Speaker 1: Welcome to Bloomberg Opinion. I'm Ronny. When this week inflation
Speaker 1: and the bear market, we'll speak with Barry Riddles and
Speaker 1: near case are and later. It would be very helpful
Speaker 1: to know who was on the side of things that
Speaker 1: really should not be involved in mainstream politics anymore. Jonathan
Speaker 1: Bernstein on the continuing January six hearings. First to the
Speaker 1: markets and whether earning season will reflect the confusion in
Speaker 1: economic and fed forecasting. Let's get straight to Barry Riddles. Okay,
Speaker 1: So it's been an interesting first half Bury, to say
Speaker 1: the very least, and yet it seems to be pretty quiet,
Speaker 1: almost dull at this point. Well, the question is how
Speaker 1: much of the bad news is already reflected in stock prices. Hey,
Speaker 1: look at the second quarter, the SMP down, Russell two thousand,
Speaker 1: NASA down. Those are epic numbers. You have to go
Speaker 1: back to the COVID pandemic quarter, to the Great financial crisis,
Speaker 1: and to the dot com andplos to find quarters that
Speaker 1: bad since the crash. So this is up there with
Speaker 1: the worst quarters we've seen. It was really quite phenomenal,
Speaker 1: and yet now it feels like the market is frozen.
Speaker 1: And I don't mean literally frozen. I just mean people
Speaker 1: they're waiting to see what's going to happen in terms
Speaker 1: of the economy, in terms of the Federal Reserve, they're
Speaker 1: not putting money to work, it feels like, so we're
Speaker 1: waiting on when the Federal Reserve will recognize that peak
Speaker 1: inflation is passed. When we look at a lot of
Speaker 1: data points in copper commodities, oil wages are slowing, down,
Speaker 1: home sales, there's lots of evidence that that big surge
Speaker 1: in inflation we saw in into two has peaked. But
Speaker 1: we've had twenty four consecutive days of gasoline prices falling.
Speaker 1: Oil is back under a hundred from a hundred and twenty,
Speaker 1: copper down, industrial medals down, lumber cut in half from
Speaker 1: really and we've actually seen the Mannheim used car. And remember,
Speaker 1: inflation first reared its head with cars because you couldn't
Speaker 1: get new cars because semiconductor production head legged and was
Speaker 1: so delayed opening. Now we're seeing a pretty substantial decrease
Speaker 1: in use cars from admittedly very inflated levels. So once
Speaker 1: we get under that eight handle on cp I, if
Speaker 1: it's seven or for bids six in the coming months,
Speaker 1: I think that will let the fed realize they've slowed
Speaker 1: the economy enough, they've already seen inflation roll over, and
Speaker 1: maybe a more moderate set of increases five or fifty
Speaker 1: basis points instead of seventy will continue to pressure inflation,
Speaker 1: but without causing a full blown economic crash in recession. Well,
Speaker 1: so this is it. Our recession expectations overdone. Almost nobody
Speaker 1: I speak to isn't expecting a recession. They're not expecting
Speaker 1: it immediately. Might be twelve to eighteen months out? Is
Speaker 1: that because there are supply chain concerns further out? So
Speaker 1: first eighteen to twenty four months is just so far
Speaker 1: off in the future, it's you know, it's makeable. It
Speaker 1: might be twenty years off because when we look at
Speaker 1: the year head forecast, just what Wall Street does for
Speaker 1: the economy, for the stock market, nobody gets it right.
Speaker 1: Twelve months is forever. Eighteen is a whole another lifetime.
Speaker 1: When we talk about the supply chains, some really interesting
Speaker 1: data points. We're seeing the transit times for international shipping
Speaker 1: have fallen pretty substantially. The backlog at ports and the
Speaker 1: time to ship has fallen. And we also are seeing
Speaker 1: the shipping containers which pre pandemic cost about two thousand
Speaker 1: dollars to ship from China to Europe or or the
Speaker 1: United States spiked up to twenty thousand and has since
Speaker 1: more than cut in half to about eight thousand. It's
Speaker 1: still much higher than when it was, but it's less
Speaker 1: than half of of the peak. So that suggests that
Speaker 1: the shipping and demand for goods is sort of normalizing.
Speaker 1: And keep in mind, as we get more and more
Speaker 1: infectious but less dangerous variations of COVID, people are are moving.
