Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along
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Speaker 2: the Bloomberg Terminal, and the Bloomberg Business app. She's been
Speaker 2: speaking to Jerome poll all morning. We speak Claudia Sam
Speaker 2: of Michigan about this report. Claudia, this changes the dialogue
Speaker 2: for the Chairman of the Federal Reserve System.
Speaker 3: The FED is going to look at one month and
Speaker 3: just kind of take it in context of what we've
Speaker 3: seen recently. Yeah, this month, you know, these are not
Speaker 3: great numbers. It's a disappointment. I certainly looked at that
Speaker 3: unemployment rate and yet we have seen solid gains. This
Speaker 3: does not change the story. And honestly, at the FED
Speaker 3: and a lot of places, all eyes are still on
Speaker 3: the CPI and the inflation prints. We still have an
Speaker 3: economy that's really moving in a labor market that's still
Speaker 3: working well, although not in the way that we've seen
Speaker 3: last year where it was still just going really strong.
Speaker 2: I know they're going to be day dependent, but I
Speaker 2: know that everybody listening across the nation and watching it
Speaker 2: on YouTube wants to know from Claudia Sam the recession metric. Now,
Speaker 2: you haven't had time to go out state by state
Speaker 2: and readjust your acclaimed rule. But we had a number
Speaker 2: of people this morning suggesting part of America is in recession.
Speaker 2: Is that true?
Speaker 3: No, that's not true. The recession indicator that I put
Speaker 3: together this is you know, it's calibrated. It's you know,
Speaker 3: looking at the national recessions that we've seen, there are
Speaker 3: times where we have disruptions at you know, local levels.
Speaker 3: Industry bases can be really important in an area like
Speaker 3: California with teg and so you can see states or
Speaker 3: localities move in one way that the rest of the
Speaker 3: economy isn't. It's important to look at increases in unemployment rate.
Speaker 3: These are not good and yet we don't we shouldn't
Speaker 3: think of that as a recession a problem.
Speaker 2: Claudia, sign with us right now. With markets moving, we
Speaker 2: had a lot of red on the screen. We've now
Speaker 2: lifted constructively. Small caps go up four tenths of a
Speaker 2: percent of Russell two thousand. Lorii Calvacina to join us
Speaker 2: later about now, in this eight o'clock hour, we come
Speaker 2: to you commercial free across Apple, car play and YouTube,
Speaker 2: Bloomberg podcasts.
Speaker 4: And Claudia.
Speaker 5: Just again, from the headline perspective, I think what's jumping
Speaker 5: out for a lot of people just looking at various
Speaker 5: reporting here is that headline unemployment rate of three point
Speaker 5: nine percent.
Speaker 4: And there's an.
Speaker 5: Argument to me that the FED would, in fact, you know,
Speaker 5: doesn't mind seeing that number go up because that may
Speaker 5: give them some maybe more ammunition.
Speaker 4: To cut rates. How do you think about that argument?
Speaker 3: Well, first, it's not a flashing red number. The recession indicator.
Speaker 3: The SSAM rule takes the three month average. I mean
Speaker 3: this is, you know, conceptually we should do this on
Speaker 3: any data release. And right now that SAM rule is
Speaker 3: up twenty six bases points and the trigger is fifty yeah. Right,
Speaker 3: so we are still far away from you know, red
Speaker 3: alert territory. You never want to see it go up.
Speaker 3: We saw sometimes last year where it did and then
Speaker 3: it got revised away. So this is not good news.
Speaker 3: But this is not just you know, hair on fire
Speaker 3: kind of news, and it shouldn't change anything the Fed
Speaker 3: is thinking today. That's just how they look at the data.
Speaker 2: So let me translate it for you out on YouTube
Speaker 2: live chat, doctor Sam just said Tom Keene was wrong.
Speaker 6: Okay, just relax.
Speaker 5: Hey, how about these revisions here to the prior month.
Speaker 5: I mean it's almost almost a forty percent revision down
Speaker 5: in that headline change in non farm payrolls.
Speaker 4: Did their spreadsheets just not work last month?
Speaker 3: No, the Bureau Labor Statistics knows what they're doing. You know,
Speaker 3: it's hard. We have an over twenty five trillion dollar economy,
Speaker 3: we have hundreds of millions of people working. It's really
Speaker 3: tough to get a good read. And when you think
Speaker 3: about it, we get that first read on the labor
Speaker 3: market like within weeks of the Beuer of Labor Statistics
Speaker 3: doing those surveys. So this we're gonna have noise. These
Speaker 3: are not I mean again downward revisions taking away a
Speaker 3: big number. That's not good, right. We'd like to see,
Speaker 3: you know, big numbers going all the way forward, and
Speaker 3: yet it's not surprising. Measurement has been very hard throughout
Speaker 3: this whole cycle, and frankly, we get revisions like this, it's.
