Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
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Speaker 1: bostick here alongside Tim Stanivik and Greedy Group Dick Year
Speaker 1: on this New Year's Eve. Happy New Year, guys. Hey,
Speaker 1: Happy New Year, do you too? Yeah, they're already celebrating
Speaker 1: somewhere right I think Pakistan right now, just hit midnight,
Speaker 1: So congratulations to all our friends out there in Karachi. Hey, um,
Speaker 1: if we were going to go back to January Roman, Yeah,
Speaker 1: SMP five hundred. Uh, the estimates from analysts. They're saying, okay,
Speaker 1: the most bullish case back in January about forty four
Speaker 1: hundred points. Yeah, look where we are now, just shy
Speaker 1: of forty eight hundred. Yeah, forty eight hundred here on
Speaker 1: the SMP five hundred. You talk about the gains that
Speaker 1: we booked this year, I mean, look, three straight years
Speaker 1: of gains on the SMP five hundred, double digit percentage
Speaker 1: gains the nastac keep in mind, I think we're something
Speaker 1: like six straight years now here too, So Crety, this
Speaker 1: has been a remarkable bull run, or a certain leg
Speaker 1: of whatever this bull run has been, despite some of
Speaker 1: the weekends that we're seeing, at least on this final
Speaker 1: day of the year. Yeah, remarkable is I think the
Speaker 1: really the key word there. And you just heard him
Speaker 1: talk about that forty price target for the SP one.
Speaker 1: Well what's interesting is that's also the low end of
Speaker 1: the forecast for two as well. Essentially, the message here
Speaker 1: is that the stock market can go anywhere. Just because
Speaker 1: we had those really monstrous games in the last three
Speaker 1: years does not mean that they'll sustain. But hey, if
Speaker 1: you have tech on your side, why not have that
Speaker 1: pretty bullish case as well. Yeah, and I'm big concerned now.
Speaker 1: Of course there's a lot of the catalyst sail get
Speaker 1: us this gain on SMB five this year, those some
Speaker 1: of those catalysts might not necessarily be around in Let's
Speaker 1: get some perspective from our first guest here helping us
Speaker 1: kick off the show, Jay Hatfield. He's Infrastructure Capital portfolio
Speaker 1: manager and chief investment officer. J Let's start off with
Speaker 1: and what potentially could actually be an impediment for this market.
Speaker 1: Thanks for very Happy New York to to everyone. Well,
Speaker 1: as usual, the really critical judgment to make is what
Speaker 1: is FED reserved policy going to be. We're quite bolish
Speaker 1: about FED policy. If you look the FED is caused.
Speaker 1: There's been um nineteen tightenings of policy since World War Two.
Speaker 1: Eleven of those resulted in a recession, eight of them
Speaker 1: in a soft landing. But we do think that the
Speaker 1: FED got religion over the last couple of years. They've
Speaker 1: abandoned their single target of two, which it is completely
Speaker 1: uns substantiated by the way they just made that up UM,
Speaker 1: and now they're more flexible. Plus they're gonna have more
Speaker 1: Biden appointees, So we think that they'll focus on their
Speaker 1: dual mandate. They'll stick to the dot plot, just raise
Speaker 1: rates three times and not start quantitative tightening, which is
Speaker 1: a disaster for the market. That's what happened in two
Speaker 1: thousand eighteen because the Fed was shrinking the balance sheet.
Speaker 1: Right now, they're not slated to shrink the balance she
Speaker 1: just stopped the excess liquidity j what is you know,
Speaker 1: We've been talking to a lot of analysts about the
Speaker 1: week about many of them agree the biggest risk risk
Speaker 1: is a misstep by the Fed. What do you think
Speaker 1: the biggest risk is, Well, I think that I mean,
Speaker 1: obviously that is the biggest risk, But what goes along
Speaker 1: with that is really just disinflation accelerate beyond everybody's expectations.
Speaker 1: So a couple of months ago, our calculations were the
Speaker 1: inflation with run rate was double digits because keep in
Speaker 1: mind the BLS does not properly mark rents to market
Speaker 1: and energy inflation was raging at the time. So if
Speaker 1: inflation prints hot, then I don't know if it's a
Speaker 1: policy mistake, but the Fed may have to prioritize inflation
Speaker 1: reduction over employment. So that's really the key risk, is
Speaker 1: accelerating inflation, because I do think that you can't increase
Speaker 1: the money supply by and have no inflation. That's really,
Speaker 1: in effect what the transitory theory of inflation was so
Speaker 1: key risk is is double digit inflation. I would say, so, ja,
Speaker 1: what happens when the opposite of what you just said
Speaker 1: takes play? Let's say inflation, which is really where the
Speaker 1: FED is throwing all their firepower at right now their focus.
Speaker 1: As you mentioned, well, what if inflation has already peaked?
Speaker 1: What if we're already dealing with the supply chain issues,
Speaker 1: We're dealing with the omicron variant, We're also dealing with
Speaker 1: commodity prices that have peaked and perhaps coming back down.
