WEBVTT - Remembering 2019 0:00:13.400 --> 0:00:16.760 Hello, and welcome to What Goes Up, a Bloomberg weekly 0:00:16.840 --> 0:00:20.760 market podcast. I'm Sarah Pontzek, a reporter on the Cross 0:00:20.760 --> 0:00:23.720 Asset team, and I'm Mike Reagan, a senior editor on 0:00:23.760 --> 0:00:26.400 the Markets team. This week on the show, it's the 0:00:26.560 --> 0:00:30.400 last episode of so we'll take a trip down memory 0:00:30.480 --> 0:00:34.279 lane highlighting the most memorable market moments of the year. 0:00:34.880 --> 0:00:37.879 That's right, Sarah and confession to listeners were recording this 0:00:37.920 --> 0:00:42.120 in advance, so no craziest thing of the week unfortunately. However, 0:00:42.240 --> 0:00:45.160 I do believe our guests came prepared with the craziest 0:00:45.200 --> 0:00:48.400 thing he saw in markets all year, So I already 0:00:48.400 --> 0:00:51.400 gave my craziest thing in markets for the year last week, 0:00:51.479 --> 0:00:54.720 so we will focus on our guests. Then. His name 0:00:54.760 --> 0:00:58.000 is Matt Perrone. He's the chief investment officer for City 0:00:58.080 --> 0:01:00.640 National Bank. Matt, welcome to the show. Thanks, thanks for 0:01:00.680 --> 0:01:02.680 having me. All Right, Matt, we'd like to tease the 0:01:02.800 --> 0:01:04.720 audience with what the craziest thing of the year is, 0:01:04.720 --> 0:01:07.440 so we'll get to that at the end, but talk 0:01:07.520 --> 0:01:11.880 us through how you saw the year progressing. I mean, boy, 0:01:11.880 --> 0:01:14.680 it looked like things were dangerous there for a while 0:01:14.680 --> 0:01:17.520 in the middle of the year everybody was worried about 0:01:17.520 --> 0:01:21.200 a recession. How does as a as a strategist investor, 0:01:21.240 --> 0:01:23.560 how do you handle a year like this? I mean, 0:01:23.680 --> 0:01:26.479 was it a tough year to navigate? You know, it 0:01:26.600 --> 0:01:29.399 was in the sense that, well, we started the year 0:01:29.920 --> 0:01:35.759 with really a scare. Late December two eighteen was pretty 0:01:35.760 --> 0:01:39.960 tough on the markets, almost down. So for for us 0:01:40.000 --> 0:01:41.600 it was a kind of a head scratcher because the 0:01:41.640 --> 0:01:45.000 fundamental outlook just wasn't that bad. And yet the fear 0:01:45.080 --> 0:01:48.200 in the market was just and the fear in our 0:01:48.240 --> 0:01:53.120 clients and everyone felt that this was finally the end 0:01:53.160 --> 0:01:56.000 of this cycle. For us, you know, we had to 0:01:56.280 --> 0:02:00.520 do our job of hand holding clients, of telling them, really, 0:02:00.520 --> 0:02:03.280 the fundamental outlook isn't that bad. We do think the 0:02:03.360 --> 0:02:08.880 markets overreacting talk and there was a lot of that 0:02:10.000 --> 0:02:12.240 um but and and and we published a note called 0:02:12.240 --> 0:02:14.239 there will be Growth in the Spring borrowing from the 0:02:14.720 --> 0:02:18.600 Peter Sellers. Uh has some good and bad connotations, but 0:02:18.760 --> 0:02:20.960 the point to it was that, you know, we we 0:02:21.000 --> 0:02:23.320 did think there would be growth, and finally that came out. 0:02:23.360 --> 0:02:24.799 And then of course we had that mid year dip 0:02:24.840 --> 0:02:27.120 that you spoke about, So talk us through how your 0:02:27.160 --> 0:02:30.560 client sentiment has changed from then until now. You mentioned, 0:02:30.840 --> 0:02:32.680 as Mike mentioned, having to talk him off a cliff, 0:02:33.320 --> 0:02:35.280 things did get scary in the middle of the year. 0:02:35.480 --> 0:02:37.799 There was a lot of talk of potential recession, either 0:02:37.840 --> 0:02:40.960 at the end of this year or heading into Where 0:02:40.960 --> 0:02:43.480 do they stand now? Have they really come a long way? Yeah? 0:02:43.560 --> 0:02:45.880 They have. I think you've seen a lot of people 0:02:45.919 --> 0:02:49.600 now more comfortable. There are a lot