Speaker 2: Not unusual on a death stile basis. Or I'll let
Speaker 2: you go. You can divide by fists or ten so
Speaker 2: death style, folks, is ten percent of the people out there,
Speaker 2: is the way I'm using this here. Are we lump
Speaker 2: and polarized in our labor economy, Claudia or can you
Speaker 2: say it's one America and you can aggregate as Allan
Speaker 2: Meltzer lectured me years ago.
Speaker 3: It really depends what you're looking at. I will say
Speaker 3: this labor market has worked for more of the death
Speaker 3: styles than usual. The recovery has been and the wage
Speaker 3: gains that have been made, there's a lot of it
Speaker 3: at the bottom. Yeah, they were starting from a very
Speaker 3: low place, so that's not necessarily saying a lot. But
Speaker 3: this has been a more quote unquote inclusive recovery than
Speaker 3: we have seen in a very very long time. And
Speaker 3: the labor market is still in a very good place
Speaker 3: for low wage workers, women, immigrants, people in marginalized groups.
Speaker 3: I mean, you name it. This has been a very inclusive.
Speaker 3: There's a lot of winds to go around.
Speaker 5: Now.
Speaker 3: If you ask people, they may not be feeling the winds,
Speaker 3: and you ask businesses, they may not be feeling the winds.
Speaker 3: This has been very disruptive. This has been a real slog, Paul.
Speaker 2: I'm looking here and it's unfair to you and Claudia,
Speaker 2: but I got the Bloomberg termine in front of me
Speaker 2: doing fancy mathematics and the moving averages to doctor, doctor,
Speaker 2: some folks is correct. I use three moving averages. I'm
Speaker 2: not going to go into the math of it. And
Speaker 2: they're not gloomy down the world's coming to an end.
Speaker 2: The operative word is their flat flattering. We're just moving
Speaker 2: along on a summed moving average basis, as Claudia. Sam
Speaker 2: nailed there at eight thirty one.
Speaker 4: Claudia.
Speaker 5: We also saw the labor four participation rate. It's kind
Speaker 5: of come in at sixty two point five percent, kind
Speaker 5: of steady. Give us context for that number.
Speaker 3: That number is so important, like that's the piece of
Speaker 3: coming out of the big disruptions. I mean, I think
Speaker 3: four years ago we had millions of people leaving the
Speaker 3: labor market because of the pandemic, because of care responsibility,
Speaker 3: I mean it just that was so justive and we
Speaker 3: have not on the population as a whole, gotten back
Speaker 3: to where we were four years ago. And yet we've
Speaker 3: made a lot of progress. Prime age people in their
Speaker 3: prime working years, they're back. We've made a lot of
Speaker 3: really turning the corner last year on the recovery was
Speaker 3: coming from more workers. We solved a labor shortage with
Speaker 3: more labor and not fewer customers. The FED can only
Speaker 3: do the second one, and we got workers back. So
Speaker 3: that's one that's really important, and we have to keep
Speaker 3: building on those games, and we absolutely have to keep
Speaker 3: them so steady as she goes. There's that's very important,
Speaker 3: and the FED is very much watching that number.
Speaker 2: We got the luxury here. We can do this out
Speaker 2: of Michigan with Claudia. Some it's International Women's Day. Some
Speaker 2: people talk, others do, and Claudia sam is one of
Speaker 2: those that has not talked but done, and also someone
Speaker 2: named Bee Stevenson Betsy Stevenson as well at Michigan. Claudia
Speaker 2: review the boom that we saw on women's employment i'll
Speaker 2: say thirty years ago and the changes now and how
Speaker 2: that folds into Paul's good question on labor participation. What's
Speaker 2: the women dynamic that we've seen pre pandemic, into this
Speaker 2: awful pandemic and now out of it.
Speaker 3: We saw gains for women before the pandemic. I remember
Speaker 3: that was a really good expansion. We were in a
Speaker 3: good place and COVID took a lot away from us.
Speaker 3: And what we've seen is we've come into this recovery,
Speaker 3: particularly the past few years. We're back on track and
Speaker 3: we are at a point. Last year women's employment women
Speaker 3: in their prime working years hit all time highs. This
Speaker 3: has been a generation's long progress to give women the
Speaker 3: opportunity those who want to to work, and we're seeing
Speaker 3: it and it's really important. There were some thin silver
Speaker 3: linings that came out of COVID. It's very clear from
Speaker 3: research that the work from home technology has helped open
Speaker 3: up flexibility for women to be working. We have an
Speaker 3: economy with a lot of we're getting more and more
Speaker 3: part time jobs. People with caregiving responsibilities often need flexibility.
Speaker 3: They're getting it, wages, I mean, you name it. We're
Speaker 3: making progress. It's been slow, right, shouldn't be a twenty
Speaker 3: twenty three story, but we are making progress and that's
Speaker 3: a real testament to an economy that is working.