Speaker 1: Remember we're primarily a services based economy. During the lockdown, hey,
Speaker 1: we didn't go on vacation. We bought all this junk,
Speaker 1: We bought televisions, we expanded our houses. All these goods
Speaker 1: purchases put real stress on the supply system, and so
Speaker 1: we end up with things starting to get back to normal.
Speaker 1: It's not a surprise to see that drop. I'm not
Speaker 1: in the recession camp. We're certainly not in recession today.
Speaker 1: You don't feels like the economy is mooming. Listen, you
Speaker 1: just added two point seven four million jobs in the
Speaker 1: first half of the year. Wages have gone up about
Speaker 1: five four percent. The bottom half of the wage pool
Speaker 1: of bottom quartile is up about six percent. Consumer spending
Speaker 1: year over year is up about five uh. The only
Speaker 1: place we're really seeing an economic slowdown has been in housing,
Speaker 1: from admittedly very elevated levels form us in a row
Speaker 1: of decreased existing home sales during the season where home
Speaker 1: sales typically go up, home sales bottom around December January,
Speaker 1: and they go up throughout the beginning of the county year,
Speaker 1: and they peak in July and August. To see that
Speaker 1: negative is telling you that increased mortgage rates and the
Speaker 1: ongoing big price increases have discouraged fired. But other than housing,
Speaker 1: which is more of an inventory problem than anything else,
Speaker 1: the rest of the economy looks pretty robust. The mid terms,
Speaker 1: how are they going to impact what gets done? The
Speaker 1: president obviously wants people to stop talking about inflation, or
Speaker 1: to at least not vote on inflation, because there are
Speaker 1: so many other issues to vote on. What can he do?
Speaker 1: So first, I'm not a political analyst, and I try
Speaker 1: not to make political forecast because of all the terrible
Speaker 1: objective thing that we can say. No matter who would
Speaker 1: be in the president's right, will he do anything? You think?
Speaker 1: Is there anything that you know a sitting president can do?
Speaker 1: The problem is it's very difficult to do something about inflation,
Speaker 1: isn't it if you don't have the full cooperation of Congress.
Speaker 1: And even then when it comes actually inflation, it's hard
Speaker 1: to do something about it. Well, well, when it's it's
Speaker 1: more these days of what you don't do than what
Speaker 1: you actually do. When you look at the impact of
Speaker 1: the Cares Act, all three segments, the first one under
Speaker 1: President Trump was two trillion dollars. It was unprecedented, was
Speaker 1: ten percent of GDP. The second one, also in the
Speaker 1: Trump was another nine hundred billion, and then Biden came
Speaker 1: into office and there was another two trillion dollars. So really,
Speaker 1: the people to blame our Congress who passed these giants
Speaker 1: spending bills. But both Trump and Biden put a lot
Speaker 1: of money into the system, and that's part of the
Speaker 1: reason we've seen prices go up. Consumers are out spending
Speaker 1: a lot of money. So once that toothpaste is out
Speaker 1: of the tube, I don't know how you get that
Speaker 1: back in other than dampening demand by cranking up rates,
Speaker 1: and the Fed seems to have accomplished that. So all right,
Speaker 1: let's talk about valuations. How are people value in companies
Speaker 1: these days? How do they measure what the intrinsic value
Speaker 1: of a company is when clearly stock market valuations are
Speaker 1: just all over the place. So there are two key
Speaker 1: factors that drive valuation. One is just the basic math.
Speaker 1: What are the earnings right now? You could look at
Speaker 1: all sorts of other ways of measuring revenue, growth in
Speaker 1: price the book, and whatever, but really it all comes
Speaker 1: down to earnings. That's your starting point. And then the
Speaker 1: market will put some type of a multiple on earnings.
Speaker 1: And here's where investor psychology becomes so important. The multiple
Speaker 1: is really a function of everybody's collective consensus as to
Speaker 1: what investors should pay. Hey, how much are you going
Speaker 1: to pay for that dollar of earnings? And we see
Speaker 1: that this rises and falls with the market cycle. My
Speaker 1: favorite example, you start in the beginning of the eighty
Speaker 1: two to two thousand bull market. The P ratio for
Speaker 1: the S and P five hundred was seven x, and
Speaker 1: it ended at thirty two x. And so while the
Speaker 1: economy expanded an earnings ru over that eighteen year period,
Speaker 1: three quarters of the market gain was caused by multiple expansion.
