing a bit about this, where we have
Speaker 1: a lot of people saying that inflation is peaking, and
Speaker 1: they're looking at some indicators of still good economic data
Speaker 1: and so on, and they're saying that potentially the second
Speaker 1: half of the year might be a bit better than,
Speaker 1: you know, less rough than the first half. So I'm
Speaker 1: wondering your view on that. Yeah, I think from an
Speaker 1: economic standpoint, we we write a lot about this as well.
Speaker 1: I mean that the consumer isn't good shape. Um, saving
Speaker 1: rates are high, debt levels are low, they're starting to
Speaker 1: use revolving credit a little bit more. So that's something
Speaker 1: that we're watching. But but net net, consumers are in
Speaker 1: good shape, and as long as the labor market remains
Speaker 1: in good shape, then I think you're seeing a shift
Speaker 1: in consumer behaviors, not a retrenching in spending right there,
Speaker 1: they're spending less on goods and more on food and energy,
Speaker 1: maybe a little bit more on services. And as kind
Speaker 1: of that that pandemic wave of of of maybe travel
Speaker 1: starts to ebb in the summer UM, maybe that starts
Speaker 1: to come down. So is if inflation pressures can moderate
Speaker 1: and employers don't retrench and spend uh in hiring, and
Speaker 1: consumers don't retrench and spending, then I do think that
Speaker 1: the FED has a pretty narrow bath to start um,
Speaker 1: maybe slowing the pace of increases. And I think the
Speaker 1: opportunities that have been created in the stock market because
Speaker 1: I in my view, I think the stock market is
Speaker 1: pricing in we're going to see a recession maybe by
Speaker 1: the end of this year early next year. If that's
Speaker 1: not the case, and the FED can really land this
Speaker 1: plane and get a softish landing, not a hardish landing,
Speaker 1: then I think the stock market can recover in the
Speaker 1: second half of the year. The one thing we have
Speaker 1: talked about is earnings, and and that has us a
Speaker 1: little bit more concerned because earnings estimates really really haven't
Speaker 1: been coming down and um, I think there's there's likely
Speaker 1: based on the last week or so of of corporate
Speaker 1: news and headlines about warning about earnings. I think we're
Speaker 1: in for a period where animals are going to need
Speaker 1: to adjust their earnings, and I think the market reaction
Speaker 1: to that could be a little bit more negative. You
Speaker 1: don't think the market has gotten price dotted already those expectations.
Speaker 1: I think it's priced in some of it, um, not
Speaker 1: all of it, and so UM. You know the the
Speaker 1: warnings from Target, um And and Walmart and then obviously
Speaker 1: Microsoft last week, a couple of couple of stocks about
Speaker 1: either currency or inventory builds or changing consumer habits. You
Speaker 1: would think their stock prices already reflect that, but but
Speaker 1: they got hammered, and so I think there's there's a
Speaker 1: larger resetting that needs to go into the market as
Speaker 1: analysts bring in their earnings expectations. Um. You know, whether
Speaker 1: it's fifties, sixties, seventy five built in the stocks, I
Speaker 1: don't know, But I do think if we're heading into
Speaker 1: the second quarter earning season and more companies start to warn,
Speaker 1: I think that could be a little bit of a
Speaker 1: headwind for stock prices over the near term. Over the
Speaker 1: very near term, Well, what do you make of some
Speaker 1: of the companies that have been coming out with the warnings.
Speaker 1: Target was a big one. I remember a couple of
Speaker 1: months ago, and it feels like maybe that was sort
Speaker 1: of the start of this trend. It was restoration hardware
Speaker 1: where they had come out with a bunch of warnings.
Speaker 1: So how are you thinking about what CEOs are telling us?