Speaker 5: So we had a red headline just crossing tape. Recently,
Speaker 5: FED swaps priced an additional FED easing in twenty twenty
Speaker 5: four on jobs data, Claudia, does that seem reasonable to you?
Speaker 4: Maybe a little bit of an overreaction.
Speaker 3: My heart goes out to people that really need to
Speaker 3: get this right because of their jobs. I mean, this
Speaker 3: is the FED does not know what the FED is
Speaker 3: going to do right because they do not have the data. Jpowe.
Speaker 3: Every FED official has told us over and over again
Speaker 3: they are not confident yet they need more data. Now.
Speaker 3: There are subtle differences in what they tell us about
Speaker 3: how close they are to confident or not. It's reading
Speaker 3: the tea leaves. If you don't have a really good
Speaker 3: FED speak Dakota ring, good luck right, Like this is
Speaker 3: not again like we were talking about. I look at
Speaker 3: these numbers and.
Speaker 2: I'm like, whoa, whoa, whoa. Do you have a Dakota
Speaker 2: ring for the Fed?
Speaker 3: Well that's what working over a decade at the FED
Speaker 3: gets you. I mean, you know, like you listen to
Speaker 3: the FED speak right. When yesterday j Powell said not
Speaker 3: too far right from getting confident. I was like, eh,
Speaker 3: I mean, I was happy to hear it, but not
Speaker 3: too far in FED land can be many months.
Speaker 4: Is he is?
Speaker 2: He is he wobbly need? Pardon me, he's wobbling need.
Speaker 2: Senator Warrant Warren went after regulation that he's weak need
Speaker 2: or wobblely need or right or whatever. I mean, they
Speaker 2: really went after him yesterday.
Speaker 3: Claudia, Yeah, no, it's but that's their job. I mean,
Speaker 3: those hearings are for Congress to hold the FED accountable.
Speaker 3: They should be asking the Fed tough questions. If they're not,
Speaker 3: we have a big problem in terms of FED accountability.
Speaker 4: Then there was Senator Kennedy from Louisiana.
Speaker 2: Yes, Claudia, thank you so much. Claudia's I'm very I
Speaker 2: love doing this right now. And this goes, folks to
Speaker 2: how we piece the show together. Three four or five
Speaker 2: days ago, I said, to the great team we've got
Speaker 2: working twenty four to seven, just get Calvisina. I just
Speaker 2: want to talk to her about the markets. And I
Speaker 2: get that twenty years trailing, ten years trailing the Russell
Speaker 2: two thousand is underperformed in video. I mean as a
Speaker 2: generalization or the magnificent whatever. But I said, get the
Speaker 2: magnificent Calvisina on because if you go back to twenty nineteen,
Speaker 2: if the Russell two thousand just gives me a seventeen
Speaker 2: percent pop or right back to record his Laurie, thank
Speaker 2: you so much for joining us with RBC Capital Markets.
Speaker 2: To me, small caps are sort of malign. Now they're
Speaker 2: actually doing better than the zeitgeist? Do I have that right?
Speaker 7: You're right, Tom, And you know, look, I was travel
Speaker 7: I've been prouding pretty much since the last week of January,
Speaker 7: and I got to the end of February, wrote my weekly,
Speaker 7: and I realized that actually in February, small cats had
Speaker 7: outperform large caps, and if you looked at the relative
Speaker 7: ratio between small and large, it bottomed on February seventh,
Speaker 7: And I would not have known that. And I didn't
Speaker 7: know that just purely based on all the conversations I
Speaker 7: was having with investors in February, because it was like
Speaker 7: small caps are stuck in the dumps. After that great
Speaker 7: November and December, they've gone right back in the toilet again,
Speaker 7: and all the while they were slowly and stealthily crawling
Speaker 7: their way off to the bottom.
Speaker 2: Is there a leg here, folks, By the way, without
Speaker 2: commercial interruption here or thrilled dev Lori Kelvissina here to
Speaker 2: get us forward, Laurie, when everything's said and done, is
Speaker 2: now the time for Russell two thousand? After this nice
Speaker 2: leg up? Can you say you've got the energy the
Speaker 2: bid to get out to record highs on Russell two
Speaker 2: thousand up seventeen percent from here?
Speaker 7: So I think we can if a couple of things
Speaker 7: fall into place. So I think November and December, I
Speaker 7: think that trade was all about anticipating the FED rate cut.
Speaker 7: So I think that part of the story is done.
Speaker 7: Small caps were maligned last year for their you know what,
Speaker 7: aren't really that bad, but we're perceived as being bad
Speaker 7: balance sheets and fears the FED was never going to cut. Well,
Speaker 7: that expectation has shifted. If you look at positioning data,
Speaker 7: if you look at Russell two thousand PE data, we're
Speaker 7: basically back up to either you know, kind of averages
Speaker 7: on the PE or three year highs on the positioning.