of cash on 0:02:49.639 --> 0:02:52.000 the sidelines that have that in clients who have come 0:02:52.040 --> 0:02:55.680 and said, okay, I see now that this expansion still 0:02:55.680 --> 0:02:58.280 has some legs to it. Maybe taking some more risk 0:02:58.320 --> 0:03:01.760 does make sense. You know, with rates being lower, it's 0:03:01.760 --> 0:03:03.519 pressured a lot of people who have been in cash 0:03:04.200 --> 0:03:05.840 to say, how do I put my cash to work? 0:03:05.840 --> 0:03:09.239 And don't put me fully into equities, but put me 0:03:09.280 --> 0:03:13.280 into you know, higher yielding securities. So that's been a 0:03:13.360 --> 0:03:16.960 dynamic for sure for our typical client. Are you know, 0:03:16.960 --> 0:03:19.120 we've stayed invested and we've said that from the beginning. 0:03:19.120 --> 0:03:21.920 It's don't you know, it's time to be cautious and 0:03:21.960 --> 0:03:24.400 be up in quality, but stay invested. You know. Uh. 0:03:24.560 --> 0:03:26.240 Some notes you sent over you made a really good 0:03:26.280 --> 0:03:29.000 point about the multiple expansion in the equity market, the 0:03:29.040 --> 0:03:31.680 share I mean, that's basically all. We got very lackluster 0:03:31.919 --> 0:03:34.600 year for earnings. Um, so now we're looking at on 0:03:34.840 --> 0:03:38.160 something like twenty times trailing earnings for the smp UH 0:03:38.240 --> 0:03:41.080 forward earnings something a little less than seventeen. I think 0:03:41.120 --> 0:03:43.360 the last time I check, does that make you nervous 0:03:43.360 --> 0:03:45.600 at all? I mean, are we really pricing in a 0:03:45.720 --> 0:03:51.440 rosy situation for with that that aggressive multiple expansion? Well, 0:03:51.600 --> 0:03:55.320 the multiple expansion was certainly farther than we anticipated it 0:03:55.360 --> 0:03:57.480 would be. I think we've had a you know, just 0:03:57.560 --> 0:04:00.280 about all of the appreciation in the markets this year 0:04:00.360 --> 0:04:05.400 came from multiple expansion. The way we frame that out is, 0:04:06.080 --> 0:04:09.360 you know, it's somewhat textbook if you look at the 0:04:09.400 --> 0:04:13.600 impact of rates on the multiple, Well, it actually did 0:04:13.600 --> 0:04:15.400 what it was supposed to do with rates coming down 0:04:15.400 --> 0:04:17.960 to where they were, and you flow that through to 0:04:18.160 --> 0:04:22.080 either a regression model or a discounted cash flow model 0:04:22.240 --> 0:04:24.640 with low rates and an equity risk premium of four percent. 0:04:24.760 --> 0:04:27.479 With four percent growth, you get to about today's price. 0:04:27.920 --> 0:04:31.160 So it's not completely disconnected from reality, but it's an 0:04:31.160 --> 0:04:35.039 optimistic view that this will continue now for a long time. 0:04:35.320 --> 0:04:37.120 So one of the stories of two thousand nineteen. Back 0:04:37.120 --> 0:04:40.120 to your earlier question, we went from real pessimism and 0:04:40.160 --> 0:04:43.000 fear to now all things are gonna be okay for 0:04:43.120 --> 0:04:46.000 the foreseeable future. I want to get your thoughts on 0:04:46.000 --> 0:04:48.839 this talking about multiple expansion and then compared to the 0:04:48.880 --> 0:04:52.720 e of the PE ratio and how earnings fit into valuations. 0:04:53.279 --> 0:04:56.400 I was looking at some research recently from ned Davis Research, 0:04:56.680 --> 0:04:59.320 and what they found was that in really gang buster 0:04:59.440 --> 0:05:02.480 earnings is typically you don't have great equity returns, and 0:05:02.760 --> 0:05:05.880 it's because typically those returns are pulled forwards. And we 0:05:05.920 --> 0:05:09.240 saw that happen in seventeen where we had a great 0:05:09.440 --> 0:05:13.640 year of earnings last year, but then we really had 0:05:13.680 --> 0:05:15.839 a great year of returns for the stock market in 0:05:16.240 --> 0:05:19.400 seventeen ahead of the tax cut. And then this year 