Speaker 1: And also what's some you know, some of the top
Speaker 1: brasset banks are telling us. Yeah, yeah, Um, I think
Speaker 1: it's a it's a there's a lot of cross currents
Speaker 1: coming from companies right now. Um. I think I think
Speaker 1: some of it is supplied chain driven. Um, you know,
Speaker 1: think about it if you're if you're a retailer and
Speaker 1: you're you're trying to order goods and you can't get
Speaker 1: goods on time. You know, are you double ordering or
Speaker 1: you triple ordering? Are you ordering ahead of time to
Speaker 1: get those in and then it's not coming in and
Speaker 1: then it comes all in at once, and then you
Speaker 1: you know, and then consumer trendits have changed, and now
Speaker 1: you've got a bunch of change stories. So I think
Speaker 1: some of it is very specific to supply chains. And
Speaker 1: then I think some of it is based on changes
Speaker 1: in demand and reactions to inflation. So, um, you know,
Speaker 1: with with Russia invading Ukraine, Uh, it put what was
Speaker 1: already a tight oil market it's an even tighter market,
Speaker 1: and so oil prices have dramatically shifted higher. Food prices
Speaker 1: uh dramatically shifted to higher. So at least for the
Speaker 1: lower wage earners, they've had to shift more of their
Speaker 1: spending to those types of items, so there's less money,
Speaker 1: less discretionary to money to spend on goods. And then
Speaker 1: I think higher income individuals have been shifting their um
Speaker 1: They're they're spending away from things like restoration hardware during
Speaker 1: the pandemic, where they're buying furniture and things for the home,
Speaker 1: and now they're out traveling. Now they're going on trips
Speaker 1: like you went to London right what California? Recently? I
Speaker 1: did a lot of ski trips in the winter. So
Speaker 1: I've shifted my own spending in ways that is spending
Speaker 1: less on good So I think we just have to
Speaker 1: move through some of the supply chain issues, see some normalization,
Speaker 1: and then consumer trends have to normalize, and I think
Speaker 1: that's what they're doing. Um. I just think we have
Speaker 1: this backdrop of really high energy and food prices that
Speaker 1: are creating noise and how investors, how consumers are spending
Speaker 1: and I think it's just going to take time to
Speaker 1: move through that. The bottom line is it makes it
Speaker 1: very challenging for for companies, particular retailers to navigate that.
Speaker 1: And then for some of the financial companies, Uh, some
Speaker 1: of the earnings warnings that we've seen, you've seen this
Speaker 1: is not the environment to bring I p O s
Speaker 1: or no deals or mergerent acquisitions. Right, So a lot
Speaker 1: of that investment banking um is really dried up. And
Speaker 1: so you know a lot of banks have warned about that.
Speaker 1: Consumer trends are still strong. Banks should still benefit from
Speaker 1: rising that interest margins, those rates move higher, they should
Speaker 1: benefit from that. That's a tail wind, but the headwind
Speaker 1: is investment bankings down trading activity. Will see what that
Speaker 1: looks like. You know, by the way, if we're headed
Speaker 1: for a recession, to hear some of the commentary from
Speaker 1: Jamie Diamond, and you know, is it superstorm standing or
Speaker 1: is it just like a category one hurricane? Um, how
Speaker 1: we navigate that, how banks get through that will depend.
Speaker 1: I think as an investor, this is the time to
Speaker 1: kind of rain in the horns a little bit um,
Speaker 1: be balanced across your portfolios, make sure you're properly diversified,
Speaker 1: don't take too much risk on on either end, and
Speaker 1: I think, well, you you'll be able to weather this volatility.
Speaker 1: I do think, as I said before, there are opportunities
Speaker 1: being created in the stock market with these declines. Yeah. Yeah.
Speaker 1: The target story is interesting to me because it's it's
Speaker 1: sometimes hard to sort of sort out whether or not
Speaker 1: it's a you know, execution issue with one retailer, you know,
Speaker 1: supplying the wrong type of goods. You know, we've seen
Speaker 1: this just in time. Supply chain notion kind of just
Speaker 1: blown up over the past year and and trying to
Speaker 1: navigate that. So, uh, you know, it's it's it's a
Speaker 1: tough one. But I didn't want to, uh, Ethny ship
Speaker 1: gears a little bit because I know you're you're a
Speaker 1: global strateg just and and you're looking at all over
Speaker 1: the world, and I was struck. Recently I looked at
Speaker 1: sort of on the terminal Bloomberg terminal, you can rank
Speaker 1: developed market equity performance over the year, and it's rare
Speaker 1: to see the US so low in that sort of
Speaker 1: league table. You know, I think of twenty four developed markets,
Speaker 1: it was like twenty two or three. Um, that's that's
Speaker 1: kind of shocking to me in a way. You know,
Speaker 1: you would almost think of the US market in a
Speaker 1: risky world of stocks being sort of the haven market.