Speaker 7: But we're not at all time highs. We're kind of
Speaker 7: a middle endings trade just on a basis of valuation
Speaker 7: and positioning. I think what's very interesting is that today,
Speaker 7: with this jobs report, you've seen small cap futures actually
Speaker 7: respond more sharply to the upside than large cap futures,
Speaker 7: at least initially off the print. I think what small
Speaker 7: caps are starting to react to in February is the
Speaker 7: idea that the economy is just hotter than anticipated. And
Speaker 7: typically we see that when the economy is running about trend,
Speaker 7: and trend is about two point six percent on real GDP.
Speaker 7: When you're above that two point six percent threshold, small
Speaker 7: caps beat large caps. And if we're we've been kind
Speaker 7: of around two percent. If we can get closer to
Speaker 7: trend and convince the market that we're in a sustainably
Speaker 7: hot economy, I think small caps.
Speaker 5: Are really going to shine, all right, So small caps
Speaker 5: are going to shine any sectors that we should be
Speaker 5: focused on here, if in fact the economy is going
Speaker 5: to hang in there, we're going to have, you know,
Speaker 5: kind of some reduction rates.
Speaker 7: So one of the sectors that does tend to do
Speaker 7: well when we see consumer confidence improving if you look
Speaker 7: at the Michigan sentiment data, and this is really true
Speaker 7: across the market. Caps struck him, But I would say
Speaker 7: financials and if you think about small cap in particular,
Speaker 7: we've been talking about two areas that are more on
Speaker 7: the cyclical side. One is consumer discretionary. It is a
Speaker 7: sector that tends to do well coming off of a
Speaker 7: recession low and I am not in the recession camp
Speaker 7: by any stretch, but if you sort of think about
Speaker 7: the zeitgeist of you know, just having a better economic outlook,
Speaker 7: consumer discretionary stocks tend to do well. And we've also
Speaker 7: just seen they're very cheap and small cap relative to
Speaker 7: large cap. I also have been talking to people a
Speaker 7: lot about how consumers, you know, our economis have done
Speaker 7: a very good job of showing how the economy and
Speaker 7: consumers at large, especially the high end or less sensitive
Speaker 7: to short to short term rates. But I do think
Speaker 7: the lower end consumer is still affected by short term
Speaker 7: rates being high, and so if you get some relief there,
Speaker 7: I think that should help lower end consumers, and I
Speaker 7: think that should also help the small cap consumer discretionary companies.
Speaker 5: So I know from your notes in the past or
Speaker 5: you had a fifty one, fifty twenty twenty four SMP
Speaker 5: five hundred target, we're pretty much there right now a
Speaker 5: little bit higher than there. Does it need to take
Speaker 5: a look at that and maybe think about where that
Speaker 5: possibly could go higher.
Speaker 7: Yeah, so it's a great question. We've been talking about
Speaker 7: that a lot as well in our recent meeting. So
Speaker 7: the fifty one to fifty is basically the median and
Speaker 7: the average of five different models that we use. The
Speaker 7: most conservative one of those models is rapidly improving, and
Speaker 7: that's basically our GDP test, which says, you know, historically
Speaker 7: stocks don't do that great and kind of flat to
Speaker 7: two percent type GDP years. But of course we're right
Speaker 7: on the cusp of that of two percent. So that
Speaker 7: model is starting to improve and head in a better direction.
Speaker 7: Our sentiment work has also been restraining our enthusiasm a
Speaker 7: little bit. Aaii net bowls have been seeing right around
Speaker 7: one standard deviation. You're usually flat over the next three
Speaker 7: months when you get that, and so I keep looking
Speaker 7: for this pullback that hasn't happened. But frankly, our valuation
Speaker 7: model is what we've been talking about most in meetings.
Speaker 7: This one was spot on last year. It was telling
Speaker 7: you to look for twenty one to twenty two times
Speaker 7: trailing pe in the market and forty seven to forty
Speaker 7: eight hundred. I did not listen to it enough. Maybe
Speaker 7: I'm going to be guilty of that again this year.
Speaker 7: Right now, that model, which bakes in forecasts for inflation
Speaker 7: interest rates in GDP, is anticipating about fifty four hundred
Speaker 7: and a pe of over twenty three times on the
Speaker 7: S and P at the end of this year. So
Speaker 7: that's the one that points you to the bowl case, Laurie.
Speaker 5: I was just wondering, in terms of leadership here, the
Speaker 5: technology as long as we can remember, technology has been
Speaker 5: the leadership here and Tom's been calling.
Speaker 4: Out in Nvidia and what a tremendous move it's had there.
Speaker 5: Still the case is, do we need technology to continue
Speaker 5: to be the market leader here?