Speaker 1: One of the reasons we look at that and don't
Speaker 1: say this is a crazy delusion, This is a bubble
Speaker 1: is the nature of corporate America has changed. Go back
Speaker 1: to the seventies, the era that led to that high inflation,
Speaker 1: low economic growth, and industry was big and costly, a
Speaker 1: lot of manpower, a lot of material, a lot of
Speaker 1: capital required. Compare that to you know, the Instagram purchase
Speaker 1: by Facebook. The joker is a couple of guys on
Speaker 1: a laptop and it was sold for a billion dollars.
Speaker 1: The intangibles have not been measured correctly by investors for
Speaker 1: the past twenty years. And when you saw a technology
Speaker 1: run up as much as it has over the past decade,
Speaker 1: a lot of that was those intangibles. That's everything from
Speaker 1: patents to copyright to business methods and algorithms. I think
Speaker 1: we've started to see intangibles be reflected in prices. Their
Speaker 1: value is starting to be recognized. So where do we
Speaker 1: go from here? We have a quarter coming up where
Speaker 1: earnings are not going to be all that exciting, They're
Speaker 1: going to be disappointing people. Well, that's the big question
Speaker 1: is you know, we're we've seen record high earnings over
Speaker 1: the past couple of years. We're still forecast for two
Speaker 1: The consensus is a ten point six percent gain and earnings.
Speaker 1: Some people think that's a little rich. We've seen a
Speaker 1: correction in the SMP five hundred, but we haven't seen
Speaker 1: a correlated downgrade of earnings. I think we'll know really quickly.
Speaker 1: Is the consensus estimates too high? Ps Historically they're always
Speaker 1: too high. The analysts community always overestimate earnings, the exception
Speaker 1: being in the Nadia of recessions, they underestimate the recovery.
Speaker 1: The odd thing about the past couple of years is
Speaker 1: the overly optimistic estimates of earnings turned out to be
Speaker 1: more or less dead on. Well. The other thing is
Speaker 1: that there's going to be a bifurcation between companies that
Speaker 1: can pass down inflation problems and still hold onto their
Speaker 1: margins and the company's account. One of the things that
Speaker 1: I think the average investor doesn't often recognize is that
Speaker 1: stocks have long acted as an inflation hedge. And if
Speaker 1: that sounds counterintuitive, you know, if your input costs go
Speaker 1: up and there's still plenty of consumer demand for your products,
Speaker 1: just pass along the price. So your revenues go up
Speaker 1: on a nominal basis, but they're going up because of inflation.
Speaker 1: Your earnings go up as inflation. The exception to that
Speaker 1: is when you can pass along those increases in input costs.
Speaker 1: So you know when we see five percent increases in
Speaker 1: consumer demand year over year. Not only is corporate America
Speaker 1: as well set up in terms of their debt and
Speaker 1: balance sheet, but we look at the household balance sheets.
Speaker 1: People are sitting on a couple of trillion dollars of cash.
Speaker 1: The average household is working, Most Bello have gotten pay raises.
Speaker 1: This isn't the standard situation that you see heading into
Speaker 1: a recession. This is a pretty robust expansion where unique
Speaker 1: circumstances caused by COVID nineteen, the pandemic, the lockdown, and
Speaker 1: then the reopening have caused the spike in inflation. As
Speaker 1: things start to normalize, we could have a pretty typical
Speaker 1: two to and g d P with two pc inflation
Speaker 1: in twenty three. Everybody is so focused on the change
Speaker 1: in the cost of capital and the increase in rates
Speaker 1: they may be missing the optimistic picture, which is the
Speaker 1: economy is still fairly robuts how much is Russia's war
Speaker 1: in Ukraine lingering when it comes to the US economy
Speaker 1: and particular U s docs, so it's less of a
Speaker 1: factor in the US than it is overseas, but it's
Speaker 1: a global market. So if Russia restricts their output, all
Speaker 1: those little bumper stickers on gas stations, with Biden saying
Speaker 1: I did that, it's a fair argument to say Putin
Speaker 1: did that. Before the war, oil prices were fairly elevated.
Speaker 1: They were, then the war came in and tacked on another.
Speaker 1: So at the moment, you're painting a fairly rosy pitcher
Speaker 1: which seems to die. But with what we're saying, rosy
Speaker 1: picture from down exactly I was. You know, it's easier
Speaker 1: to be rosy when the market has gone on sale
Speaker 1: a little bit. Yeah, exactly, Well, what could derail the
Speaker 1: market further? Of all of the scenarios you painted, there
Speaker 1: doesn't seem to be any kind of an event in there.