Speaker 1: But what do you think was behind that? Is it
Speaker 1: just a matter of the sort of growth to value
Speaker 1: rotation and the US being way more orient oriented to
Speaker 1: two growth stocks and and you know a minuscule waiting
Speaker 1: to say energy that is that is the leader this year? UM,
Speaker 1: how are you thinking about the global equity markets and
Speaker 1: and sort of the US role in them and where
Speaker 1: the opportunity set is going forward. Yeah, that's a great question,
Speaker 1: and I do think you're right there. There is a
Speaker 1: component of UM, the US markets being very growth heavy,
Speaker 1: so very technology, communication services, consumer discretionary. Those growth components
Speaker 1: have really been where UM the stock declines have been
Speaker 1: the greatest this year because as interest rates have reset higher,
Speaker 1: a lot of these growth companies are priced not on
Speaker 1: their earnings today but on their future earnings, and when
Speaker 1: you discount that back at a higher rate, means the
Speaker 1: value of those future earnings are are less today, and
Speaker 1: so you've seen a shift. I think I think a
Speaker 1: lot of that has already occurred. I think if if
Speaker 1: I were going to look at growth stocks today and
Speaker 1: the reset there. There there's obviously potential more downside there,
Speaker 1: but I do think in the US market in growth
Speaker 1: stocks in particular, a lot of damage has already been
Speaker 1: done to that area. Um. The other component that sticks
Speaker 1: out is whether you're looking at it on a dollar
Speaker 1: or local basis. And so when I look at a
Speaker 1: lot of them, a lot of the developed market indexes
Speaker 1: on a dollar basis, they are pretty similar to to
Speaker 1: the declines in the US a little bit less so
Speaker 1: because of the value bias they have. Um. Some of
Speaker 1: the international markets have more energy and commodity exposure. That's
Speaker 1: been a great place to be this year. Those those
Speaker 1: stocks are benefiting. So there's some tail winds from UH
Speaker 1: both being valued exposed internationally with more energy exposure, and
Speaker 1: then the strength of the dollar. His his kind of
Speaker 1: you know, at least on a local currency basis, made
Speaker 1: those indexes look look better than what I think they
Speaker 1: really are at the end of the day. UM. I
Speaker 1: I kind of hint to your question. The US is,
Speaker 1: in our view, the best place to be when uncertainty
Speaker 1: is high and volatility is high. And I think the
Speaker 1: US market from that perspective, outside of the growth component
Speaker 1: is acting a little bit more defensively. UM and I
Speaker 1: in our own allocations were overweight the US. We're underweight
Speaker 1: Europe because we see we see higher odds of a
Speaker 1: recession there. Um. You know, the energy prices are crippling
Speaker 1: a lot of consumers over in Europe right now. And
Speaker 1: then in Asia it's been zero COVID policy around China.
Speaker 1: So those have been big head winds for for those
Speaker 1: two regions this year. Yeah. Yeah, it's a it's a
Speaker 1: great point about the currency adjusted returns, and you know
Speaker 1: that the flip side of that, um Uh, that strong
Speaker 1: dollar is obviously a week euro, but by the week yen,
Speaker 1: it's really cut a lot of people's attention uh this year.
Speaker 1: You know, such an important currency as a gauge of
Speaker 1: risk sentiment, or used to be anyway, I guess it's
Speaker 1: going in the other direction now. But what what do
Speaker 1: you make of this yen? You know, have you given
Speaker 1: much thought to the end weakness and and any sort
Speaker 1: of signal that it's sending about UM risk assets and
Speaker 1: markets globally. Yeah, yeah, I mean I've I've looked at
Speaker 1: it over the last a couple of days or more recently,
Speaker 1: UM and you're right. I mean, you're you're The currencies
Speaker 1: move for a lot of different reasons and a lot
Speaker 1: of different um and they can be very volad though,
Speaker 1: and I think the US has kind of the U
Speaker 1: S dollars kind of come back a little bit versus
Speaker 1: the end and versus the Euro more recently, and I
Speaker 1: think it's just a resetting in the dollar. I I
Speaker 1: the strength in the US dollar is really driven by
Speaker 1: this expectation that the FED is going to have to
Speaker 1: be ultra aggressive, and as we get more economic data
Speaker 1: over the coming weeks and coming months, I think it
Speaker 1: might look like they might not have to be as aggressive.