Speaker 7: I don't think you do. And I've actually been debating
Speaker 7: this with one of my colleagues internally, and this kind
Speaker 7: of goes back to the idea of small cap versus
Speaker 7: large cap. And look, I'm not going to make a
Speaker 7: comment on anyone's stock. You know, some of my clients
Speaker 7: have joke that the Mag seven is turning to the
Speaker 7: Mag one. But the reality is that if you just
Speaker 7: take a little bit of market cap out of those
Speaker 7: top seven names, out of that Mag seven, you know,
Speaker 7: just take a rain drop. It's a blood if you
Speaker 7: take that, you know, think of it as water you
Speaker 7: take that you put into the Rustle two thousand. It's
Speaker 7: really enormous in percentage terms, and I think that's what
Speaker 7: the way we have to think about it. I don't
Speaker 7: think you have to get bearish on the prior leadership,
Speaker 7: just say, hey, there are some other parts of the
Speaker 7: market that deserve a bit of a catch up trade.
Speaker 7: And one chart we've been having a lot of luck with.
Speaker 7: I know I talked to you guys about this a
Speaker 7: few weeks ago. It's just some bloomberg data that your
Speaker 7: team is put together that tracks mag seven expectations on
Speaker 7: earnings and compares those to the rest of the S
Speaker 7: and P and that gap on consensus forecast. And these
Speaker 7: are not my numbers, this is just what's south there
Speaker 7: from the stock pickers is shrinking to less than three
Speaker 7: percent for twenty twenty five. I continue to show that
Speaker 7: chart in most meetings, and I'm finding clients are kind
Speaker 7: of coming around to the idea of the earnings growth
Speaker 7: advantage is just dissipating. And if you continue to boost
Speaker 7: GDP forecasts Rustle two thousand, rest of the S and P,
Speaker 7: those earnings forecasts are going to pick up.
Speaker 2: Thanks, So much, Lori Kelvisina with this, Ellen Zetner joins us.
Speaker 2: Right now, I'm going to cut to the chase my
Speaker 2: chart of the week from many people, including your shop.
Speaker 2: It's suddenly indications of a decline in wage growth. Are
Speaker 2: we going to see in this report tangible lessening of
Speaker 2: wage growth that rolls over into it ECI wages and
Speaker 2: benefits that finally falls back to twenty nineteen levels?
Speaker 8: Yes, I think we continue to see wage growth under pressure.
Speaker 8: You know, in average hourly earnings, it's the mix effect,
Speaker 8: who's who are we creating jobs for that that can
Speaker 8: bounce that around. But you know, we're not expecting a
Speaker 8: material slowing on the year over year. But you create
Speaker 8: a lot more service sector jobs than expected at lower wages,
Speaker 8: and you will get a further decline in growth and
Speaker 8: average hourly earnings. But as you said, the employment cost
Speaker 8: index is what really matters, and labor compensation is slowing,
Speaker 8: and that means that your buying power for consumers are slowing.
Speaker 8: It means that your wage pressures that companies would be
Speaker 8: concerned about continues to recede. And so I think you
Speaker 8: know that underpins what should be a slowing economy. This year,
Speaker 8: But I do still think that we're set up for
Speaker 8: probably stronger growth than people are expecting, even though.
Speaker 5: Slower unemployment rate of three point seven percent, that's kind
Speaker 5: of the headline that feels like full employment. Is that
Speaker 5: kind of misleading on I mean, if I'm the President Biden,
Speaker 5: I'm taking a huge victory lapp here.
Speaker 8: Yeah. Well, all of these jobs numbers are something that
Speaker 8: the president can take victory lap around, and I'm sure
Speaker 8: he'll take advantage of that. I mean, we do have
Speaker 8: a lot of people employed while still creating a lot
Speaker 8: more jobs. And I think when you've got the population
Speaker 8: growing this fast, I think when you've got immigration growing
Speaker 8: this fast and the labor force growing this fast, you
Speaker 8: can create a lot of jobs and keep the unemployment
Speaker 8: rate lower than what normally would be the case.
Speaker 5: There's been some concerns raised about where the jobs are
Speaker 5: being created here. Maybe they're in they're concentrated in healthcare
Speaker 5: and some other areas. Is that a viable concern here,
Speaker 5: that maybe there's not a greater dispersion of workforce creation.
Speaker 8: Yeah, So we like to see diffusion across broad sectors, right. Typically,
Speaker 8: later in a cycle, you start to get diffusion to
Speaker 8: come in and you're only you're putting all your eggs
Speaker 8: in one basket, so to speak. I've not been as
Speaker 8: concerned about diffusion coming in as some others. I think
Speaker 8: a lot of the job surprises or in sectors where
Speaker 8: we should be having surprises, where supply still we still
Speaker 8: needed to backfill a lot of labor, and a lot
Speaker 8: of it is, you know, immigration flows that are going
Speaker 8: into the top sectors that they typically go into, manufacturing, construction, retail,
Speaker 8: and leisure and hospitality.