Speaker 1: So the biggest threat is a policy mistake by the FED,
Speaker 1: and that means overtightening. It's not a fragile economy, but
Speaker 1: it's not a bulletproof economy either, So that's one issue.
Speaker 1: We would hate to see the Russian invasion of Ukraine's
Speaker 1: spill into the rest of Europe. That could be really problematic.
Speaker 1: You never know what's going on in China. China's economy
Speaker 1: seems to be slowing much more than I think people
Speaker 1: were expecting. That's still impacting supply chains and goods. We
Speaker 1: also help this stronger dollar, which doesn't seem to be
Speaker 1: going anywhere and anything. It's going to strengthen more. I
Speaker 1: love the expression the cleanest shirt and a hamper full
Speaker 1: of dirty laundry. Where else are you going to put
Speaker 1: your currency? The Euro? Certainly not the end come on
Speaker 1: or when? When we look at China's currency, the US
Speaker 1: is clearly the best choice amongst those. And by the way,
Speaker 1: we've been hearing about the death of the dollar, I
Speaker 1: don't know my whole adult lifetime. If you think the
Speaker 1: dollar is dead, you should go to Europe and spend
Speaker 1: some time in Italy or Paris or wherever you like,
Speaker 1: and you'll see the purchasing power of the dollar remains very,
Speaker 1: very really strong. Well, it's a party now basically with
Speaker 1: the euro amazing. So honestly, everything you've just said makes
Speaker 1: me think the markets by so the market is a
Speaker 1: bye if you have a time horizon of more than
Speaker 1: you know, six to twelve months, because anything can happen
Speaker 1: in a giving year. I think the concern is when
Speaker 1: will the FED realize that we are past peek inflation,
Speaker 1: that their original take that inflation wasn't going to be
Speaker 1: sticky and it was going to be transitory turned out
Speaker 1: to be right, just trans story took a lot longer
Speaker 1: than anyone expected, and that they've already done most of
Speaker 1: what they need to do. I hope the FED is
Speaker 1: aware of the fact that copper metals, lumber, gas, oil,
Speaker 1: even housing and wages are either slowing their rate of
Speaker 1: increase or tacking downwards, in which case they should be
Speaker 1: a little more gentle Barry riddles there. Let's get to
Speaker 1: the January six hearings now here in seven, with another
Speaker 1: to come next Thursday. We're joined by Jonathan Bernstein. We
Speaker 1: seem to be getting a lot more details, and I mean,
Speaker 1: the gossipmonger parts of us are very satisfied with what
Speaker 1: we're hearing out of the committee. But what struck you
Speaker 1: as the most intense part of this week's hearing, Well,
Speaker 1: you know, they're just continuing to fill in the details
Speaker 1: of the basic story of of You know that Donald
Speaker 1: Trump was attempt thing to overturn the election and essentially
Speaker 1: overthrow the government the United States. So you know, each
Speaker 1: detail sort of adds to that without anything in particular
Speaker 1: really changing what we've actually known since January six itself.
Speaker 1: But you know, it's increasingly clear that it was a
Speaker 1: deliberate plan, that he was deliberately trying to do this,
Speaker 1: and that he was calling on anybody who was willing
Speaker 1: to work with him, including these extremist organizations. Now, did
Speaker 1: it give the committee half to the Patsy Bylonian people
Speaker 1: like that, did actually give testimony in the end, And
Speaker 1: do we need to hear from people like Steve Bannon?