Speaker 1: So you're going to see the dollar on a trade
Speaker 1: trade weighted basis kind of start to move back down.
Speaker 1: Things like the end will strengthen a little bit more,
Speaker 1: the Euro will strengthen a little bit more. UM. We'll
Speaker 1: see if that shows up in the data, but I
Speaker 1: think it's just a little bit of normalization over a
Speaker 1: pretty big move in the dollar verse the end and
Speaker 1: Euro over the last several week. And you mentioned China,
Speaker 1: and I wanted to ask you about how are you
Speaker 1: thinking about China because on the podcast and broadly speaking,
Speaker 1: I feel like There's been a lot of discussion about
Speaker 1: whether or not China is investable versus uninvestable, And I
Speaker 1: know we've had some developments there this week where it
Speaker 1: looks like they're being a little a little bit more
Speaker 1: lenient maybe towards some of their tech companies and some
Speaker 1: other developments around video games and so on. So how
Speaker 1: are you thinking about China? Yeah, China, you know, the
Speaker 1: second largest economy. They're they're they're significant and a lot
Speaker 1: of different ways, both for heres domestically in terms of
Speaker 1: what we can produce and be shipped here, but then
Speaker 1: just are just our relations with China, So both from
Speaker 1: a political and economic standpoint, they are very very important.
Speaker 1: I think from an economic standpoint right now, zero COVID
Speaker 1: policy is wreaked a little bit of additional uh I
Speaker 1: created additional problems for the global economy that zero COVID
Speaker 1: policies shutting down Shanghai and Beijing. Um, you know, Shanghai
Speaker 1: is a significant port city, and so getting items and
Speaker 1: goods out of that city have been very very difficult.
Speaker 1: Keeping up with production schedules have been very very difficult
Speaker 1: for US companies and global companies. And it looks like
Speaker 1: maybe this month, that's going to start to change and
Speaker 1: they're gonna start to open up a little bit more.
Speaker 1: But it's it's very hard to get confidence in in
Speaker 1: the policies because they can change so quickly. And so
Speaker 1: what I think a lot of these US companies are
Speaker 1: starting to do is how do we think about sourcing?
Speaker 1: How do we think about um putting? You know, Mike
Speaker 1: mentioned this just in time, Well, just in time works
Speaker 1: if the supply chain is even and you can count
Speaker 1: on it through you know all the different spots. And
Speaker 1: I think we found during the pandemic and obviously different
Speaker 1: policies coming from China is that might not be able
Speaker 1: to rely on that. And so moving forward, companies that
Speaker 1: can source closer to to where their products are are consumed.
Speaker 1: Companies are starting to decide to maybe make those investments
Speaker 1: and and and make those changes. And in terms of
Speaker 1: China from a stock trader's perspective, From a stock perspective,
Speaker 1: it is difficult to invest in that region right now
Speaker 1: when the policies seem very uncertain. Um they don't seem
Speaker 1: consistent right now. You know, China is about growth and
Speaker 1: it's about zero COVID, and both of those are sometimes contradictory. Um.
Speaker 1: You know, messages, and so you don't know day to
Speaker 1: day what message is going to carry the most weight.
Speaker 1: So right now I think it's very hard to to
Speaker 1: to go into China and invest um in that region
Speaker 1: with confidence. That may change over the course of the
Speaker 1: next few months, but right now it's one of the
Speaker 1: big reasons why we're underweight is there's just a there's
Speaker 1: a mixed message on policy. See between what the government
Speaker 1: wants to do with growth and what they want to
Speaker 1: do with stamping out inflation, stamping out COVID. We not
Speaker 1: a just in time delivery. That's also my strategy. Whenever
Speaker 1: anyone asked me to write something, I make sure I
Speaker 1: get it in this this is true. Yeah, you don't
Speaker 1: want to get it into earlier then they have too
Speaker 1: much time to mess with it. So give him get
Speaker 1: it to them right if the deadlines for yeah, I'll
Speaker 1: do that. Putting in writing there's there there. I'm gonna
Speaker 1: write a book about the benefits of procrastination. There are
Speaker 1: many many that's that's a topic for a future podcast.