0:05:20.000 --> 0:05:22.320 we've got a no earnings growth, but at the same 0:05:22.360 --> 0:05:26.680 time we've got an unbelievable returns within equities. Do you 0:05:26.760 --> 0:05:30.280 think it's saying the same thing potentially about earnings for 0:05:30.360 --> 0:05:32.719 next year that we've had such great returns this year. 0:05:33.240 --> 0:05:35.440 First of all, I agree with that that view. It 0:05:35.520 --> 0:05:40.239 is kind of counterintuitive that you would see appreciation ahead 0:05:40.279 --> 0:05:42.039 of the market gets in front of it does a 0:05:42.040 --> 0:05:44.360 good job of sniffing out earnings growth ahead of time. 0:05:44.480 --> 0:05:46.560 So it's what we call it pre trades it if 0:05:46.560 --> 0:05:51.200 you will, um and but so yes and no. I 0:05:51.240 --> 0:05:54.520 think it's seeing a return to earnings growth. But I 0:05:54.520 --> 0:05:57.600 don't think the market is yet pricing in a big 0:05:57.839 --> 0:06:01.160 uplift in earnings. Um. You know, by our measure, it's 0:06:01.200 --> 0:06:04.080 pricing in you know, five or six percent earnings growth 0:06:04.120 --> 0:06:07.599 next year. Right. As as you said, uh, pas often 0:06:07.640 --> 0:06:10.359 are a function of the the interest rate environment. You know, 0:06:10.480 --> 0:06:13.040 low interest rates, you're you're willing to pay up for stocks, 0:06:13.040 --> 0:06:17.640 pay a little higher evaluations. Is there a treasury yield 0:06:17.839 --> 0:06:22.200 that would sort of make you worry that, uh it 0:06:22.279 --> 0:06:24.839 will start putting a lid on equity gains, you know 0:06:24.920 --> 0:06:27.360 at three on the tenure or something like that. Yeah, 0:06:27.400 --> 0:06:30.520 I think you're right. That's where you start to see 0:06:30.600 --> 0:06:35.320 the union yang of higher yields will mean typically higher growth, 0:06:35.520 --> 0:06:38.400 so you can start pricing that in. But then when 0:06:38.440 --> 0:06:41.520 you start raising the interest rate input, if you will, 0:06:41.600 --> 0:06:44.039 that caps the multiple, so they off set each other. 0:06:44.440 --> 0:06:47.480 I think we're we're above four percent, I think is 0:06:47.480 --> 0:06:49.839 where that starts. To get that math, if you will, 0:06:49.920 --> 0:06:52.560 gets tough, and so then you would see equities struggle 0:06:52.600 --> 0:06:54.880 a little bit more. So you say above four percent, 0:06:54.880 --> 0:06:56.720 I'll say our guest that we had on the show 0:06:56.800 --> 0:06:59.279 last week, she said she could see a tenure in 0:06:59.279 --> 0:07:03.320 the range of two to three, but likely staying towards 0:07:03.320 --> 0:07:05.560 the low end of that range. Do you see it 0:07:05.600 --> 0:07:10.760 as at all possible to get close to three on 0:07:10.800 --> 0:07:14.200 the tenure and maybe even close to that four percent range. 0:07:14.760 --> 0:07:17.560 I think four percent is going to be tough. Three 0:07:17.560 --> 0:07:21.480 percent possible, And is you know anything you know cyclical 0:07:21.520 --> 0:07:25.120 could happen. Our base case is more aligned with your 0:07:25.200 --> 0:07:29.080 guest from last week, that will be somewhat kept in 0:07:29.200 --> 0:07:32.360 that low two percent range. We should get some uplift 0:07:32.600 --> 0:07:36.600 from a recovery UM in the manufacturing sector in the 0:07:36.640 --> 0:07:41.560 non US economies, which, by the way, is another big 0:07:41.640 --> 0:07:44.360 story of two thou nineteen, the tale of two economies, 0:07:44.600 --> 0:07:48.000 And that's another story that that I think is Who's 0:07:48.000 --> 0:07:50.240 going to change in two thousand twenty? Oh yeah, you 0:07:50.240 --> 0:07:51.920 think the rest of the world will sort of play 0:07:51.960 --> 0:07:54.320 a little catch up? I think so. So if you 0:07:54.400 --> 0:07:58.360 look at UM this year, and you look at either 0:07:58.360 --> 0:08:00.920 in the macro and the micro right the macro data 0:08:01.240 --> 0:08:03.320 manufacturing was soft. We saw that in the p M 0:08:03.360 --> 0:08:05.800 I S, etcetera global p M I S in the 0:08:06.080 --> 0:08:09.000 in the micro data in the sp F, companies with 0:08:09.560 --> 0:08:13.800 domestic exposure generally had flat slightly up earnings and companies 0:08:13.800 --> 0:08:17.040 with more than the revenues outside the US had earnings 0:08:17.240 --> 0:08:23.640 down on average. And that probably has moved through the cycle. 