Speaker 1: What's the trade there if the labor market turns out
Speaker 1: to be a bigger problem than inflation, well, and that
Speaker 1: that that actually, I think that could be worked out
Speaker 1: fairly well because that would, you know, really imply a
Speaker 1: soft landing, so to extent that their economy is slower
Speaker 1: than we expect. That I wouldn't think that would be
Speaker 1: a disaster for stocks at all. And in fact, also
Speaker 1: interest rates would probably stay relatively stable, So um that
Speaker 1: scenario I think would be positive. We're projecting three to
Speaker 1: four percent growth for a number of reasons, one of
Speaker 1: the biggest being that the US has a ninety percent
Speaker 1: cost advantage over the rest of the world in electricity
Speaker 1: and natural gas, So we don't see that scenario. But
Speaker 1: I don't think that would be a disaster because it
Speaker 1: would give the FED more headroom to not raise rates
Speaker 1: and not do quantitative tightening. Yeah, I mean, so much
Speaker 1: focus on the FED this year, and it's a fact
Speaker 1: that it's going to have on equities and I guess
Speaker 1: to a certain extent, on the bond market here, But
Speaker 1: what about some of the other risk assets. I mean,
Speaker 1: we talk about all of the sort of push out
Speaker 1: onto the risk spectrum because of that implicit FED support here,
Speaker 1: whether it's cryptocurrencies, whether it's some of the real estate
Speaker 1: and private equity deals out there. How does that how
Speaker 1: does some of those trades are affected by potential tightening
Speaker 1: here by the FED. Well, I think there's there's a
Speaker 1: great implicit point there remain, which is that people talk
Speaker 1: about interest rates being the key dynamic that drives the market,
Speaker 1: but you know, interest rates are so low the key
Speaker 1: dynamic really is the equity risk premium. So that's the
Speaker 1: you know, the premium plus treasuries is what the required
Speaker 1: rate of return is. So when the Feds reducing liquidity,
Speaker 1: that rises, so that disadvantages riskier stocks um like a
Speaker 1: Tesla has a two beta, and it advantages more conservative
Speaker 1: stocks like utilities that have a beta or sensitivity the
Speaker 1: market about point five. So we think that the DAL
Speaker 1: is going to outperform next year the SMP significantly, so
Speaker 1: the reverse of this year, because those value stocks will
Speaker 1: outperform the high momentum stocks when the equity risk premium
Speaker 1: is rising sliding. Okay, hey, j we were talking about
Speaker 1: year to date what the major industries have done. The
Speaker 1: doubt up closer, the s and P five fundered handily
Speaker 1: out performing over what's your estimate for how the SMP
Speaker 1: five found it is going to end. Well, we're optimistic
Speaker 1: that Dow will be up ten percent. I would see
Speaker 1: the SMP could be closer to flattish your up five
Speaker 1: because I do think that will you know large percentage
Speaker 1: of the SMP I mean obviously the easiest one to see,
Speaker 1: of course, as tests that just two but are trading
Speaker 1: at huge multiples five times in their case, so those
Speaker 1: stocks are likely to continue to underperform. Or even go
Speaker 1: down as that equity risk premium rises and it hits
Speaker 1: those high high value stocks. And we're also barish about
Speaker 1: cryptocurrencies for the same reason. They're about twenty five starn
Speaker 1: correlated with inflation expectations, so to the extent that expectations
Speaker 1: drop than that could hurt cryptocurrencies as well. J Hatfield
Speaker 1: of Infrastructure Capital, thanks so much for joining us on
Speaker 1: the simulcast. We really appreciated. Hey bearish on crypto. You know,
Speaker 1: we were speaking earlier to some folks on on Quick
Speaker 1: take Stock today, UM one from US Bank and one
Speaker 1: from City as well. Uh asked the same question about crypto.
Speaker 1: No place for crypto and their portfolio is at least
Speaker 1: two Yeah. I mean, look, I mean we've heard from
Speaker 1: a lot of folks who say that kind of the
Speaker 1: correlations that we've seen between the crypto sphere and I
Speaker 1: guess the real world here, that that's starting to catch
Speaker 1: up with a lot of those crypto investors. I'm not
Speaker 1: sure I really buy that, because, I mean, when you
Speaker 1: start to look at some of why people are sort
Speaker 1: of invested in this and the thesis behind it, it
Speaker 1: seems like at least there's some sort of degree of
Speaker 1: support at least on the downside here for thousand right now, right,
Speaker 1: you know, Imaan, what was the other thing he said?