Speaker 1: But you know, after any the other big elephant in
Speaker 1: the room is you know, we've got treasury yields perking
Speaker 1: up again. Uh tenure yield in the US popping above
Speaker 1: three percent again this week, you know, the solt and
Speaker 1: Treasury's kind of you know, seem to make a U
Speaker 1: turn or at least slow down after we got above
Speaker 1: three percent in the ten year before. How are you
Speaker 1: thinking about bonds? Is it? You know? Is it more
Speaker 1: attractive to talocate maybe a bigger than your your typical
Speaker 1: forty percent or whatever your target allocation is to two
Speaker 1: treasuries when we've got a three percent yield? I know
Speaker 1: want to I know, on an inflation adjusted real rate basis,
Speaker 1: it's still deeply underwater with an inflation at eight percent,
Speaker 1: but you know, assuming the Fed gets it back there
Speaker 1: by hell or high water closer to the target. Is
Speaker 1: is this uh something on client's minds? Is it? Is
Speaker 1: it something? You know? Our bonds a bargain again for once? Yeah,
Speaker 1: I'm telling you you're it's like your rudder Global Asset
Speaker 1: Allocation Committee's mind because we're having the same discussion about
Speaker 1: fixed income right now with a with a ten year
Speaker 1: at or above for um, that's a pretty attractive yield.
Speaker 1: Let me think about it. We we've been an environment
Speaker 1: you know, there is no alternative to equities, and now
Speaker 1: maybe there is an alternative to equities. And so we've
Speaker 1: been as a committee, as a as a global ast
Speaker 1: allocation committee, we've been the most underweight fixed income we've
Speaker 1: been ever over the last probably twelve months or so,
Speaker 1: and so now we're starting to have conversations with the
Speaker 1: yield moving up, is this the time to start rebuilding
Speaker 1: that fixed income base? And mentioned the sixty forty portfolio. UM,
Speaker 1: I think you do want to start considering looking at
Speaker 1: bonds as a longer term ballance in your portfolio. That
Speaker 1: hasn't really worked this year. UM stocks and bonds have
Speaker 1: been correlated at the same time as as interest rates
Speaker 1: have been moving higher. However, I do think we're approaching
Speaker 1: the higher end of the tenure right now. We could
Speaker 1: go a little bit higher, but I do think inflation
Speaker 1: is going to moderate lower through the course of the year.
Speaker 1: I do think the feed is going to be able
Speaker 1: to slow the pace of their rate increases, and I
Speaker 1: think the tenure will find a new equilibrium somewhere around
Speaker 1: three percent. To be a little bit higher, could be
Speaker 1: a little bit lower, Which means if you're underweight bonds
Speaker 1: right now, you may want to lock in some of
Speaker 1: these yields. You may want to lock in I would
Speaker 1: keep the quality high. I would look at it. If
Speaker 1: you were underweight government bonds right now, maybe you look
Speaker 1: at some of the treasuries, maybe look at tips to
Speaker 1: to kind of help with inflation. You still want to
Speaker 1: look at high quality corporate bonds because you know, they
Speaker 1: got a little bit of a spread on top of
Speaker 1: those treasuries. And you know, I think the fall rates
Speaker 1: are gonna be pretty low for for investment grade credit,
Speaker 1: and so yeah, I think this is the time you
Speaker 1: if you're underweight and you've been avoiding bonds, you at
Speaker 1: least want to start putting the shopping list together. And
Speaker 1: you still want to you want to have strategy for
Speaker 1: maybe getting back to a neutral stance. Maybe it's a
Speaker 1: little bit early, but you want to start thinking about
Speaker 1: that right now with these yields. High yield still a
Speaker 1: little dicey at this point. Yeah, you know, I mean,
Speaker 1: I like we have allocations to high yield um. You know,
Speaker 1: we're underweight those areas just because we want to be
Speaker 1: a little bit more conservative around our allocations. UM. But
Speaker 1: I do think, you know, we'll have to see I mean,
Speaker 1: I know a lot of companies were able to extend
Speaker 1: their their credit UM, and you know they haven't had
Speaker 1: to go back to the funding markets because they've locked
Speaker 1: in some of these lower yields. We'll see when there
Speaker 1: was DAT, when those DAT instruments come up, if they
Speaker 1: can go get the financing. I think it's a tougher
Speaker 1: environment right now, So I would rather just hang out