0:08:23.920 --> 0:08:25.880 That that was driven by an inventory cycle, that was 0:08:25.960 --> 0:08:29.000 driven by the trade dynamic, and both of those were 0:08:29.040 --> 0:08:32.280 moving through. Hopefully on the trade moving through the end 0:08:32.280 --> 0:08:34.960 of that. And if that, even if it doesn't uplift, 0:08:35.120 --> 0:08:37.440 it will be the removal of a negative and you 0:08:37.480 --> 0:08:42.000 could see um a reversion there and people will it'll 0:08:42.040 --> 0:08:59.280 be more balanced in terms of the global outlook. One 0:08:59.320 --> 0:09:01.960 thing in your notes I found interesting is you say 0:09:02.040 --> 0:09:06.000 dividend stocks are cheap now. Um, when I hear dividend stocks, 0:09:06.040 --> 0:09:09.520 I immediately default to thinking utilities, which part of the 0:09:09.559 --> 0:09:14.000 year they got very very expensive. Uh less, so now 0:09:14.160 --> 0:09:16.360 I think they're back below a multiple of the SMP 0:09:16.640 --> 0:09:21.480 trade netted discount. Consumer staple stocks got pretty expensive. And 0:09:21.520 --> 0:09:23.640 then on the other end of the risk spectrum, I 0:09:23.840 --> 0:09:26.720 look at MLPs. You know, the messter limited partnerships which 0:09:26.720 --> 0:09:29.160 are cheap ast heck, but very risky obviously. I mean, 0:09:29.200 --> 0:09:32.040 I think there's several MLPs that not too long ago 0:09:32.080 --> 0:09:35.520 we're at like double digit dividend yields. So walk us 0:09:35.520 --> 0:09:38.480 through what dividend stocks you kind of have your eye 0:09:38.520 --> 0:09:41.280 on right now that look cheap and not just cheap. 0:09:41.320 --> 0:09:43.880 But but you know, if you're buying a dividend stock, 0:09:43.920 --> 0:09:45.840 obviously you want that safety. You want to see that 0:09:45.880 --> 0:09:48.680 dividend keep rising or at least stabilized. So where are 0:09:48.720 --> 0:09:52.480 you seeing good opportunities there? First of all, the the 0:09:52.600 --> 0:09:58.440 dividend stocks are relatively attractive, they are um versus the 0:09:58.480 --> 0:10:00.559 rest of the market, but it's in Wharton to look 0:10:00.600 --> 0:10:02.840 at them on a sector cross sectional basis, and what 0:10:02.880 --> 0:10:06.360 I mean by that is balanced across the sectors. You're right, 0:10:06.400 --> 0:10:08.680 if you look at it, where are the high dividend yielders, 0:10:08.679 --> 0:10:11.640 the utilities and the reats those and the staples those 0:10:11.640 --> 0:10:14.880 have typically been more expensive if you don't balance around 0:10:14.920 --> 0:10:17.360 the sectors. But if you take a balanced view of 0:10:17.440 --> 0:10:21.800 every sector technology, energy, as you mentioned, then in general 0:10:22.120 --> 0:10:27.040 the dividend stocks bisector um are there's there's lots of 0:10:27.080 --> 0:10:30.640 opportunity in there. So we can find opportunities within every 0:10:30.679 --> 0:10:35.079 sector and create a balanced portfolio around that. But yeah, 0:10:35.120 --> 0:10:36.720 and then you bring up you know, some of the 0:10:36.800 --> 0:10:41.280 energy patch is getting very interesting. You see some uh 0:10:41.480 --> 0:10:44.640 good yields there. We've been very selective, adding very selectively 0:10:44.640 --> 0:10:48.400 in that sector as well of late. Even financials for 0:10:48.440 --> 0:10:52.200 a while this year had some really surprisingly strong dividend yields. 