WEBVTT - Stocks Surge, Bears Balk 0:00:13.960 --> 0:00:16.800 Hello, and welcome to What Goes Up, a Bloomberg weekly 0:00:16.960 --> 0:00:20.319 market podcast. I'm Sarah Pontzec, a market supporter on the 0:00:20.360 --> 0:00:23.680 Cross Asset Team, and I'm Mike Reagan, a senior editor 0:00:23.720 --> 0:00:26.640 at Bloomberg. On this show, we'll speak with expert guests 0:00:26.680 --> 0:00:30.880 from inside Bloomberg and beyond to break down what's moving stocks, bonds, currencies, 0:00:30.920 --> 0:00:34.160 and commodities, and how each asset class is affecting the others. 0:00:34.600 --> 0:00:37.240 On the show, this week, it's a tale of new highs. 0:00:37.520 --> 0:00:41.640 The sp finally took out its previous September record, the 0:00:41.760 --> 0:00:44.559 US dollar is also at the highest levels of the year, 0:00:44.840 --> 0:00:47.320 and the oil rally just can't seem to be tamed. 0:00:47.360 --> 0:00:50.120 The question, Mike, is if all of that can continue? 0:00:50.400 --> 0:00:52.920 That is the question, of course, and I'm happy to 0:00:52.960 --> 0:00:55.720 say our two guests will give us the exact answer 0:00:56.120 --> 0:00:59.440 to that question, right or intend to pinpoint where the 0:00:59.440 --> 0:01:02.840 markets that war as you here is Chris nag, executive 0:01:02.920 --> 0:01:05.240 editor at Bloomberg, and he will tall us the exact 0:01:05.360 --> 0:01:07.160 date and time that the bowl market will end. Is 0:01:07.200 --> 0:01:09.560 that right, Chris? I have that information, but you have 0:01:09.600 --> 0:01:11.399 to you have to wait until later in the show. 0:01:11.920 --> 0:01:15.200 Also joining us lup Kawa of the cross As Team. 0:01:15.319 --> 0:01:17.880 Luke has been very busy Europe in Canada recently. Right, 0:01:18.240 --> 0:01:21.840 I was indeed up in the coldest G seven capital 0:01:21.959 --> 0:01:24.840 a great, great time in in Ottawa, in rainy Ottawa 0:01:24.959 --> 0:01:27.240 watching the Leafs lose in Game seven and having my 0:01:27.319 --> 0:01:33.600 heartbroken again. Okay, well we'll avoid that topic from that case, Lukawa, 0:01:33.920 --> 0:01:37.120 what caused this record in stocks this week? It's great 0:01:37.120 --> 0:01:39.240 when you have a stock market that is actually just 0:01:39.319 --> 0:01:41.760 a handful of stocks, as as the name would suggest. 0:01:41.840 --> 0:01:46.559 But more and more this rally has become a concentrated phenomena, 0:01:46.760 --> 0:01:49.360 and you know, you could point out that this is 0:01:49.400 --> 0:01:53.440 a source of weakness or a potential vulnerability, just that 0:01:53.520 --> 0:01:56.200 you know, a few tech heavyweights are essentially doing the 0:01:56.200 --> 0:01:59.200 heavy lifting, empowering it higher. But then you have Facebook 0:01:59.200 --> 0:02:01.800 and Microsoft, two of those tech heavyweights just you know, 0:02:01.840 --> 0:02:05.200 absolutely killed on earnings and do exactly what people expect 0:02:05.200 --> 0:02:07.440 them to do with stocks in terms of Facebook top 0:02:07.480 --> 0:02:11.799 line growth, and you know, not getting their business model 0:02:11.880 --> 0:02:14.280 up ended by regulators and instead just saying, you know, 0:02:14.560 --> 0:02:16.799 the three billion, five billion cost of doing business. And 0:02:16.840 --> 0:02:19.200 then Microsoft the cloud, just showing that that business is 0:02:19.320 --> 0:02:22.040 a structural growth business and not kind of having the 0:02:22.120 --> 0:02:24.519 decline people might have thought in the fourth quarter. So 0:02:24.880 --> 0:02:26.760 really it's just a story of you know, just the 0:02:26.760 --> 0:02:30.080 heavyweights are the heavyweights. They've really taken over and they've 0:02:30.120 --> 0:02:32.960 given us less reason to dope them. So to dial 0:02:33.000 --> 0:02:34.799 it back a bit, it was back on Tuesday when 0:02:34.800 --> 0:02:38.840 the sp finally hit those highs, it was that was 0:02:38.880 --> 0:02:41.680 the magic number. And Chris, of course there are always 0:02:41.760 --> 0:02:43.959 bowl and bear cases to be made, but why don't 0:02:44.000 --> 0:02:46.640 you walk us through what are the reasons that bulls 0:02:46.639 --> 0:02:49.519 are coming out now and saying why this can keep going? Yeah, 0:02:49.600 --> 0:02:52.160 I mean the obvious, the most obvious answer to that 0:02:52.240 --> 0:02:55.600 is that the FED remains incredibly uh friendly to the market. 