Speaker 1: in investment grade and wait for that smoke clear. And
Speaker 1: you mentioned a few times that there's some areas of
Speaker 1: interest to you, So I wanted to ask you what
Speaker 1: you're telling clients who do want to put money to work. Yeah, great,
Speaker 1: great question. Um. You know, I think with inequity you
Speaker 1: want to do a couple of things. UM. I think
Speaker 1: you want to look and this is across the spectrum,
Speaker 1: so sectors, regions doesn't really matter. UM. You want to
Speaker 1: make sure that the investments that you're buying are high
Speaker 1: end qualities. You want to make sure that the stocks
Speaker 1: or funds that you're you're investing in are focused on
Speaker 1: companies that have visible profit streams UM, they have clean
Speaker 1: balance sheades UM, they have strong cash flow, They have
Speaker 1: definable products and industries that they can UM, you know
Speaker 1: kind of count on in an uncertain environment. UM. And
Speaker 1: I think a dividend yield is an extra bonus right
Speaker 1: when when returns are compressed or when the market is
Speaker 1: in a downtrend, that yield becomes a greater part of
Speaker 1: your total return. So you want to make you want
Speaker 1: to focus right now on companies that are either growing
Speaker 1: their dividend or have a reasonably stable dividend that you
Speaker 1: don't have to worry about. UM. I think if you
Speaker 1: want to go a little bit further, UM, I do
Speaker 1: think opportunities are being created in high quality technology. So
Speaker 1: where we've seen a lot of valuation destruction has been
Speaker 1: in high growth tech, consumer discretion and those names I
Speaker 1: mentioned for that they're there, their valuations are based on
Speaker 1: earnings in the future. UM. I think a lot of
Speaker 1: damage has been done in those areas, and so I
Speaker 1: would look to things like information technology and in those
Speaker 1: quality companies within that sector as an area to start
Speaker 1: at least opportunistically buy either dollar cost averaging and what
Speaker 1: you own UM rebalancing portfolios and maybe using that as
Speaker 1: an opportunity to pick up some of those areas. But
Speaker 1: that's where I would be focused. High quality companies across
Speaker 1: sectors and regions, dividends big time plus and then UM,
Speaker 1: I think there's some opportunities being created in technology. And
Speaker 1: then lastly, UM health Care is one of the sectors
Speaker 1: that were overweight right now because it can act defensively
Speaker 1: because it has value based companies in there that pay
Speaker 1: good dividends, and it also has some growth components like
Speaker 1: biotech that have been really hammered recently. So it acts
Speaker 1: as this defensive slash growth sector and so it's not
Speaker 1: as expensive as consumer staples and utilities, but it also
Speaker 1: gives you a growth component in there. So those are
Speaker 1: the sectors that we that we like right now. Yeah,
Speaker 1: it's been fascinating to see sort of the shuffling of
Speaker 1: the components of the growth and value indexes. Now, you know,
Speaker 1: you've got a lot of energy companies in the growth indexes,
Speaker 1: which uh, you know seems seems seems surprising based on history.
Speaker 1: But good stuff, Anthony. I gotta give Anthony props because, uh,
Speaker 1: listeners don't know. We record this over zoom and I'm
Speaker 1: looking over his shoulder and he does have Bloomberg TV
Speaker 1: on his TV behind him, not some soap, not he
Speaker 1: could be watching some soap opera. It's it's on here
Speaker 1: every day. I'll take you ready for it, right right?
Speaker 1: Markets have been pretty dramatic, so you know, maybe we're
Speaker 1: getting some of those soap oper viewers that change the channel.
Speaker 1: Appreciate your insights, Anthony, But now comes the real test.
Speaker 1: We're gonna switch gears to the craziest things we saw
Speaker 1: in markets this week. So, uh, this is where you'll
Speaker 1: you'll really be graded on on the value of your
Speaker 1: crazy thing. How about you, what's the craziest thing. My
Speaker 1: craziest thing actually might make you a little bit depressed?
Speaker 1: I think I started. I've been depressed ever since I
Speaker 1: realized you d thinking, but my craziest Yeah, so that
Speaker 1: the craziest thing we'll make you depressed, I think. Because
Speaker 1: it has to do with the podcasting world. So it
Speaker 1: turns out there's this whole slew of white noise podcasts.