Speaker 1: He said that value is the trade that he really
Speaker 1: bets on going into two. That's interest saying it's a
Speaker 1: contrarian take because that's a traditional post recessionary play. That
Speaker 1: was one trade, not necessarily the Wall Street CONCESSUSO. Yeah,
Speaker 1: I mean, I think we talked about this earlier this week,
Speaker 1: the divergence that we've actually seen between some of those
Speaker 1: value and growth stocks in the second half of the year. Remember,
Speaker 1: the Russell two thousand was a massive out performer in
Speaker 1: the first what two and a half three months of
Speaker 1: the year. It was something like a fifteen percentage point
Speaker 1: difference between the Russell and the SMP. There's still a
Speaker 1: fifteen percentage point difference between the Brussel and SMP, but
Speaker 1: it's flipped on its head. Right now. Welcome back to
Speaker 1: our simulcast of the close on Bloomberg Television, Bloomberg Radio
Speaker 1: and on YouTube. I'm Tim Stanivk, joined by Creedy Gupta
Speaker 1: and Romaine boss Stick. We are just over an hour
Speaker 1: away from the equity markets closed on this final trading
Speaker 1: day of the year. Let's bring in a Bloomberg markets
Speaker 1: Abigail Doolittle with an update. Hey have a go hate him. Well,
Speaker 1: you know, on this day, we're looking at stocks fluctuating
Speaker 1: between small gains and losses. The SMP five hundred the
Speaker 1: last moment that I looked slight, slight gain. So perhaps
Speaker 1: we'll see in the seventy one record close of the year.
Speaker 1: But again small moves on the day. On the year, though,
Speaker 1: it's a different story of massive games for the SMP
Speaker 1: five hundred the NAZAC one both up more than twenty
Speaker 1: seven percent, the daw up about eighteen percent, the Russell
Speaker 1: two thousand underperforming a little bit, up just fourteen percent,
Speaker 1: if you can say up just because, of course, is
Speaker 1: a double digit game, confirming the risk on tone bonds
Speaker 1: down in a huge way with that ten year yield
Speaker 1: backing up nearly sixty basis points. Yeah, Abigail, a quite
Speaker 1: day in stock market, at quite day in the bond market.
Speaker 1: But it seems like there's some action in the commodities market.
Speaker 1: I'm looking at oil down two percent, uh at the
Speaker 1: commodity's close. Why see such a divergence? There probably the
Speaker 1: fact that oil into today creaty had been up. I
Speaker 1: believe seven days in a row, a big winning streak,
Speaker 1: the best longest winning streaks since February, so just cooling
Speaker 1: off a little bit. Plus oil on the year a
Speaker 1: huge rally up. I believe nearly six w T I
Speaker 1: crewed on the years best year since two thousand nine,
Speaker 1: so locking in some profits. Also it could reflect to
Speaker 1: some concerns around the omicron. Will it dent the global
Speaker 1: growth picture? In two? One of many questions for us
Speaker 1: to answer in the new year. All right, Abigail Doolittle
Speaker 1: given us a quick update here on where we stand
Speaker 1: as we count down, of course to the close of
Speaker 1: trading on this day, and of course, of one a
Speaker 1: big story in of course, we're all the cyber attacks
Speaker 1: that we talked about, ransomware attacks and other types of
Speaker 1: cybersecurity threats out there. A lot of companies really trying
Speaker 1: to beef up their I T systems and governments for
Speaker 1: that matter too, to protect themselves. Our next guest knows
Speaker 1: a lot about this, don't he answer him? He's e
Speaker 1: set chief cyber threat officer joining us right now, Tony. Uh,
Speaker 1: you know, I guess the big question everyone wants to
Speaker 1: know is how if it all, can you stop this?
Speaker 1: This seems like it's just become its own animal, whether
Speaker 1: it's organized gangs, whether it's governments, or whether it's just
Speaker 1: sort of lone wolf types who just want to you know,
Speaker 1: mess around. Uh and you know, basically just screw something up.
Speaker 1: How do you stop this? How do you guard against it? Well, unfortunately,
Speaker 1: this is a business and as you just said, it
Speaker 1: comes from a series of different places. But cyber criminals
Speaker 1: are making huge amounts of money unfortunately from holding companies
Speaker 1: to ransom, and companies are handing over that cash. Realistically,
Speaker 1: I mean you're now seeing legislation come through of responsibility
Speaker 1: to disclose. I expect that in two maybe to become
Speaker 1: not just disclosed after the incident, but disclosed during the incident.
Speaker 1: But to me, you have to start regulating in some
Speaker 1: way or locking down cryptocurrency in some manner and actually
Speaker 1: cut the money off. How would you do that? I
Speaker 1: mean the idea behind that, of of course, and we look,
Speaker 1: we know that you can actually track cryptocurrency. We saw
Speaker 1: the government do that in the case of the Colonial
Speaker 1: pipeline ransom that was paid. Um, how do how do
Speaker 1: you do that? Though? How? What? What what do authorities
Speaker 1: have the power to actually do to help prevent this. Well,
Speaker 1: isn't this an investment just like anything else, It's an
Speaker 1: investment tool. So therefore, if I walk into any bank
Speaker 1: in the US and try and open account, I have
Speaker 1: to identify and be my identify. Identification has to be verified.