0:02:55.639 --> 0:02:57.680 It's not going to do anything this year. It got 0:02:58.400 --> 0:03:00.840 like everyone else traumatized it end of at the end 0:03:00.840 --> 0:03:04.480 of two thousand eighteen, and it's basically vowed to sit 0:03:04.520 --> 0:03:07.160 there as stocks continue to go up ten percent a 0:03:07.200 --> 0:03:10.359 month or something or that seems to be basically their posture. 0:03:10.960 --> 0:03:14.320 The other bowl cases, I mean, you can you can 0:03:14.360 --> 0:03:18.320 ascribe it to a handful of tech heavyweights, fine, but 0:03:18.400 --> 0:03:21.280 I also point out that those heavyweights are basically of 0:03:21.280 --> 0:03:24.320 the NATS back one D. They're a good portion of 0:03:24.360 --> 0:03:28.480 the SMP. There's still a kind you know, the same 0:03:28.520 --> 0:03:30.720 thing that's driven the bull market for ten years, the 0:03:30.760 --> 0:03:34.000 fact that there is an enormous amount of efficient earnings 0:03:34.040 --> 0:03:36.360 production going on in the US economy, at least in 0:03:36.400 --> 0:03:40.560 the mega cap publicly traded space, that it's just it 0:03:40.760 --> 0:03:44.520 drowns out everything else. The margins remain incredibly fat, return 0:03:44.640 --> 0:03:49.120 on whatever equity invested capital remains strong, and it's just 0:03:49.160 --> 0:03:50.840 a hard train to get in the way of. And 0:03:50.880 --> 0:03:53.640 then on the micro level, like you had the everyone 0:03:53.680 --> 0:03:57.000 was worried about earnings recession, earnings estimate's coming in. We've 0:03:57.000 --> 0:03:58.800 seen in the past week as more and more of 0:03:58.840 --> 0:04:01.839 the big ones report earnings, that you've actually seen full 0:04:01.920 --> 0:04:04.480 year estimates start to firm a little bit, and the 0:04:04.520 --> 0:04:07.400 second quarter estimates haven't been slashed anywhere near to the 0:04:07.440 --> 0:04:10.480 same degree as the first quarters. That whole earnswer session thing. Oh, 0:04:10.520 --> 0:04:12.280 it looks to be going the way of the only mammoth. 0:04:12.840 --> 0:04:14.680 But yet, if you look at some of the earnings 0:04:14.680 --> 0:04:17.839 out this week, I'm thinking of UPS and three M. 0:04:17.839 --> 0:04:21.360 I mean, these are sort of year old cliche macro indicators. 0:04:21.440 --> 0:04:23.840 You know, UPS is the the biggest, one of the 0:04:23.880 --> 0:04:26.360 biggest shipping companies in the world. Three M is the 0:04:26.400 --> 0:04:30.279 maker of fifty things. I think what we used to say, 0:04:30.279 --> 0:04:32.719 you know, in the Bloomberg stories, is it safe to 0:04:32.760 --> 0:04:35.160 ignore these? I mean, are people just assuming these are 0:04:35.279 --> 0:04:39.880 idiosyncratic stories, company specific stories and not really the macro 0:04:40.000 --> 0:04:44.159 indicators that maybe we we once thought they were. Um, 0:04:44.200 --> 0:04:47.719 I think to some degree the SOB stories we've always 0:04:47.760 --> 0:04:50.800 had around the market for the entire ten years. We've 0:04:50.800 --> 0:04:53.240 also had bad eco growth for much of the or 0:04:53.279 --> 0:04:56.479 not not bad, but middling equal eco growth for most 0:04:56.520 --> 0:04:58.640 of the the bullmark, and people have been able to 0:04:58.680 --> 0:05:01.920 live with it. So I agree those are a little concerning. 0:05:01.920 --> 0:05:04.440 It's hard entire way to write stuff like that off 0:05:04.560 --> 0:05:08.760 is idiosyncratic given the pervasiveness of their reach, those two companies. 