Speaker 1: I don't know if you saw this story, but you
Speaker 1: know they sort of have mysterious backgrounds. Um, there's this
Speaker 1: great Bloomberg story about this. And even like trying to
Speaker 1: reach out some of these companies has been really hard
Speaker 1: because you don't know who that you know, you don't
Speaker 1: know who's running them, etcetera, etcetera. But there is this
Speaker 1: one guy who I believe he was living in the
Speaker 1: Florida Keys maybe and basically he started putting out white
Speaker 1: Noise podcasts and so many people are listening to them
Speaker 1: that he's actually making eighteen thousand dollars a month just
Speaker 1: from streams of his White Noise podcasts. So he's getting
Speaker 1: something like I think the story said fifty listeners per
Speaker 1: day for white Noise, for white Noise eight thousand a month.
Speaker 1: I don't know, Da, you should have brought this up.
Speaker 1: They're going to might, I mean might get more listeners
Speaker 1: probably maybe if we talk really quietly, we can be like,
Speaker 1: you know, you can have a thirty minute moment of
Speaker 1: silence or something every every every week. So that's pretty well.
Speaker 1: That is a true Florida man story. If if I've
Speaker 1: ever ever heard of one? What good is ahead? Hey
Speaker 1: he figured it out. Maybe White Noise will join my
Speaker 1: professional uh network on lincol good luck if yeah, probably not?
Speaker 1: Probably not. How about you, Anthon? Do you see anything
Speaker 1: crazy this week? Uh? Yeah? Mine mine is not as interesting. Uh.
Speaker 1: But Earning's estimates have actually gone up for the SMP
Speaker 1: five hundred this year. I I think that is crazy
Speaker 1: given a lot of the news items that we're seeing
Speaker 1: from companies right now over the last week or so.
Speaker 1: So in the fact that earnings estimates you know, popped
Speaker 1: a little bit higher over the last week, tells me
Speaker 1: analysts having fully kind of reset to this new uh,
Speaker 1: this new paradigm, and so that that's to me that
Speaker 1: that just doesn't make sense right now. And I think
Speaker 1: that's why we're going to see over the next couple
Speaker 1: of weeks analysts have to bring in those earnings sestiments. Yeah,
Speaker 1: it is. It is pretty amazing. And I haven't I
Speaker 1: haven't dug into the data too deeply, but you know,
Speaker 1: when you see these repeated cuts from the likes of
Speaker 1: Target and whatnot, I wonder if there's just so many
Speaker 1: companies pulling their guidance, you know, you always kind of
Speaker 1: I'm always kind of skeptical that analysts are sort of
Speaker 1: you know, following the outlooks from the companies themselves. But
Speaker 1: maybe there's just so many being pulled, or so much
Speaker 1: uncertainty about it at all that you know better better
Speaker 1: or keep them as is a raise. I don't know,
Speaker 1: I don't know, it's a fascinating thing though, giving all
Speaker 1: the all the macro doom and gloom that the generally
Speaker 1: late I mean analysts are generally late kind of play.
Speaker 1: So that that and usually when you see a big
Speaker 1: down shift in the market, it takes about five or
Speaker 1: six weeks for analysts to kind of gauge that, you know,
Speaker 1: they might have to bring in their earnings. But just
Speaker 1: one quick point on this is that you know, you
Speaker 1: would have thought they would have brought their their expectations
Speaker 1: in in the first quarter as companies were kind of communicy,
Speaker 1: starting to com indicate that there were some issues. All
Speaker 1: they did was just push out their numbers into Q
Speaker 1: three and Q four, So they kept their overall numbers
Speaker 1: the same, but just pushed it out where you would
Speaker 1: get their earnings growth in later quarters. They're running out
Speaker 1: of real estate in my in my view, yeah, right,
Speaker 1: I believe in just in time estimates. Maybe that's it.
Speaker 1: I I give my SMP target on December thirty one,
Speaker 1: an three o'clock. That's It's I could get paid to do.
Speaker 1: That would be great, But yeah, it is a head scotcher, though,
Speaker 1: I agree. So that's that's that's crazy enough. Well, well,
Speaker 1: Dot Anthony. I'll, uh, all right, I'm gonna I want
Speaker 1: to talk about the most expensive automobile that's ever sold. Uh.