Speaker 1: If we were verifying globally, I mean this is a
Speaker 1: global issue, not a specific country issue. If globally, to
Speaker 1: hold cryptocurrency you have to validate identity, then you cut
Speaker 1: the money supply off. Tony, how much of this latest
Speaker 1: push to really kind of ramp up some of that
Speaker 1: cyber security comes from geopolitical tensions with say China, would
Speaker 1: say Russia or even Ran to that matter. Well, certainly
Speaker 1: the push to have better cybersecurity, I think it's become
Speaker 1: political because when you mentioned colonial pipeline earlier on, I
Speaker 1: mean that any any cyber crime that creates a line
Speaker 1: outside of a gas station is going to have political
Speaker 1: effect because no politician can have their citizens affected by
Speaker 1: this type of issue. But we're seeing you know, Interpol
Speaker 1: for example, back in I think there was November made
Speaker 1: a series of arrest but that covered seventeen countries. There
Speaker 1: was seven arrests for people that responsible for two hundred
Speaker 1: million in ransomware payments. So you can see this is
Speaker 1: not a particular country. This is a globalish and I
Speaker 1: think until the world comes together and actually has a
Speaker 1: summit on stopping cybercrime and puts all the right people
Speaker 1: in the room, then we're unlikely to see a lot
Speaker 1: of movement or a lot a lot of decrease. As
Speaker 1: you talk about us coming together to a certain extent,
Speaker 1: it feels like we're all sort of fracturing a part here.
Speaker 1: Seems like certain countries don't trust other countries. You know,
Speaker 1: we've obviously had a lot of concerns in the United
Speaker 1: States about are buying certain types of equipment and software
Speaker 1: from China and other countries as well. Here. I mean,
Speaker 1: where do we sort of find that middle ground. Well,
Speaker 1: that's a tough one. And just before the holiday period,
Speaker 1: I mean we saw an additional issue with a log
Speaker 1: for j so, which is a small piece of code
Speaker 1: that had a vulnerability in it that's used as it's
Speaker 1: open source, it's free code. A lot of vendors used
Speaker 1: that in hardware and so fear and services and companies
Speaker 1: you use it. So we see issues in supply of
Speaker 1: that time hitting and unfortunately they're huge. When they do hit,
Speaker 1: companies have to scan and find out where they use
Speaker 1: this code and then try and mitigate against issues. So
Speaker 1: it's a glocal it's a global issue that requires a
Speaker 1: global response, and countries coming together in groups is great.
Speaker 1: But until you bring every country that has a significant
Speaker 1: part of this into one room, I think you're you're
Speaker 1: not grasping the whole issue, hey, Tony. Oftentimes when we
Speaker 1: read about these saber attacks, we read that sabercriminals were
Speaker 1: able to penetrate a system based on an employee maybe
Speaker 1: clicking a malicious link or downloading a malicious file. So
Speaker 1: I always ask to like to ask people in your
Speaker 1: position about what individuals should do, how we should protect ourselves.
Speaker 1: Give us some best practices. Well, firstly, don't trust anything
Speaker 1: that lands in your inbox if it has a link,
Speaker 1: if it's to an external site for example a retailer
Speaker 1: or or something else, or it's asking for creditor verification
Speaker 1: of credentials is likely not to be real. So just
Speaker 1: don't trust links that land in your inbox, Go to
Speaker 1: the website, log on manually. And the problem is is
Speaker 1: people trust those things. They go in, they give away
Speaker 1: their credentials, and hey, the cyber criminal has access. But
Speaker 1: we've also seen other issues throughout twenty one where vulnerabilities
Speaker 1: in software have allowed cyber criminals to get access in
Speaker 1: other ways. But it's you are right, employees, and unfortunately
Speaker 1: human behavior. We like to click on things and we
Speaker 1: need to be the first line of defense, all right,
Speaker 1: so be careful when you click. Tony n Scum, the
Speaker 1: set chief cyber threat Officer, Tony, Happy New Year. Thanks
Speaker 1: so much for joining us on Bloomberg. Appreciate it. Well
Speaker 1: to him, we do have some breaking news here. I'm
Speaker 1: really sorry to report that Betty White, one of the
Speaker 1: most endearing and enduring based on televisence, she has passed
Speaker 1: away at the age of ninety nine at her home
Speaker 1: in Los Angeles. She was one of the just key
Speaker 1: faces when it comes to Golden Girls when it comes
Speaker 1: to television. We are very sorry to lose her. Uh
Speaker 1: and I mean, I'm I'm still in shock, and I
Speaker 1: imagine you all are all are as well. Just shy. Ever,
Speaker 1: one birthday, which would have been on January seen a
Speaker 1: pioneer too, I mean not everyone of course knows her
Speaker 1: from Golden Girls, but what she did back in the
Speaker 1: sixties with their talk show and with their sitcom here
Speaker 1: being one of the first women I believe to even
Speaker 1: have full production control, full creative control over her own
Speaker 1: show at a time where that was just unheard of. Yeah,
Speaker 1: And I think what's also particularly remarkable about her career
Speaker 1: is just how long it went, and well into her
Speaker 1: nineties she was doing commercials and you know, she was
Speaker 1: on Twitter too. Yeah, and like one of the few
Speaker 1: people out there that I think is beloved by everyone. Right,
Speaker 1: we live in such a divisive world. At least there's
Speaker 1: somebody I think we can all agree that we certainly love.