Speaker 2: You had a modeled recession a million years ago. It
Speaker 2: seems now not that long ago, but there it was.
Speaker 2: And the great credit to Ellen Zetner and your team
Speaker 2: is you change that way before anybody else did and said,
Speaker 2: you know what, it's just not as gloomy as we thought,
Speaker 2: and we've seen this huge prosperity. Why have we seen
Speaker 2: this prosperity? Is it just stimulus or is there another answer?
Speaker 8: Well, the five trillion dollars in stimulus doesn't hurt.
Speaker 2: I strongly support.
Speaker 8: That it doesn't hurt, but that fiscal impulse doesn't last forever.
Speaker 8: But as that fiscal impulse was fading, what we had
Speaker 8: put in place, sound Pol sees to boost infrastructure spending,
Speaker 8: to boost efficiencies in manufacturing facilities, to boost you know,
Speaker 8: clean green energy spending, and so it's been another type
Speaker 8: of fiscal impulse as opposed to just what we think
Speaker 8: of as traditional stimulus. And so that's still flowing through
Speaker 8: the economy. At the same time, we've had incredible flows
Speaker 8: of immigration, and yes, undocumented immigration, but they work and
Speaker 8: they earn and they demand and the economy is benefiting
Speaker 8: from that as well. And so the Fed has had
Speaker 8: to raise rates much further and faster than I think
Speaker 8: anyone had expected. We have survived that, and largely because
Speaker 8: of the gradual transformation of household balance sheets into a
Speaker 8: very low fixed rate from years and years and years
Speaker 8: of near zero interest rates. And so it's just this
Speaker 8: confluence of factors that means that the cycle cann and
Speaker 8: I didn't even mention productivity, which is, you know, all
Speaker 8: of this is culminated into a twenty twenty three that
Speaker 8: was much stronger growth than expected, a larger deceleration in
Speaker 8: inflation than expected, and that can continue to a lesser degree.
Speaker 8: That can continue this year.
Speaker 2: And now, folks, with the sun up every longer day
Speaker 2: and looking at NCAA March bandits and all we go
Speaker 2: to Ellen Zetner for what matters In April? Do you
Speaker 2: fish the Yellowstone River in Montana? I mean, have you
Speaker 2: done that? You've done every other river in the West.
Speaker 4: It's like prime season we.
Speaker 8: Do like the pre runoff season that's closer to Mother's Day.
Speaker 8: When you want to hit that, it means that Mom
Speaker 8: is angry. But mom understands.
Speaker 2: Mom understands if.
Speaker 8: Fly fishing is important, but you have to hit it
Speaker 8: just before the runoff.
Speaker 4: The run off the st So the runoff.
Speaker 8: Is when the snow melts and the rivers blow out.
Speaker 8: So you got to hit it before the runoff off
Speaker 8: and then you have to wait and then you come
Speaker 8: back after everything received.
Speaker 2: Are you like Canson? When did you call up you
Speaker 2: know Ted and the rest of the crew at Morgan
Speaker 2: Stanley And so I'm sorry the seer has got the
Speaker 2: twelve feet of snow and is that like the best
Speaker 2: fishing every.
Speaker 8: Unfortunately it's a heavy conference time and in April May
Speaker 8: that's very heavy conference times.
Speaker 7: You know.
Speaker 8: So uh no, so I but but you know what,
Speaker 8: believe me, I'll get a lot. I'll get a lot
Speaker 8: done this summer. Okay, jackson holl Well, I see you
Speaker 8: around Jacksonville.
Speaker 2: Is a snow good for fly fishing.
Speaker 8: Snow is excellent for fly fishing. You need a lot
Speaker 8: of it so that in the summer there's a lot
Speaker 8: of runoff and the river stay healthy.
Speaker 4: It should be good this year.
Speaker 2: Then on the podcast, I want fly fishing on the podcast.
Speaker 2: I don't care what she says about the job.
Speaker 8: I don't know. You and I came on when I
Speaker 8: started doing radio in two thousand and three with you, Tom,
Speaker 8: You and Ken Ken and I would talk fly fish.
Speaker 2: You talked about it.
Speaker 8: He also loved it, and you gave us the stink
Speaker 8: guy because you did.
Speaker 4: Not like that at that right.
Speaker 6: I don't know.
Speaker 8: I don't know if folks have noticed, but Tom does
Speaker 8: not like the attention being taken away from him.
Speaker 2: No, trout, the size of your leg? Are they really
Speaker 2: that big?
Speaker 8: They can be, yeah, they can.
Speaker 2: Like, what's the biggest fish you've ever caught?