Speaker 1: This is a great story by our our own columnist,
Speaker 1: Hannah Elliott Um. I will admit I'm a little late
Speaker 1: on this. This the sale occurred in May, but she
Speaker 1: wrote a story just this past week about it. First
Speaker 1: I'm hearing about it. And her story is interesting because
Speaker 1: it's it's all about the difficulties of ensuring the world's
Speaker 1: most expensive car, because you know, carriers are very reluctant
Speaker 1: to to be the one to ensure it. So it's
Speaker 1: a nineteen fifty five Mercedes Benz three D SLR woln
Speaker 1: Halt Coupe. I'm not sure if I'm saying that right,
Speaker 1: but ninety Mercedes Benz SLRN halt coup whether or not
Speaker 1: I'm saying that correct, and at the I regret to
Speaker 1: inform you that you are now contestant on the prices
Speaker 1: right along with vill Donna, and I need your best
Speaker 1: guests on what this car sold for. One of two
Speaker 1: still in existence. The other one belongs to the Mercedes
Speaker 1: Benz Museum. This one was actually sold at the museum.
Speaker 1: I'm not sure if they they owned it or not,
Speaker 1: but you started. I always have to go no, I
Speaker 1: know so little about cars. We have to give the
Speaker 1: guests the courtesy of of of bidding one dollar if
Speaker 1: you go high. Yeah, I'm really bad at this. I'm
Speaker 1: I'm bad at this game, and I know so little
Speaker 1: about cars. So I'm gonna go. You got bad at you.
Speaker 1: You've got them on the nose a few times, I know,
Speaker 1: but like three out of ten times. So um, okay,
Speaker 1: I'm gonna go with five hundred thousand dollars. Five hundred
Speaker 1: thousand dollars. You believe the world's most expensive car is
Speaker 1: a five hundred thousand dollar automobile. One of two? Your
Speaker 1: bid is that her official. I will give her one
Speaker 1: more chance, give her one more chance. Really, you know,
Speaker 1: I could be you know, I could be tricking you too.
Speaker 1: I don't I don't know. I'll go with nine hundred thousand,
Speaker 1: nine hundred and nine thousand, uh A three at nineteen
Speaker 1: fifty five, So how many that's sixty five year old
Speaker 1: car or something like that. Death don't check my math.
Speaker 1: Mercedes Benz three s l R EULN halt coop. I
Speaker 1: will say it's a beautiful car. I'm not a big
Speaker 1: car guy, but this thing is quite beautiful. It's got
Speaker 1: the wing doors that opened on the side, very chromy.
Speaker 1: What do you think, uh, Antony. Yeah, So there's only
Speaker 1: two of these cars in existence, and this is the
Speaker 1: most expensive car in the world. It was the most
Speaker 1: expensive car sold at auction in the world. I imagine
Speaker 1: Ellen probably has a car that you can we're a
Speaker 1: bit space with that maybe work more, but we don't
Speaker 1: know about that. But but one million dollars, that's how
Speaker 1: you play the game. That's why, that's how you play
Speaker 1: the game. One hundred and forty two million dollars amazing,
Speaker 1: that's my god. But my favorite part is is the
Speaker 1: struggle to get insurance word and they estimate there they
Speaker 1: can't find anyone in the insurance world to actually give
Speaker 1: a quote for the insurance on this on this thing.
Speaker 1: But um, one person said at least a hundred thousand
Speaker 1: a year for a car of that. It depends. Wait,
Speaker 1: what's what's the deductible on a hundred forty two million
Speaker 1: dollar car? I don't know. They said, yes, it's amazing,
Speaker 1: isn't it. And then let's see, the previous one was
Speaker 1: some kind of Ferrari. I think it was a let's see,
Speaker 1: she's got it in here. It was a two fifty
Speaker 1: g t O Ferrari, but less than a So if
Speaker 1: there are any insurance breakers out there willing to write
Speaker 1: a policy for a hundred and forty two million dollar car,
Speaker 1: I gotta say my dad was an insurance guy. He'd
Speaker 1: be having nightmares about this. I think I don't think
Speaker 1: you'd go anywhere near it anyway. I think that is
Speaker 1: all the time we have, Anthony Bread to catch up
Speaker 1: with you. Uh. Enjoyed your insights, and hopefully we can
Speaker 1: talk again soon. Thank you for joining us. Thank you.
Speaker 1: What Goes Up will be back next week and so
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Speaker 1: is Francesco Leavie, thanks for listening. See you next time, Bo.