Speaker 1: We say goodbye to miss Betty Way. This is Bloomberg
Speaker 1: Market's a special edition here simulcast across Bloomberg TV and
Speaker 1: radio and YouTube as well. Two pm here in New York,
Speaker 1: eight pm in London, midnight out there in Dubui. Happy
Speaker 1: New Year to everyone out there. If you celebrate, are
Speaker 1: you gonna do? You know, Tim, you're kind of a grinch, right, Yeah,
Speaker 1: well actually so my sister actually is flying in so
Speaker 1: we're doing something. But yeah, I've been a real COVID
Speaker 1: grinch to be honest. Yeah, I think a lot of
Speaker 1: people are guys trying to hunker down today. A few people,
Speaker 1: I guess are gonna brave uh the outside and go
Speaker 1: out to their bars or out the time square. We'll see.
Speaker 1: As far as the markets here, I don't think anyone's
Speaker 1: really training right now. The bond markets already closed down here.
Speaker 1: The equity markets they're still open for reasons that I
Speaker 1: still haven't had explained to me. I'm told, Uh, Tim
Speaker 1: tells me that there's a whole story about why we're
Speaker 1: here today. But nevertheless, there are is an hour a
Speaker 1: left and training here. Apple Uh not gonna hit that
Speaker 1: three trillion dollars here in unless there's some major turnaround
Speaker 1: here in the final hour of training a Carnival corporate.
Speaker 1: Most of the cruise lines lower here as well on
Speaker 1: a daily basis, Ford one of the few bright spots
Speaker 1: out there, up about two percent. Right now, Let's jump
Speaker 1: over to Abigail Doolittle, who's taken a closer look at
Speaker 1: what's going on around the Market's Abigail Well Romaine with
Speaker 1: those small moves on the day, with the major indexes
Speaker 1: fluctuating between small games of law, sayes, Let's go right
Speaker 1: to where the real bright spot is, and that of
Speaker 1: course is the whole year of one a real risk
Speaker 1: asset rally, with the SMP five hundred of NAZAC one
Speaker 1: both up more than twenty seven percent, the socks with
Speaker 1: that chip index up more than Tech up about thirty three.
Speaker 1: Small cap a laggered but still up about fourteen percent.
Speaker 1: All of this, of course confirmed by the fact that
Speaker 1: haven bonds are down on the year, the ten year
Speaker 1: yield backing up about sixty basis points. Interestingly, though the
Speaker 1: two year yield backed up just a little bit more so,
Speaker 1: the yield curve has actually flattened a little bit uh
Speaker 1: and in the case of the five thirties even more so.
Speaker 1: But as for the risk rally, oil up fifties this year,
Speaker 1: the Besson's two thousand nine is really pretty incredible. The
Speaker 1: risk picture for this year. Yeah, Abigail, let's just talk
Speaker 1: about that. The recovery trade in was supposed to be
Speaker 1: the trade that really took off. You're supposed to see
Speaker 1: the small caps in in travel stocks and commodities. To
Speaker 1: your point, can we actually expect to see that in
Speaker 1: two or is that officially in the rare view mirror.
Speaker 1: I think we're gonna have to see what happens with this,
Speaker 1: oh Macron, and also with the economy, the influence on
Speaker 1: the economy. It seems that most I just believe it
Speaker 1: won't be the biggest deal. Relative to this year. Sector wise,
Speaker 1: it was really a nice blend. You know, you have energy,
Speaker 1: which of course is an icyclical and growth area up
Speaker 1: the most of Interestingly, another official growth sector, real estate
Speaker 1: ups strongly. Tech financials on bottom very interesting this year.
Speaker 1: The defensive sector such as utilities and staples. Often when
Speaker 1: that happens, you can see those reverse into next year.
Speaker 1: We don't know if that's the case, but I believe
Speaker 1: in energy was the worst sector this year the best,
Speaker 1: So if utilities and staples end up being on top
Speaker 1: next year, it could turn out to be a defensive year.
Speaker 1: Way too early to say that for sure, though. All Right,
Speaker 1: Abigail Doolittle giving us at up to date three pm
Speaker 1: in New York. He here ed Francesco CEO of International
Speaker 1: Assets Advisory, joining us right now to talk a little
Speaker 1: bit more about what's going on in the market today
Speaker 1: and more importantly, where he sees the market going in
Speaker 1: two ed, Abigail was just showing us, uh, some data
Speaker 1: showing that basically every sector in the SMP five hundred
Speaker 1: up ten percent on the year or more. Do you
Speaker 1: see those types of games replicating themselves in two or
Speaker 1: roming first, good afternoon and happy new year to year
Speaker 1: in your colleagues, thank you? Uh, I really wish we
Speaker 1: could say that, but we have international assets. Believe that
Speaker 1: one is now in our rear view mirror A year,
Speaker 1: a year and a half ago, at I A A,
Speaker 1: we were looking for markets to respond just like they have.
Speaker 1: I remember talking to people a year, year and a
Speaker 1: half ago and predicting thet five thousand and fifteen thousand
Speaker 1: days that from five thousand SMP, and they all thought
Speaker 1: I was speaking crack um. It turns out we were right.