Speaker 1: Part of this goes beyond my expertise, which is to
Speaker 1: the legal side of things and exactly what is criminal
Speaker 1: and what kind of evidence would they need to you know,
Speaker 1: make certain charges stick. And you know, I'm not a lawyer,
Speaker 1: so I can't really speak to that. But the more
Speaker 1: evidence that they can get, and and not just about
Speaker 1: Trump himself, but about you know, other people who are
Speaker 1: active leaders of the Republican Party, whether they're members of
Speaker 1: the House or people who were in the administration who
Speaker 1: are still active leaders of the Republican Party. Whatever happens
Speaker 1: to Donald Trump, it would be very helpful for us
Speaker 1: to know who was involved into what level because you know,
Speaker 1: as the Committee has said, there's nothing wrong with pushing
Speaker 1: legitimate lawsuits to make sure that the presidents that any
Speaker 1: candidates case gets made in court if they think that
Speaker 1: there's something going on that they have rights to what
Speaker 1: Trump did with something else, and it would be very
Speaker 1: helpful to know who was on the side of things
Speaker 1: that really should not be involved in mainstream politics anymore. Well,
Speaker 1: the only thing that we heard this week is that
Speaker 1: we heard from some members of some of these groups,
Speaker 1: like the Old Keepers for example. Does it take away
Speaker 1: some of their perceived power or their self perceived power
Speaker 1: that lives being shared on how they operate. Yeah, I
Speaker 1: think that it's very helpful. You know, this is stuff
Speaker 1: that you know, people who follow all these things have
Speaker 1: known about for years really, um, but it's very helpful
Speaker 1: for the committee to shine some light on it. As
Speaker 1: you say, these are dangerous groups. They are extremist groups,
Speaker 1: and one of the things that Donald Trump did that
Speaker 1: was so unusual was to treat them as legitimate parts
Speaker 1: of the party coalition. And once the president, once the
Speaker 1: leader of the party does that, it's very hard for
Speaker 1: the rest of the party to disengage, especially since there
Speaker 1: are some overlapsing in policy positions or ideas. The Democrats
Speaker 1: have done a very good job on their side of
Speaker 1: keeping their distance from extremist groups. They have. Democrats didn't
Speaker 1: always do that. In the seventies, there was there was
Speaker 1: that kind of problem, but that problem is mostly on
Speaker 1: the Republican side now that they just find it very
Speaker 1: difficult to exclude people who you know, are not supportive
Speaker 1: of democracy and who are giving the party attention. Biden
Speaker 1: was asked on his middle strip about rematch with the
Speaker 1: former president. Say there is no prosecution and that the
Speaker 1: former sitting president doesn't see any sort of consequences from
Speaker 1: the hearings or the Justice Department doesn't do anything. What
Speaker 1: do you want again, Well, you know, there's a political
Speaker 1: scientist who says, we can talk about who is running
Speaker 1: four and then we can talk about who's running in
Speaker 1: As of right now, Donald Trump is running for president.
Speaker 1: As of right now, Joe Biden is running for a
Speaker 1: second term. In both cases, we just can't really predict
Speaker 1: whether that will still in the case, we can say
Speaker 1: with some certainty that if Biden eventually makes it too,
Speaker 1: he would almost certainly win the nomination. If there's such
Speaker 1: strong opposition to seeking a second term. He'll probably drop
Speaker 1: out sometime in the next I don't know, ten months
Speaker 1: or so. As far as Trump is concerned, he's much
Speaker 1: less predictable because he doesn't listen to people. UM. So
Speaker 1: it's it's certainly possible that he could run and win
Speaker 1: the nomination. That's possibly could run and lose the domination.
Speaker 1: It's possible that he could drop out of running entirely.
Speaker 1: There's just no way of really predicting what goes on
Speaker 1: in his head. And you have to wonder about Rhonda Santis.
Speaker 1: What are you hearing behind the scenes, Jonathan, about whether
Speaker 1: Rhonda Santez could overtake Trump as a party favorite. Oh,
Speaker 1: I don't hear anything. Of What I could say is
Speaker 1: that it's very very early, and the Sandals has has
Speaker 1: had a lot of support in Republican aligned media. You know,
Speaker 1: he gets mentioned a lot, which has successfully meant for
Speaker 1: him that he now shows up in polls doing double
Speaker 1: digits or better in Republican early polls ofation. But you know,
Speaker 1: we've seen a lot of candidates, whether it's Rudy Giuliani
Speaker 1: or whoever, UM, have early leads that dissipated once we
Speaker 1: find out who the actual candidates that are entering the
Speaker 1: primaries are and once the candidates get tested by going
Speaker 1: through the process. Jonathan Bernstein There, don't forget do get
Speaker 1: in touch via Twitter, I'm at Vanni Quinn or email
Speaker 1: v Quinn at Bloomberg dot net. Opinions and comments always welcome.