Speaker 8: Oh, gosh, I've only I've caught up to twenty four inches,
Speaker 8: but you can get up to thirty two, which would
Speaker 8: be really trophy size. Yeah.
Speaker 6: Yeah.
Speaker 2: Do you have like fish plastic up in the walls?
Speaker 2: Like the whole living room fish.
Speaker 8: No, No, we don't. Yeah, I don't have a lot
Speaker 8: of fishing decorations, but we have an entire We took
Speaker 8: a kitchen and turned it into a fly fishing closet, okay,
Speaker 8: and so all of our equipment is in there.
Speaker 2: Yeah. Ellen, thank you so much. There's a user can use.
Speaker 2: Folks coming up. She'll be in the nine o'clock hour
Speaker 2: in a week or two as we look a tour
Speaker 2: of her fly fishing kitchen. Ellen's that on this job's day.
Speaker 2: Really interesting there about the productivity of the nation. Joining
Speaker 2: us right now, Cameron Dawson, she is with new Age's
Speaker 2: new Edge Wells. She's given us just wonderful perspective on
Speaker 2: the equity markets, and we're all nodding. On another day
Speaker 2: of Nvidia up. I looked at price to sales and
Speaker 2: we're at the sill. It's it's surreal.
Speaker 1: The key thing with Nvidia, though, and this is the exception,
Speaker 1: is that it's earning Sestiments for twenty twenty five are
Speaker 1: up by four x over the last year, which has
Speaker 1: been a key driver of why the stock has moved
Speaker 1: up so much. You can't say the same thing about
Speaker 1: all the other semi condition Apple, You certainly can't. Their
Speaker 1: estimates have been flat. But even a name like Broadcom,
Speaker 1: its estimates are up twenty five percent for twenty twenty five,
Speaker 1: And so it does raise the point that some names
Speaker 1: are going up because earnings are going up a lot.
Speaker 1: Other names have that multiple expansion. That's part of the
Speaker 1: of the lift, and that's where things could become more
Speaker 1: precarious if the earnings estimate revisions slow down. But we're
Speaker 1: not seeing that slow down in estimate revisions yet.
Speaker 5: All right, let's brought it out to the market camera.
Speaker 5: Do we need these big tech names to drive this
Speaker 5: market higher? Or can other parts financials, industrials, other parts
Speaker 5: of the market move this market higher?
Speaker 4: Who's going to lead this.
Speaker 1: The lesson from twenty twenty two is that you need
Speaker 1: the biggest weights in the index to work if the
Speaker 1: index overall is going to work. There were pockets in
Speaker 1: twenty twenty two that did very well, stuff like energy,
Speaker 1: but tech was down a lot, and thus the market
Speaker 1: was down. So when it is such a big weight
Speaker 1: in the index, it has to participate.
Speaker 5: So do we do we stick with these names? Do
Speaker 5: we add to these names? Do we start new positions
Speaker 5: in these names? How do we get some exposure here.
Speaker 1: I think that you respect the momentum, but we have
Speaker 1: to be very aware that we're seeing parabolic moves higher.
Speaker 1: I'd add a book to your book of the Summer List,
Speaker 1: which is Walter Demer's sometime when it comes out to buy,
Speaker 1: you won't want to. He has a page in there
Speaker 1: that says parabolic advances do not end by moving sideways.
Speaker 1: They end by the reverse parabolic down or straight lines down.
Speaker 1: It's a quote from Bob Ferrell. So I think that
Speaker 1: we have to keep that in mind. When you see
Speaker 1: advances this sharp, they typically don't end in a nice way.
Speaker 4: Okay, but not yet.
Speaker 2: Yeap, and good morning to mister Demer. Of course, esteemed
Speaker 2: in a Putnam investments over the years. This is ancient
Speaker 2: history Putnam up in Boston. I got to ask you
Speaker 2: about Samu I brought this up twice this week. I'm
Speaker 2: gonna bring you in. I'm giving Samuel Way too much love.
Speaker 2: I mean, he doesn't deserve it. He had a spectacular
Speaker 2: essay that went beyond the normal blah blah blah about
Speaker 2: active versus passive, and particularly the time continue in which Cameron,
Speaker 2: You've been wonderful one, not short term idiocy, getting out
Speaker 2: one year, getting up two year. Why should I be
Speaker 2: in an active fun if I've got a four toh
Speaker 2: one K and a three year five year perspective.
Speaker 1: I think that the active versus pass passive debate should
Speaker 1: be one that is on a spectrum instead of a
Speaker 1: black and white. And what I mean by that is
Speaker 1: that there are certain indices where passive makes a lot
Speaker 1: of sense because they are so concentrated. Look at the
Speaker 1: Russell one thousand growth, where fifty percent is in the
Speaker 1: top ten names. You look to the value index, though
Speaker 1: only twenty percent is in the top ten names, even
Speaker 1: smaller for small caps, even smaller for international. What that
Speaker 1: tells you is that you have a lot more shots
Speaker 1: on goal to add value through stock selection in less
Speaker 1: concentrated indices. And so I think that when we think
Speaker 1: about active versus passive, that's where you're saying, let's pick
Speaker 1: our spots carefully and use that fee budget carefully if
Speaker 1: we're going to be paying up for active management, all.