Speaker 1: But we also anticipated inflation. We started calling information in
Speaker 1: tributary and now we get so many mixed segments from
Speaker 1: the market. We believe that when you look at the
Speaker 1: job recovery, you know, I have much job creation we
Speaker 1: have in the United States. The best way to describe
Speaker 1: its feeble, but at the same time it was feeble.
Speaker 1: We're having a record loads an unemployment. We still have
Speaker 1: a huge supply chain problem. We don't see that being
Speaker 1: solved anytime in the near future. And yet we have
Speaker 1: all time highs and ear time all time highs and
Speaker 1: all the markets. So what we see for two is
Speaker 1: that in the short term, they're very short term. We
Speaker 1: continue to see the markets still being strong, but we
Speaker 1: expect that ultimately the negatives are going to outweigh the positives,
Speaker 1: and that this is going to have to be coming year,
Speaker 1: a very defensive year, a defensive year, risk off year.
Speaker 1: Would you say, I think there's a real potential temp
Speaker 1: that six months from now on nine months or now,
Speaker 1: we're looking at a major correction, and we don't view
Speaker 1: corrections of you know, five or ten percent, fifteen percent
Speaker 1: year and I A we're talking that we can see
Speaker 1: a twenty thcent correction. We're really expecting it's a possibility.
Speaker 1: That's a very contrarian call for a very bullish Wall
Speaker 1: Street I should say, probably about the retail crowd as well.
Speaker 1: I'm curious, though, how you play tech into all of this,
Speaker 1: because at the end of the tech lazy s and
Speaker 1: P five hundred two record highs, but it also leads
Speaker 1: those corrections. Is that essentially a call on tech? So
Speaker 1: that's a very good question. We think techt is gonna
Speaker 1: continue to be strong for a couple or more months,
Speaker 1: a few more months, but that the chickens are gonna
Speaker 1: come home to roost. And when that happens, you know,
Speaker 1: go back to the chart that we just had up
Speaker 1: there a little while ago where you showed tag your
Speaker 1: realty and so forth, and you guys talked about it
Speaker 1: converting next year. That's exactly what we think we're gonna say.
Speaker 1: We I mean, the last few guests that you've had
Speaker 1: been talking about all the things we're concerned about, talked
Speaker 1: about that we talked about. I've heard conversation about cybersecurity.
Speaker 1: That's something we're extremely concerned about here at i AI.
Speaker 1: So all these conversations that's right there. I think we're
Speaker 1: going to see a real and version of that chart
Speaker 1: by the end of next year. Well a part of that,
Speaker 1: I guess what's going to determine that, of course, obviously
Speaker 1: over all the pace of the economy, not only here
Speaker 1: in the US and abroad, but more importantly, the policy
Speaker 1: of response that we get, whether it's monetary policy with
Speaker 1: the FED or physical policy, whatever levers could be pulled
Speaker 1: in Congress or in the Y House. Here, do you
Speaker 1: see any sort of potential for policy makers too, maybe
Speaker 1: I guess guide us to that proverbial soft landing. I mean,
Speaker 1: there's always that potential. But quite honestly, whether they're Democrats Republicans,
Speaker 1: I as well put a lot of faith in stock
Speaker 1: in politicians. We think that the least they do, the
Speaker 1: better off we all are. And we always used to
Speaker 1: subscribe that at old congressional effect theory. Those of you
Speaker 1: who are not familiar about it, you should go read
Speaker 1: about it. There's now upon it. So while we'd like
Speaker 1: to be hopeful that they could, we're not anticipating that
Speaker 1: they will. And one of the things that we're really
Speaker 1: interested in is, you know, I've been in this industring
Speaker 1: now for forty plus years, and there was always this
Speaker 1: old average about how the market is really just a
Speaker 1: reflection on the emotional attitude of investors and the people
Speaker 1: on the street. Well, I think there's been a real
Speaker 1: decoupling of that in the last year. I've never seen
Speaker 1: so much pessimism amongst the average people. I'm with them,
Speaker 1: the average citizen in this country and around the world.
Speaker 1: We're scared we're right in the future, or we're gonna
Speaker 1: have a worse version of COVID, what's gonna happen to
Speaker 1: the economy, what's happening with the inflation? With all these
Speaker 1: questions and just sort of pole just about an hour
Speaker 1: ago the latest poll showing that you know, well over
Speaker 1: fifty of the country is pessimistic about what's going on
Speaker 1: with the economy and health and so forth, and get
Speaker 1: the markets keep going to new eyes. I don't think this,
Speaker 1: this decompany can continue. Okay, So yeah, I want to
Speaker 1: go back to that what you said about a twenty
Speaker 1: to thirty five percent correction. I think because creates spot
Speaker 1: on by pointing out that that's a really contrarian view,
Speaker 1: especially with people we've talked to you this week. As
Speaker 1: we look ahead too, well, what is that single event
Speaker 1: perhaps that that brings on that correction, because there there
Speaker 1: is something always that that does bring on a correction.
Speaker 1: Right then, there's so many events that could happen. I
Speaker 1: can't even begin to tell you. You know, inflation can
Speaker 1: continue to be much worse than anybody anticipated. We can
Speaker 1: have a geopolitical event. We could have a fourth wave
Speaker 1: I'm gonna call im acron the third wave of COVID.