Speaker 1: By the way. We're also available as a podcast on Apple,
Speaker 1: Spotify or wherever you get your podcasts. Happy to be
Speaker 1: joined now by near Caesar to continue our look at
Speaker 1: this bear market, what it signifies, how long it may last,
Speaker 1: and what you should know if it's your first So
Speaker 1: earlier I spoke with Barrio Riddholes and we were talking
Speaker 1: about how robust the economy is. In subsequent hours, suddenly
Speaker 1: one hundred basis points is on the table from the
Speaker 1: Federal Reserve. Is one hundred basis points necessary? Well, I
Speaker 1: was curious how the economy is doing. I was looking
Speaker 1: at the numbers today and from what I can tell,
Speaker 1: the latest estimate from the Bureau Economic Analysis is that
Speaker 1: is that the economy contracted by about one point six
Speaker 1: percent in the first quarter, and the latest estimate from
Speaker 1: Atlanta said is that it contracted an additional one This
Speaker 1: is all after inflation in the second quarter. If that's
Speaker 1: the case, then we have two consecutive quarters of negative
Speaker 1: real growth. We're technically in intercession now, but I don't
Speaker 1: know that that's the end of the now this because
Speaker 1: to the extent that there's a silver lining in this.
Speaker 1: Even though the inflation number today was bad, there's no
Speaker 1: question about that. If you look at what the market
Speaker 1: is expecting. The five year break even rate has declined
Speaker 1: from rough three and a half percent in the spring
Speaker 1: too close to two and a half percent now, and
Speaker 1: the ten year break even has declined over the same
Speaker 1: period from roughly three percent to two point three percent.
Speaker 1: So I mean the market at least believes that the
Speaker 1: worst of inflation is over, at least for now, and
Speaker 1: that might mean that whatever the FED has done so
Speaker 1: far plans to do, which is probably another two d
Speaker 1: basis points between now next year and all the tough
Speaker 1: talk in the meantime, might have been enough to uh
Speaker 1: to bring this inflation under control, even though it's not
Speaker 1: apparent in this moment. And if that's the case, we
Speaker 1: might have escaped with a relatively mild recession, which was
Speaker 1: the point I think to begin with. You know, if
Speaker 1: I had told you that that was going to be
Speaker 1: the worst of it, I think we all would have
Speaker 1: been happy with that result. It's too early to say, obviously,
Speaker 1: but as far as I can tell, that's the base case. Well,
Speaker 1: and that's the thing. If the fan does go one
Speaker 1: hundred basis points, is that enough to derail and economy?
Speaker 1: That's pretty robust, But as barivit All said earlier, not bulletproof.
Speaker 1: I don't think any more than where it is now,
Speaker 1: because I think ultimately the question is what are we
Speaker 1: digesting in terms of our expectations. I think people are
Speaker 1: pretty morose about inslation. I'm not sure that the print
Speaker 1: changed really any of that. And if you look at
Speaker 1: expectations in the futures markets, I mean you see that,
Speaker 1: you know, markets are expecting a fat funds rate of
Speaker 1: roughly three hundred forty basis points this time next year,
Speaker 1: roughly let's say June of next year. And so I think,
Speaker 1: you know, market participants, the economy in general, businesses, I
Speaker 1: think they've all calibrated for that number, and the question
Speaker 1: is will there be a surprise from there. All of
Speaker 1: that is to say, I don't know that the path
Speaker 1: matters so much of the destination, whether they give us
Speaker 1: two hundred more basis points, you know, with to one
Speaker 1: hundred basis point hikes, or with four fifty basis point hikes,
Speaker 1: I'm not sure that at her so much. I think
Speaker 1: the question is will they move off the destination, And
Speaker 1: in that regard, I think there's a higher probability of
Speaker 1: a surprise to the upside than to the downside. So
Speaker 1: then we get into your column which says that bear
Speaker 1: Marcus at the moment is a first for so many.
Speaker 1: Just give us the synthesized version of your thesis near Well,
Speaker 1: you know, I've been reflecting on the fact that, you know,
Speaker 1: we have all these trading apps that didn't several years ago,
Speaker 1: and then millions of new investors has come to markets
Speaker 1: in the pandemic, some of them before the pandemic, but
Speaker 1: a lot of them in the pandemic. There's been a
Speaker 1: lot of stories about that, and it seems to me
Speaker 1: that a lot of them are navigating a bear market
Speaker 1: for the first time. And I was sort of reflecting
Speaker 1: on my first bare market, which was the dot compas
Speaker 1: from two thousand to two thousand and two, and there
Speaker 1: are things that I just didn't, you know, even though
Speaker 1: I was a business student as an undergrad and I
Speaker 1: was told these things in the classroom, there are a
Speaker 1: lot of things that I just didn't I don't think
Speaker 1: I really realized until I experienced it for the first time.