Speaker 5: Right, So for me paying up for active management, what's
Speaker 5: an active manager going to tell me about valuation?
Speaker 2: Here?
Speaker 5: It feels like the stocks really all those October loaves
Speaker 5: have moved so dramatically.
Speaker 4: Yet, so I think about the earnings over that period
Speaker 4: of time. I let's see a commenser increase in earnings.
Speaker 6: No, it has been all valuation expansion.
Speaker 1: I guess the good thing about earnings is that they're
Speaker 1: not being cut, so flat is the new up. But
Speaker 1: even if we look out over the two year forward,
Speaker 1: and this is important because when you look two year forwarde,
Speaker 1: you're effectively encapsulating all the hopes and dreams of earnings
Speaker 1: growth over the next two years.
Speaker 6: There we're trading at eighteen times.
Speaker 1: That's the highest level that we've been at since twenty
Speaker 1: twenty one, obviously a very different monetary policy environment. So
Speaker 1: valuations are stretched, which is why in our active funds
Speaker 1: we are looking for names.
Speaker 6: That traded a discount to the market.
Speaker 1: We're trading at about a twenty percent discount to our
Speaker 1: underlying indices, and we think the purpose that that serves
Speaker 1: is that when the market eventually turns, and we know
Speaker 1: at some point it will, there's simply as air to
Speaker 1: come out of those names because they haven't seen the
Speaker 1: kind of HEADI valuations.
Speaker 2: I'm fascinated by how quickly we've come. I'm looking at
Speaker 2: close SPX yesterday fifty one fifty seven. How do you
Speaker 2: frame out in your weekend note a reset to fifty
Speaker 2: two hundred and fifty three hundred a yard anny fifty
Speaker 2: four hundred and up, up and away to six thousand.
Speaker 2: How do you sit down with a quill in your
Speaker 2: hand and write the note?
Speaker 1: Yeah, Look, I think that when we all cast aside
Speaker 1: the expectation that you could see any downside and that
Speaker 1: there is no fear in the market, we always say
Speaker 1: that the only thing to fear is greed itself, which
Speaker 1: is this idea that eventually crowded positioning, eventually stretched valuations
Speaker 1: become a bigger issue for the market. The problem with
Speaker 1: the though, is that complacency needs some kind of catalyst,
Speaker 1: meaning that you can have a complacent market that persists
Speaker 1: like ninety eight through two thousand. You need a catalyst
Speaker 1: for that unwind to happen. So let's say growth estimates
Speaker 1: start to come in. That's where your crowded positioning, your
Speaker 1: stretch valuations, and you're chasing of all the strategies saying, oh,
Speaker 1: let's ratchet up the numbers in our targets.
Speaker 6: That's when that becomes an issue.
Speaker 5: And it's interring time. You probably saw this in your
Speaker 5: inbox as well. But Torstin Slock from Apollo is out
Speaker 5: with a note this morning saying the strong uptrend and
Speaker 5: inflation expectations is forcing the Fed to be more hawk
Speaker 5: more hawkish. That could be a headwind for a off
Speaker 5: job saying, yeah, we'll see that off the job side.
Speaker 2: I got them. I can't remember where you are and
Speaker 2: it's not your remit, but to me, there's a massive
Speaker 2: ambiguity about eight thirty this morning. Nobody basically, you know,
Speaker 2: as a sophisticate, i'd say.
Speaker 1: Nobody has a clue, right, Nobody has a clue, and
Speaker 1: then how do you interpret it right? And there's been
Speaker 1: a lot of reasons to say, hey, let's ignore some
Speaker 1: of these numbers.
Speaker 6: I think the one thing to watch is that economic.
Speaker 1: Surprises have rolled over over the last few weeks, which
Speaker 1: is the reason.
Speaker 6: Why yields have been moving a little bit lower.
Speaker 1: But if they've not rolled over enough to see GDP
Speaker 1: estimates get pat You've gone from one point two percent
Speaker 1: expectations to two point one percent for twenty twenty four
Speaker 1: this year already, and I think that's been another key
Speaker 1: reasons by behind the lift of.
Speaker 2: We I said, Okay, if we leave you without asking
Speaker 2: you about Duke and UNC, please don't. Okay, good Cavin Dawson,
Speaker 2: thank you so much for Duke and UNC Free with KEM.
Speaker 2: Dawson of New Edge Wealth Management. This is a Bloomberg
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