WEBVTT - Kudla on the Fed and BOJ (Audio)

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<v Speaker 1>You're listening to Taking Stock with Pim Box and Kathleen

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<v Speaker 1>Hayes on Blueberg Radio. We are broadcasting live from e

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<v Speaker 1>t F Exchange b n Y Melon's et F Symposium

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<v Speaker 1>in Dana Point, California. I'm Pim Fox, my co host

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<v Speaker 1>Kathleen Hayes, and our next guest, well David Cudler. He

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<v Speaker 1>is chief executive and the chief investment strategist for Mainstay

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<v Speaker 1>Capital Management. He can be followed on Twitter at David

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<v Speaker 1>Underscore Cudla KU d l A. David, Thanks very much

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<v Speaker 1>for being with us. All right now, I've been trying

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<v Speaker 1>to figure I've been trying to think of an analogy

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<v Speaker 1>that you know that that would work here having to

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<v Speaker 1>do with with stocks. And I was a kid. He

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<v Speaker 1>used to fill a balloon with air. Right, you blow

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<v Speaker 1>it up and you rub it on your head and

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<v Speaker 1>you stick it on the wall and it stays. But

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<v Speaker 1>for a while you have to keep doing that, or

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<v Speaker 1>if you pump air into a balloon, eventually leaks out.

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<v Speaker 1>Is that's what's happened with Central Bank, Paula See and

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<v Speaker 1>equity prices, that all that money it's really just flashed

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<v Speaker 1>into stocks. Yeah, we think that's largely what has happened.

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<v Speaker 1>And you know, not just our Federal Reserve, but central

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<v Speaker 1>banks around the world, maybe even more so other central

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<v Speaker 1>banks around the world, the E, t V and B

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<v Speaker 1>O J. We've had UH. Stimulus measure after stimulus measure.

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<v Speaker 1>We've had UH since the Great Recession. There have been

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<v Speaker 1>six fifty rate cuts by central banks around the world,

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<v Speaker 1>more than six fifty rate cuts UH. And now we

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<v Speaker 1>have negative rates in places. We have asset purchase programs

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<v Speaker 1>the highest in history. And you know, we look at

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<v Speaker 1>what are many people consider some weakening fundamentals for let's

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<v Speaker 1>say the U S stock market, other markets, but the

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<v Speaker 1>markets continue to do well because of Tina. There is

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<v Speaker 1>no alternative. H. We have cash as dead money, bonds

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<v Speaker 1>have zero to negative yields and are very low yields,

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<v Speaker 1>and so stocks. The money continues to flow into stocks,

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<v Speaker 1>and we believe, for instance, a bull market here continues

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<v Speaker 1>to be fueled by central bank stimulus. Well, UH, I

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<v Speaker 1>guest on the show at the top of the show,

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<v Speaker 1>actually Frank Losala, who's with B and Y Melanin here

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<v Speaker 1>at the et F conference in Dana Point UH said

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<v Speaker 1>that in his view, even if the FED raisers rates

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<v Speaker 1>once this year, you're still going to have so much accommodation.

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<v Speaker 1>And we're really talking more about bonds and why he

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<v Speaker 1>doesn't see bond yields rising much. If anything, maybe they

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<v Speaker 1>could go a little bit lower and stay in this

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<v Speaker 1>this low tight range is the same true for stocks.

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<v Speaker 1>I think it may be true for stocks, But let's

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<v Speaker 1>let's look at bonds first. And I might disagree with

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<v Speaker 1>the earlier guest about bond yields. You know, we think

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<v Speaker 1>they're Our bond yields on the intermediate, longer term into

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<v Speaker 1>the curve are more a function of what's happening around

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<v Speaker 1>the world than they are here. You know, our Federal

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<v Speaker 1>Reserve of controls they pen the short end, they control

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<v Speaker 1>the Fed funds rate. But when we look at tenure

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<v Speaker 1>and thirty year bonds, we saw yields rise recently because

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<v Speaker 1>of um, you know what was happening with the ECB.

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<v Speaker 1>The now rumors about the operation reverse twist potentially from

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<v Speaker 1>the BOG where they let the long end come up

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<v Speaker 1>a little bit to step in the yield curve. You know, David,

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<v Speaker 1>how does a chief investment strategists navigate this this current landscape?

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<v Speaker 1>What do the fundamentals tell you, and is there a

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<v Speaker 1>divergence between what the fundamentals are saying and what policymakers

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<v Speaker 1>are actually doing. Yeah, PIM, that's a great question, and

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<v Speaker 1>I think that's what individual investors and professional money managers

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<v Speaker 1>alike are frustrated with because we live in this environment where,

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<v Speaker 1>you know, if we look at fundamentals, we have a

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<v Speaker 1>PEO multiple that is expanded by thirty over the past

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<v Speaker 1>year and a half, while the S and P five

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<v Speaker 1>is essentially where it was a year and a half ago,

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<v Speaker 1>with altility along the way. Um, you know, we look

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<v Speaker 1>at other measures like price to IBATA, which is earnings

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<v Speaker 1>before interest, taxes, depreciation, amortization before the accountants get ahold

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<v Speaker 1>of it and start to manipulate earnings, which really is

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<v Speaker 1>looking at raw earnings or free cash flow that's at

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<v Speaker 1>the highest ever. But there's a lot of measures we

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<v Speaker 1>can look at in an economy that is growing at

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<v Speaker 1>one that we've seen the I s M I s

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<v Speaker 1>M numbers come down recently. Uh, job growth is slowing,

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<v Speaker 1>and you know, we so it's a matter of you know,

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<v Speaker 1>it almost becomes more a matter of how we handicap

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<v Speaker 1>FED policy. If we look at just a week and

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<v Speaker 1>a half ago, on a Friday, one Fed president spoken

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<v Speaker 1>hawkishly in the market went down to an alf percent.

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<v Speaker 1>On Monday, a Fed governor spoken duviishly in the market

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<v Speaker 1>went up one a half percent, Which shows is how

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<v Speaker 1>fragile this bull market is at this point and how

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<v Speaker 1>much it is a function more of central bank and

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<v Speaker 1>central bank stimulus than fundamentals. Okay, give us one or

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<v Speaker 1>two strategies. Are gonna bow thirty seconds left here, Dave,

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<v Speaker 1>to make money or not lose it at a time

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<v Speaker 1>like this, sure, so to make money. You know, domestically,

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<v Speaker 1>what do we do in the in the waning years

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<v Speaker 1>of a bowl market. Well, we want companies that have

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<v Speaker 1>a good business model, good quality companies and can defend

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<v Speaker 1>their market share and profit margins. That brings us to

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<v Speaker 1>an e t f uh like Mote m o a

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<v Speaker 1>t vanneck Vector's morning Star Wide Mote et f uh.

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<v Speaker 1>Companies like Harley Davison are in there an iconic American

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<v Speaker 1>motorcycle brand. There there will never be a motorcycle brand

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<v Speaker 1>like Harley Davison, Microsoft, Amazon. You know, these are defensible

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<v Speaker 1>business models. And around the world we like emerging markets

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<v Speaker 1>because of all the liquidity globally and then of course

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<v Speaker 1>non correlated assets to give us that hedge on those

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<v Speaker 1>days weeks once when the market takes a dive dive Coudla, CEO,

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<v Speaker 1>chief investment strategist, Mainstay Capital Management. I'm Kathleen Hayes. Along

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<v Speaker 1>with pim Fox, this is Bloomberg