Speaker 1: So give us a little bit of a rundown of
Speaker 1: a couple of these mistakes that they don't have to
Speaker 1: make that you might have made. Yeah, right, Okay, you
Speaker 1: know one is listening to prognosticators one of those things
Speaker 1: that which is what we're hoping they're doing right now. Well, yes, yes,
Speaker 1: and I think we should all acknowledge that, you know,
Speaker 1: none of us have any ability to know where the
Speaker 1: market's going. I mean, we're in the seven months of
Speaker 1: this bare market. You know, it's getting long in the tute,
Speaker 1: but when it ends, how low stocks will go. We
Speaker 1: just have no model economic model to be able to
Speaker 1: say that. The problem is during a bare market, people
Speaker 1: want those answers, and so they're inviting that kind of prognostication.
Speaker 1: And what I would say to them is it's fine
Speaker 1: to listen to this stuff as entertainment, but just don't
Speaker 1: make any financial decisions based on it, because ultimately no
Speaker 1: one knows where it's going. The second lesson I would
Speaker 1: highlight is that I think when you're a new investor,
Speaker 1: you don't realize how vulnerable companies are in general. I
Speaker 1: was refrecting on the fact that Enron, roll Com disappeared
Speaker 1: to me the dot com bust, that ge never really
Speaker 1: reget its luster after that. And so for for folks
Speaker 1: who are coming to the market for the first time
Speaker 1: and buying their favorite stocks and thinking that it's going
Speaker 1: to you know, it's going to be a sure bed
Speaker 1: for them, it's it's nothing. It's nothing even close, right,
Speaker 1: And there's something different about every air market. Obviously, the
Speaker 1: reasons for the bearer market different depending on you know,
Speaker 1: which bearer market we're talking about, But there's really very
Speaker 1: little that's the same about one bear market as another. Well,
Speaker 1: that's one of the difficulties, right, is that how the
Speaker 1: bear market behaves to some extent is going to depend
Speaker 1: on the input. What are we fighting. You know, the
Speaker 1: last bear market was very short. We were fighting a pandemic.
Speaker 1: Um this time we're fighting inflations and selling economy and
Speaker 1: lots of economic challenges, etcetera. And so there are going
Speaker 1: to have different tenors. However, I would say that there
Speaker 1: is a common denominator running through them, which is that
Speaker 1: in general, during a bear market, you have a repricing
Speaker 1: of assets, and the more expensive the asset you own,
Speaker 1: the more vulnerable you are to repricing. So you know,
Speaker 1: during the dot com bust, famously, that was probably the
Speaker 1: most expensive U stock market US history. When that recession came,
Speaker 1: and some will say it was even caused by that,
Speaker 1: by asset prices being too high, there was a lot
Speaker 1: of room for repricing, and in fact, they did reprice
Speaker 1: in that regard. This one looks looks it's not exactly
Speaker 1: the same, but this market is still very expensive, and
Speaker 1: there's a lot of room for a lot of stocks
Speaker 1: to reprice. And in that regard, I think you sort
Speaker 1: of have to watch that as a common denominator of
Speaker 1: all bear markets. Well, and that is one interesting thing.
Speaker 1: You do see a lot of growth stocks, a lot
Speaker 1: of tech companies that have repriced more than just into
Speaker 1: a bear market. I mean, some of them are lower
Speaker 1: or more. Is there any conviction out there that they
Speaker 1: might reprice back at least a little bit to where
Speaker 1: they were, you know, I fly this is one of
Speaker 1: the things I touch on in this column for tomorrow
Speaker 1: is that famously, the market has no memory of price.
Speaker 1: It doesn't really care what you paid for a stock.
Speaker 1: So for example, if you paid seven hundred dollars, let's
Speaker 1: just say for Netflix, which was the high I believe,
Speaker 1: and now it's down, that doesn't mean it's going to
Speaker 1: come back to seven. So I don't think we can
Speaker 1: look at these stocks and say, just because it's down
Speaker 1: thirty fifty seven or whatever, it's coming back. I think
Speaker 1: the best that we can say is that in general,
Speaker 1: the broad market is going to recover, it's going to
Speaker 1: regain its previous level, it's going to reach new highs.
Speaker 1: What happens the individu dual companies is anyone's guess, which
Speaker 1: is why I think betting on these individual companies and
Speaker 1: worth hanging on to whatever price you bought is a
Speaker 1: big mistake. So it's very interesting that you point out
Speaker 1: that some of these companies didn't exist, or were defaulting customers,
Speaker 1: or just looks different after the last bearer markets. Do
Speaker 1: you anticipate that that happens after every parer market, including
Speaker 1: this one. I think investors do tend to pay more
Speaker 1: close attention during downturns, which is understandable. You know, when
Speaker 1: you're making money, you tend to get lazy and you
Speaker 1: tend to not care as much. When you start losing money,
Speaker 1: you want to know why, and you start looking under
Speaker 1: under the hood, so to speak. And you know, when
Speaker 1: investors do that, I mean, they find that some companies
Speaker 1: are not exactly above board. And that's invariably another common
Speaker 1: denominator in these downturn is that shenanigans come to light.