Speaker 1: We could have a fourth wave of COVID people are.
Speaker 1: You know, we talked about whether there's people looking at
Speaker 1: a transaction where people following something something continues to go on,
Speaker 1: we start to get fatigued. People are really really fatigued
Speaker 1: on COVID. Now people just want to get back to
Speaker 1: a normal way of life. But if you know, in
Speaker 1: three months or six months, as we're going through this
Speaker 1: third way, we have a fourth wave of COVID, I
Speaker 1: don't know what that event is going to be. I
Speaker 1: just see so many potentials, and we here doing our
Speaker 1: analysis and internationalist and see so many potentials in the
Speaker 1: general sentiment of the investing public being so negative that
Speaker 1: we think something's gotta given. I can't tell you exactly
Speaker 1: what that's going to be. Alright, A big thank you
Speaker 1: to at CO Francesco CEO of International Assets Advisories joining
Speaker 1: us at happy New Year correction. I still can't get
Speaker 1: beyond that creedy and uh and romain, considering it's so
Speaker 1: different than what we've heard from everyone else this week,
Speaker 1: but not that uncommon, considering that we've had a really
Speaker 1: banner year with no correction. It's not even a technical
Speaker 1: correction of ten percent, so it may not be that
Speaker 1: wild of a call, and there's a lot of concern too.
Speaker 1: I mean, when you talk about monetary policy, how do
Speaker 1: you reign and inflation without tamping down economic growth. There
Speaker 1: are some people that said that effectively you have to
Speaker 1: almost create a recession. So if people do believe in that,
Speaker 1: I can certainly see why a draw down could be
Speaker 1: a little bit more realistic. This is Bloomberg Market's a
Speaker 1: special edition here simulcast on Bloomberg Radio and TV as
Speaker 1: well as YouTube. Romaine Bostick here, Tim stunofic Crety Group
Speaker 1: to counting you down to the closing bells on this
Speaker 1: Friday afternoon, final trading day of the year, with just
Speaker 1: about eleven minutes or so away from the end of
Speaker 1: the trading day, and you talk about the performance that
Speaker 1: we've seen here going back all the way from the
Speaker 1: start of the year to the end. The Philadelphia Semiconductor
Speaker 1: Inducts having a wonderful year up about here on a
Speaker 1: year to date basis, energy though that's your out performer
Speaker 1: among the eleven SMP sectors. Is actually the energy sector
Speaker 1: that's actually outperformed here up about forty eight percent year
Speaker 1: to date. And when you look at the SMP subsectors
Speaker 1: SMP groups here the worst performer. You're gonna find that
Speaker 1: among the telecom companies A, T and T for rising
Speaker 1: and the like, all lower here on a year to
Speaker 1: date basis at index down twelve percent. And guys, I
Speaker 1: want to highlight the bank stocks here, because everyone keeps
Speaker 1: talking about the underperformance of bank stocks. The KBW Bank
Speaker 1: Index is up about thirty five on the year, the
Speaker 1: best year that that index is seen going back to seven.
Speaker 1: Even the k r X, which is a regional bank index,
Speaker 1: having its best year since seen. So for all the
Speaker 1: handwringing about how some of the bank stocks haven't really
Speaker 1: kept up, you're sitting on some pretty healthy games JP
Speaker 1: working up on a year to date basis, Bank of
Speaker 1: America returning forty seven percent. If you can believe that. Guys. Yeah,
Speaker 1: it's really crucial when you're talking about the banks in
Speaker 1: particular because the the relationships he yields is what's been
Speaker 1: so crucial. If you start to see yields continue to
Speaker 1: drop in two continue see those treasury yields really suppressed,
Speaker 1: does that show up in those bank stocks. But let's
Speaker 1: not forget what a banner year it was for M
Speaker 1: and A and just the huge games that the banks
Speaker 1: were able to get just in terms of fees from spacks,
Speaker 1: from p o s and the M and A that
Speaker 1: we talked about yesterday. So the question is does it
Speaker 1: continue into That's the big question here. And let's about
Speaker 1: bring in our next guest here, uh Matt Maylie. He
Speaker 1: is the chief market strategies for Millerity back joining us
Speaker 1: right now. And Matt, you know, let's talk about kind
Speaker 1: of some of the catalyst for the market. I mean,
Speaker 1: we came out of twenty and that was basically all
Speaker 1: about fiscal policy that kind of fed into the least
Speaker 1: the first portion of one. But now as we get
Speaker 1: towards the end of the year here and into two,
Speaker 1: the focus seems to be squarely on monetary policy and
Speaker 1: whether that's going to be a tail win or a
Speaker 1: head win to further gains in this market. Yeah, there's
Speaker 1: no question. I mean one of the things we have
Speaker 1: to where we have to realize is that this you know,
Speaker 1: this head win I think it's going to be. Uh
Speaker 1: is you know, we're going from a situation with a
Speaker 1: FED in the past whenever they've gone or not whatever,
Speaker 1: but usually when they go from to a tightening policy.