0:10:52.240 --> 0:10:56.000 You know. You you figure, you know, with the sort 0:10:56.000 --> 0:10:59.320 of less of a focus on regulation and and fed 0:10:59.400 --> 0:11:02.600 stressed to it's maybe those those will even be sort 0:11:02.640 --> 0:11:05.320 of stronger growing dividend stocks than than you would have 0:11:05.320 --> 0:11:07.679 guessed a few years ago. Well, they just trade with 0:11:07.720 --> 0:11:10.400 the yield curve and with the yeld curve flat, you know, 0:11:10.600 --> 0:11:13.040 the al goes kick in, and you know, and I think, 0:11:13.080 --> 0:11:16.240 on um, you know, on an unwarranted basis, the algales 0:11:16.320 --> 0:11:18.440 really I don't want to blame them too much, but 0:11:18.480 --> 0:11:22.839 I think they don't listen to the shows. It was 0:11:22.880 --> 0:11:24.959 tick by tick, you know, they were, you know, rates 0:11:25.080 --> 0:11:28.320 rates down, financials down. It was kind of too much 0:11:28.320 --> 0:11:31.720 lockstep to be anything. But but I think and then 0:11:32.080 --> 0:11:34.800 and that misses the dividend story, which is quite strong, 0:11:34.920 --> 0:11:39.280 and the earnings yield on those is quite impressive. So 0:11:39.320 --> 0:11:42.959 the capital return story at the banks has been tremendous, 0:11:43.400 --> 0:11:46.080 buying back a ton of their own stock. So it 0:11:46.160 --> 0:11:49.720 really is a total return, total shareholder return story there 0:11:49.720 --> 0:11:51.480 that I think was missed for a while when the 0:11:51.480 --> 0:11:54.120 curve was laddening. So do you think it's a miscommunication 0:11:54.280 --> 0:11:57.600 or at least a mistake for people to generalize when 0:11:57.640 --> 0:12:00.000 they think of dividend yielding stocks. A lot of people 0:12:00.280 --> 0:12:02.280 will just think of your classic bond proxy is the 0:12:02.320 --> 0:12:05.720 ones that Mike mentioned real estate for example. But the 0:12:05.760 --> 0:12:08.640 idea that you can actually find companies with higher dividends 0:12:08.679 --> 0:12:11.520 across any sector, you just have to do the work. Absolutely, 0:12:11.520 --> 0:12:14.480 I think that's right. I think I think what happened 0:12:14.520 --> 0:12:19.000 was yet um both of phenomenon. I want yield and 0:12:19.040 --> 0:12:21.520 I want safe yield because the world is ending, right, 0:12:21.520 --> 0:12:25.360 so utilities and reads hit that low volatility high dividend 0:12:25.960 --> 0:12:30.360 cross section, if you will, and so people gravitated towards that, 0:12:30.800 --> 0:12:34.240 and I think they're missing the the shareholder yield and 0:12:34.320 --> 0:12:38.400 the dividend yield available in other sectors um. More broadly, 0:12:38.920 --> 0:12:40.760 that's so that's something we focus on, is a more 0:12:41.080 --> 0:12:44.319 broadly diversified high dividend strategy. Alright, MA, I gotta say 0:12:44.360 --> 0:12:47.720 this is my favorite line in the notes you provided us. Uh. 0:12:48.320 --> 0:12:51.240 Tons of our ultra high net worth clients are calling 0:12:51.280 --> 0:12:53.120 and saying, I missed this. How do you get me 0:12:53.200 --> 0:12:56.880 back in with low risk? Now, me being not exactly 0:12:56.920 --> 0:13:01.760 an ultra high network. Uh, but let's pretend I am. 0:13:01.800 --> 0:13:03.360 How do you get us back in? Is it is? 0:13:03.400 --> 0:13:05.800 Do you have to talk these people sort of uh 0:13:05.880 --> 0:13:09.000 down from the fomo effect here? Um? Yeah, And I 0:13:09.000 --> 0:13:11.000 don't know if I had used the word back If 0:13:11.040 --> 0:13:13.000 I did, that was a typo. But I meant to say, 0:13:13.440 --> 0:13:15.640 how do I get in? Because many people have been 0:13:15.640 --> 0:13:20.080 sitting out and for years and they're finally saying, you know, 0:13:20.600 --> 0:13:22.800 at least I want more yield. Maybe don't don't put 0:13:22.840 --> 0:13:25.480 me into the equity markets, but get get me some 0:13:25.520 --> 0:13:29.160 more yield. So we are