Speaker 1: The only question is what is the extent of them
Speaker 1: and who is committing them. I mean, the bigger the
Speaker 1: company that is committing them, the more likely it is
Speaker 1: to end in a catastrophic way for that company and
Speaker 1: the investors. Just nearly on the scale of it. But yeah,
Speaker 1: I'm sure that if this goes on any longer, we're
Speaker 1: gonna we're gonna find out some things we didn't know. Well,
Speaker 1: it's funny, but you've just put crypto into my mind.
Speaker 1: I'm not quite sure why I associate the two, but
Speaker 1: I guess we have seen some shenanigans in the crypto
Speaker 1: space of the market already, and I think we'll more.
Speaker 1: I mean, you know, one of the things that's interesting
Speaker 1: about crypto is it comes in the long line of
Speaker 1: new assets, and there's real there's history there, right. I mean,
Speaker 1: when junk bonds came to the four in the late
Speaker 1: nineteen seventies and nineteen eighties and they had their first
Speaker 1: wipe out, there were a lot of shenanigans that came
Speaker 1: to light. Any time that a new asset comes to
Speaker 1: the scene, you know, a lot of money is being made.
Speaker 1: I think people are not as careful as they ought
Speaker 1: to be, and that invites all kinds of bad behavior.
Speaker 1: Of course, there's always some correction all that comes to light.
Speaker 1: But I think crypto is just the latest and the
Speaker 1: long tradition of new assets that are gonna have that
Speaker 1: are gonna have to deal with with with behavior that
Speaker 1: is not necessarily above board across you know, all around. Yeah,
Speaker 1: near there's some hope here as well for people too, though, right.
Speaker 1: I mean, if you're going to start investing, investing in
Speaker 1: a bear market is better than nos in some ways.
Speaker 1: Is that always true? I think it's pretty much always true.
Speaker 1: One of the things that I say his column is
Speaker 1: that you know, in general, when prices are going down
Speaker 1: is the time you want to be buying. A lot
Speaker 1: of people their instinct, I think is to hold off
Speaker 1: it's the way or worse to sell what they own
Speaker 1: on the theory that they'll wait until things get better
Speaker 1: and then they'll buy back in or resume investing. In
Speaker 1: my opinion, that is a big mistake because you won't
Speaker 1: know when the bear market is over until the new
Speaker 1: bull market commences, and in general, the bull market comes
Speaker 1: in with a bank meeting, the market really turns sharply
Speaker 1: higher to announce the new bull market, which means that
Speaker 1: you end up buying at higher prices than you otherwise
Speaker 1: would have if you just have to continue buying through
Speaker 1: the bear market. So I view all bear markets as
Speaker 1: buying opportunities, assuming that you you invest regularly through it,
Speaker 1: very similar to the way you would do in a
Speaker 1: in a bull market. So you're having already given the
Speaker 1: caveat that you shouldn't listen to prognostigators. Is there anything
Speaker 1: else that you would tell people out there, Well, I
Speaker 1: would tell them to just focus on the long term
Speaker 1: and to just keep in mind that don't matter how
Speaker 1: bad the news gets, no matter how long the bear
Speaker 1: market bear market lasts, and you know it could last
Speaker 1: several years, I mean, it's happened before the end. They
Speaker 1: always end and Ultimately, you know, most people are not
Speaker 1: investing for two or three years. They're investing from five, ten,
Speaker 1: twenty years. Time is on their side. There's really no
Speaker 1: reason for them to be concerned. Assuming that they're investing intelligently,
Speaker 1: they're buying regularly, investing the broad market. There's really no
Speaker 1: reason to worry much in my view. Near case are
Speaker 1: is there. We are now choosing to end all conversations,
Speaker 1: not with you, though, as always we love to hear
Speaker 1: from you. I'm at Vanni quent on Twitter, or send
Speaker 1: your thoughts to v Quinn at Bloomberg dot net. We're
Speaker 1: produced by Eric mollow Till next time on Themberg Opinion