Speaker 1: It's usually from a neutral policy in this situation we
Speaker 1: have when they're going from an ultra accommodative policy uh
Speaker 1: to a tightening policy. And again it's not it's not
Speaker 1: like they're slamming the brakes in a wait in a
Speaker 1: major way. But I think we'd all agree. But I mean,
Speaker 1: you can just see by the level of the stock mark.
Speaker 1: I'm sorry, the level of valuations in the stock market.
Speaker 1: It is expensive. I mean, we all know that in
Speaker 1: the summer of two thousand twenty that this all the
Speaker 1: stimulus push the stock market well ahead of the of
Speaker 1: the fundamentals. But we felt the fundamentals would play catch
Speaker 1: up as the COVID problem eased off. We did get
Speaker 1: past the emergency. The problem is we kept the emergency
Speaker 1: stimless on and so we were never able to fully
Speaker 1: catch up. So now the stimulus is gonna have uh
Speaker 1: a pull back a little bit. I think it does
Speaker 1: have to be the best case scenaris we meet somewhere
Speaker 1: in the middle, but usually it's it's at the lower
Speaker 1: half of that middle. I'm afraid history is any good.
Speaker 1: But what other option does the FED have going into
Speaker 1: two as inflation hits forty year highs and we continue
Speaker 1: to see prices rise higher. Yeah, I agree. One of
Speaker 1: the biggest fallacies I think out there is that people saying,
Speaker 1: you know, well, the FIT might make a policy mistake.
Speaker 1: And when they say that, what they're saying is that
Speaker 1: they call a mistake a policy mistake is being causing
Speaker 1: the markets to go down. Well, that's not about the
Speaker 1: FEDS that I mean, we've kind of gotten used to them,
Speaker 1: you know, having the FED put the power pot that
Speaker 1: bernet used to be, the Bernanke put etcetera. Uh, but
Speaker 1: you know they've I think they've lowered that safety net
Speaker 1: and and they're doing the right thing. You're you're absolutely
Speaker 1: right there doing the right thing. Uh. The problem is
Speaker 1: sometimes the FED out being bulker. Certainly did it. Uh.
Speaker 1: Sometimes the FED has to do some things that are
Speaker 1: a little bit painful over the near term so that
Speaker 1: things will work out over the long term. I mean,
Speaker 1: our parents did that when we were kids until all
Speaker 1: the time, and this is something we have to do
Speaker 1: now and and again, you know, corrections, even deep ones
Speaker 1: are are are painful, but they're also normal, they're healthy,
Speaker 1: they're part of capitalism, so people should embrace them, not
Speaker 1: fear them. Matt, you said the C word correction, and
Speaker 1: my ears perked up immediately. I really want to ask
Speaker 1: you about that, perhaps a correction in two We just
Speaker 1: had a guest who was calling for a twenty to
Speaker 1: thirty five correction in the SMP five next year. My
Speaker 1: question to you is, if we do see a correction
Speaker 1: ten percent, however much, do you start to see dip
Speaker 1: buyers immediately hop in and recover those gains within days.
Speaker 1: That has at least been the pattern that you've seen
Speaker 1: in at least the shallow pullbacks that we've had in
Speaker 1: the SMP five hundred. Yeah, and but I think it
Speaker 1: goes back to what we're just talking about with the FAN.
Speaker 1: I mean, one of the reasons they were successful in
Speaker 1: doing that is there was so much liquidity slashing around
Speaker 1: in the system. Well that's going to go from a
Speaker 1: hundred and twenty billion dollars a month from the federal
Speaker 1: Reserve to zero in just a couple of months. So
Speaker 1: I think those buy on the dips are going to
Speaker 1: continue to try it, and this time they're gonna get burned.
Speaker 1: I mean, the history is shown by the dip isn't
Speaker 1: a brand new thing that has worked, you know this year,
Speaker 1: it worked very well in many other years. And then
Speaker 1: finally when that we do see the correction, those guys
Speaker 1: get burned. And that's what happens is that is that
Speaker 1: you know the situation, really they buy and by by
Speaker 1: and then finally said well this isn't working and they
Speaker 1: dump and you get a big washout move so and
Speaker 1: and then the thing you're asking about, a deep correction
Speaker 1: like that or a bear market where you want to
Speaker 1: call it, uh, it is possible because you know, one
Speaker 1: of the things that all this steamus has done is
Speaker 1: helped investors at risk and especially at leverage. With you know,
Speaker 1: margindet all time high. It's starting to roll over as
Speaker 1: people d risk and especially as the d leverage, and
Speaker 1: we could see it an outsized decline. But again, if
Speaker 1: you have a little cash on the sidelines, you'll keep
Speaker 1: your head. When the market is getting clovered, you'll be
Speaker 1: able to buy on the dip instead of being forced
Speaker 1: to sell. But when everybody else's the leverage players are
Speaker 1: selling at the actually wrong time, you know, down near
Speaker 1: the loads. Matt Maylie, Chief Market Strategies over at Miller
Speaker 1: tay Back, Thanks for listening to Bloomberg Business Week. Download
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