seeing a lot of of 0:13:29.760 --> 0:13:33.640 calls from clients who really want to participate in at 0:13:33.720 --> 0:13:38.600 least yield instruments and get out of cash. Basically, So, 0:13:38.760 --> 0:13:40.280 is this on the equity side, more so on the 0:13:40.280 --> 0:13:42.960 fixed income side and credit? How would that be? It's 0:13:42.960 --> 0:13:45.000 more on the fixed income side and credit people, it's 0:13:45.000 --> 0:13:50.200 too far to go from pure cash to equities, especially 0:13:50.240 --> 0:13:52.520 at this point in time. So move me up the 0:13:52.520 --> 0:13:56.280 credit spectrum, uh, in terms of you know, more yield 0:13:56.320 --> 0:14:01.040 and in the credit dimension. Um. But but safe yield 0:14:01.200 --> 0:14:05.040 is really the question. It's an interesting thing because when 0:14:05.040 --> 0:14:07.720 the world seemed like it was, you know, barreling towards 0:14:07.720 --> 0:14:10.200 a recession earlier in the year, those cash shields were 0:14:10.240 --> 0:14:12.840 pretty attractive. I think the money market funds were at 0:14:12.840 --> 0:14:16.320 about two in a quarter around there for a while, so, um, 0:14:17.559 --> 0:14:19.400 a lot of people really parked out there. It sounds 0:14:19.400 --> 0:14:21.520 like among your clients they did, you know, two and 0:14:21.560 --> 0:14:23.520 a half was okay? And then the fit took took 0:14:23.560 --> 0:14:26.440 that away, right, And so that's really what's driving that dynamic. 0:14:26.520 --> 0:14:29.760 So in and I'm curious about the psychology here here 0:14:29.800 --> 0:14:32.640 because you said it's been years, so I imagine they've 0:14:32.680 --> 0:14:34.880 been waiting this out, waiting for a good opportunity to 0:14:34.880 --> 0:14:38.040 get in. And I think back to and you would 0:14:38.040 --> 0:14:41.480 have thought you had the SMP down nine percent almost 0:14:41.480 --> 0:14:43.000 the end of the bull market. You would have thought 0:14:43.000 --> 0:14:45.760 that would have been a good opportunity. Was there just 0:14:46.080 --> 0:14:51.000 too much fear surrounding as well that we didn't actually 0:14:51.080 --> 0:14:53.680 see investors who have been out sitting in cash take 0:14:53.720 --> 0:14:56.720 that opportunity to get back in, and that means they've 0:14:56.720 --> 0:15:00.360 then missed as well. I think that's right. I think 0:15:01.000 --> 0:15:04.160 putting aside a different client basis, I think when you 0:15:04.160 --> 0:15:06.880 look at the flow data, a lot of people were 0:15:07.120 --> 0:15:09.720 continuing to outflow, for they have been for a number 0:15:09.760 --> 0:15:13.280 of years into bonds, and they continued that even at 0:15:13.360 --> 0:15:18.600 the bottom of of two tho um and uh so yes, 0:15:18.640 --> 0:15:20.240 I think a lot of people have missed out on 0:15:20.280 --> 0:15:23.920 this rally um And now you know, you're starting to 0:15:23.960 --> 0:15:26.800 see the flow data reverse a little bit, so they're 0:15:26.800 --> 0:15:28.880 coming back in. So if you had to boil it 0:15:28.920 --> 0:15:33.320 down to sort of a asset allocation uh decision right now, 0:15:33.320 --> 0:15:37.880 what would you tell clients overweight certain assets underweight? I mean, 0:15:37.920 --> 0:15:40.760 are you uh it sounds like you're you're still bullish 0:15:40.800 --> 0:15:44.600 on equities, but maybe not hyperbullish. We think it'll be 0:15:44.640 --> 0:15:47.120 a coupon your inequities, just like you call it in 0:15:47.120 --> 0:15:49.280 fixed income, when you just collect your coupon, the spread 0:15:49.280 --> 0:15:51.880 doesn't change. That will probably be the same thing in 0:15:51.880 --> 0:15:55.120 in equities. You'll collect your earnings growth and your dividend yield. 0:15:55.520 --> 0:16:00.440 But don't expect another rerating of the multiple higher for sure. UM. 0:16:00.520 --> 0:16:03.920 What we're counseling to clients right now is stay with 0:16:04.000 --> 0:16:07.120 high quality. It's laid in the cycle to really you know, 0:16:07.520 --> 0:16:12.960 take risks. So large cap dividend pairs. As I mentioned UM, 0:16:13.000 --> 0:16:15.280 and there are cheaper parts of the global markets. We 0:16:15.360 --> 0:16:19.280 like Asia for example, especially e M. Asia is much 0:16:19.400 --> 0:16:21.320 cheaper and you have growth. They should be at the 0:16:21.320 --> 0:16:23.640 bottom of their cycle and you can see some growth. 0:16:23.680 --> 0:16:28.000 So we like that UM area on a relative basis 0:16:28.480 --> 0:16:31.880 growth versus that the value that you're getting there. So 0:16:31.960 --> 0:16:34.400 there are parts of the equity markets. In the fixed 0:16:34.400 --> 0:16:38.760 income markets we like, UH. Certain areas of emerging markets 0:16:38.800 --> 0:16:42.000 credit you get nice spreads with pretty tight covenants there. 0:16:42.040 --> 0:16:44.080 You don't have as much covenant light as you do 0:16:44.120 --> 0:16:47.080 in the US bank loans were we've got spots and 0:16:47.120 --> 0:16:50.440 bank loans that are UH that are good. There are 0:16:50.440 --> 0:16:53.200 some frothy spots and in the corporate credit markets, but 0:16:53.320 --> 0:16:56.520 certainly areas and in the bank loans that we'm kind 0:16:56.520 --> 0:16:59.640 of chuckling inside because it sounds like the covenant situation 0:16:59.760 --> 0:17:03.440 is are an emerging markets Well, if you're an emerging 0:17:03.480 --> 0:17:06.200 markets issue, where and you have to issue in the US, 0:17:06.320 --> 0:17:09.560 right you have to have a pretty tight covenant to Yeah. Yeah, 0:17:09.680 --> 0:17:13.240 that's interesting. So built up the hype Mike did at 0:17:13.280 --> 0:17:17.040 the beginning of the show your craziest thing all year long? 0:17:17.560 --> 0:17:19.359 So I figured, why don't we get to it, and 0:17:19.400 --> 0:17:21.000 then we can also talk a little bit more about 0:17:21.040 --> 0:17:23.639 it as well. What would you say twenty nineteen craziest 0:17:23.680 --> 0:17:26.040 thing that happened? Well, so I'm going to keep my 0:17:26.160 --> 0:17:28.560 comments confined to the markets, right because if I go 0:17:28.600 --> 0:17:33.080 into the sphere or anything like that, exactly, it was 0:17:33.119 --> 0:17:35.919 the crazy year all around. I'd say there was a 0:17:35.920 --> 0:17:39.000 lot to choose from in that dimension, but we'll stay 0:17:39.040 --> 0:17:41.119 with the markets. I think the craziest part was just 0:17:41.160 --> 0:17:44.760 the panic that of the recession that never came right, 0:17:44.840 --> 0:17:49.320 and we really had. I mean, just there was if 0:17:49.359 --> 0:17:51.119 you looked at the market, if you were on Mars, 0:17:51.280 --> 0:17:54.879 you would say, oh my god, there's a major recession 0:17:55.640 --> 0:17:58.639 or depression coming. We had two eight pricing in certain 0:17:58.680 --> 0:18:02.760 cases you'll curve coming, you know, flat, etcetera. That was 0:18:02.840 --> 0:18:08.720 kind of crazy because it was really disconnected from reality. Sure, 0:18:08.760 --> 0:18:11.439 there were soft patches in the manufacturing sector, just like 0:18:11.480 --> 0:18:13.639 in two thousand and sixteen, there was a soft patch 0:18:14.040 --> 0:18:17.639 in the energy sector um just like in two thousand eleven. 0:18:17.640 --> 0:18:19.399 You know, it was like ad it was a mini cycle, 0:18:19.400 --> 0:18:23.159 there's no question, as you will see, but a financial 0:18:23.200 --> 0:18:26.120 crisis almost was being priced in. That was odd to us, 0:18:26.960 --> 0:18:29.480 and I think as a representation of how far we've come, 0:18:29.520 --> 0:18:32.199 I think it is unbelievable you had an inversion of 0:18:32.200 --> 0:18:34.760 the yield curve these recession fears, and now as we 0:18:34.840 --> 0:18:38.280 do close out, you now have the steepest yield curve 0:18:38.440 --> 0:18:40.680 since all the way back in. So it's really come 0:18:40.720 --> 0:18:45.159 full circle. Ye. Absolutely, So what what kind of risks 0:18:45.160 --> 0:18:47.040 would you sort of put at the top of your 0:18:47.040 --> 0:18:52.320 list for the corporate market? Corporate credit markets are something 0:18:52.359 --> 0:18:55.560 that we're really watching. It's there's some frothy areas there. 0:18:56.119 --> 0:19:00.040 We're not seeing big uptick in defaults, but it's a 0:19:00.040 --> 0:19:02.600 bit of a coiled spring. When it goes, it's gonna 0:19:02.640 --> 0:19:06.040 go fast. So we we we really want to watch that. 0:19:06.359 --> 0:19:10.760 We're watching the corporate debt market and we're looking at 0:19:10.800 --> 0:19:15.480 every uh, every different lens of of credit levels, etcetera. 0:19:15.520 --> 0:19:18.199 For stress. But sorry, it's not just the end of 0:19:18.240 --> 0:19:21.120 the year. I can't believe it. It's the end of 0:19:21.280 --> 0:19:25.119 another decade, another Uh. I was born near the beginning 0:19:25.160 --> 0:19:27.000 of the nineteen seventies decades, so I don't like to 0:19:27.000 --> 0:19:29.640 see these go go buy so quickly. They keep going 0:19:29.960 --> 0:19:33.199 too quickly. But Matt, what what was the highlight for 0:19:33.280 --> 0:19:37.000 you of the whole decade? Uh? You know, it clearly 0:19:37.119 --> 0:19:39.800 was the longest. I forget all the stats. There's a 0:19:39.800 --> 0:19:42.159 million stats for it. But best decades since the fifties 0:19:42.240 --> 0:19:44.480 or something like that. In equities, so best decades since 0:19:44.520 --> 0:19:46.480 the fifties. If you look at the sharp ratio of 0:19:46.520 --> 0:19:50.840 the SMP, so steadiest gains to the upside risk adjusted returns. 0:19:50.840 --> 0:19:52.879 But I know, Matt, you also have some other statistics 0:19:52.880 --> 0:19:56.439 as well. Well, it was steady. I could see that 0:19:56.440 --> 0:19:58.760 sharp ratio making a lot of sense when the volatility 0:19:58.840 --> 0:20:01.680 level was unbelievably low there for a while, making the 0:20:01.720 --> 0:20:03.720 sharp ray show high. But I think it was the 0:20:03.760 --> 0:20:08.840 first decade with no recession. And but in terms of 0:20:08.880 --> 0:20:12.920 total return, so up two this decade the fourth best decade, 0:20:13.240 --> 0:20:17.520 nineteen fifties being the best at up four. So it's 0:20:17.800 --> 0:20:20.200 a way to go. Yeah, you could put it that way, 0:20:20.640 --> 0:20:23.800 but yeah, it's it's it's interesting when you know, when 0:20:23.880 --> 0:20:25.800 when you look through history that actually it's only the 0:20:25.840 --> 0:20:29.320 fourth best decade out there. That's pretty interesting. Yeah, I 0:20:29.359 --> 0:20:32.240 guess so as we start, we're already going to start 0:20:32.320 --> 0:20:34.919 keeping tabs on the next decade and see how we 0:20:34.960 --> 0:20:37.920 start off. We'll have a recession this decade, for sure. 0:20:38.080 --> 0:20:44.240 I think that we'll hold you to that. You remember 0:20:44.280 --> 0:20:48.960 you said that. Happy holidays, guys, Matt Round, Thanks so 0:20:49.040 --> 0:20:58.240 much for coming on the show What Goes Up. We'll 0:20:58.240 --> 0:21:00.920 be back next week. Until you can find us on 0:21:00.960 --> 0:21:04.320 the Bloomberg Terminal website and app, or wherever you get 0:21:04.359 --> 0:21:07.040 your podcasts. We'd love it if you took the time 0:21:07.160 --> 0:21:10.160 to rate interview the show on Apple Podcasts so more 0:21:10.240 --> 0:21:13.119 listeners can find us. And you can find us on Twitter, 0:21:13.520 --> 0:21:17.560 follow me at Sarah Pontzack Mike is at re Gutonomous, 0:21:17.920 --> 0:21:22.119 and you can also follow Bloomberg Podcasts at Podcasts. What 0:21:22.280 --> 0:21:24.800 Goes Up is produced by tober Forehead. The head of 0:21:24.800 --> 0:21:28.359 Bloomberg podcast is Francesco Levie. Thanks for listening, See you 0:21:28.480 --> 0:21:28.920 next time.