0:05:09.279 --> 0:05:12.080 And certainly you know something was being signaled at the 0:05:12.120 --> 0:05:13.680 end of last year, regardless of the fact that it 0:05:13.760 --> 0:05:16.640 got put away so quickly. I mean, that's what happens 0:05:16.640 --> 0:05:20.240 when the FED utterly pivots on itself. But um, for 0:05:20.320 --> 0:05:21.719 the moment, I think you do have to kind of 0:05:21.720 --> 0:05:23.400 give the benefit of the doubt to the idea that 0:05:23.480 --> 0:05:26.440 this is not uncharacteristic of how it's always looked. There's 0:05:26.440 --> 0:05:30.160 always been scattered blow ups going on, and then you 0:05:30.240 --> 0:05:33.719 kind of have, you know, this scenario where along our 0:05:33.720 --> 0:05:36.320 our last kind of leg higher march to all time highs, 0:05:36.560 --> 0:05:40.240 you had healthcare really selling off and cyclical is absolutely 0:05:40.240 --> 0:05:44.240 going haywire. So you had in the cyclicals defensive index, 0:05:44.320 --> 0:05:47.839 you had essentially a huge parabolic move. And now what 0:05:47.920 --> 0:05:50.480 we have, you know, just a rotation, a reversal of that, 0:05:50.520 --> 0:05:54.440 and it's just another iteration of these protective rotations that 0:05:54.480 --> 0:05:56.680 have protected the market because you know, nothing goes down 0:05:56.760 --> 0:05:59.240 all at once except for you know, your February eighteen, 0:05:59.480 --> 0:06:02.240 Andrew Q. I want to come back to talk of 0:06:02.279 --> 0:06:04.479 profits recession just for a bit, because I know about 0:06:04.680 --> 0:06:07.039 eight percent of companies are beating on earnings this quarter. 0:06:07.400 --> 0:06:09.320 But still it seems like a lot of people are 0:06:09.360 --> 0:06:12.080 talking about that hockey stick fourth quarter about a nine 0:06:12.160 --> 0:06:15.040 percent gain. Does it seem like that is potentially more 0:06:15.080 --> 0:06:17.960 reasonable to achieve now to bring this here into full growth. 0:06:18.560 --> 0:06:22.920 I've never seen it as quite as odd as others. 0:06:23.240 --> 0:06:25.320 It seems to me just to be more function of math. 0:06:25.600 --> 0:06:29.719 There's sequential growth expected quarter by quarter by quarter, and 0:06:29.760 --> 0:06:33.320 there's no real acceleration in the sequential quarter by quarter 0:06:33.440 --> 0:06:36.760 by quarter growth that's expected for twenty nineteen. So this 0:06:36.839 --> 0:06:40.520 is just more function to me of base effects. Where 0:06:40.600 --> 0:06:43.240 where it gets weird is I I don't understand how 0:06:43.279 --> 0:06:46.360 the margin story gets so much better in Q four 0:06:46.600 --> 0:06:49.040 and and that's one thing that like this will not 0:06:49.120 --> 0:06:51.680 become clear to me after the first quarter results or 0:06:51.720 --> 0:06:53.839 the second quarter results, of the third quarter results. That 0:06:53.839 --> 0:06:56.520 would be something I need to essentially see to believe 0:06:56.600 --> 0:06:58.560 or have a lot more visibility, because I just can't 0:06:58.600 --> 0:07:01.080 unpack and understand it. And yet so here we are 0:07:01.240 --> 0:07:04.120 off to this amazing start to the year in stocks, 0:07:04.480 --> 0:07:07.440 but the latest figures I've seen still indicate that money 0:07:07.520 --> 0:07:10.880 is flowing out of stock funds UM and I don't 0:07:10.880 --> 0:07:13.120 think hedge funds have really embraced this rally, you know, 0:07:13.160 --> 0:07:15.800 based on some of the indicators we would use to 0:07:15.800 --> 0:07:19.200 to uh sort of suss that out. Is this all 0:07:19.280 --> 0:07:21.920 buy backs? I mean, is is buy backs the main 0:07:22.240 --> 0:07:25.160 catalysts and any sort of threat to buy backs the 0:07:25.160 --> 0:07:27.040 main risk to the to the EQUATIONY Well, first of all, 0:07:27.040 --> 0:07:29.560 it's hard to imagine a threat to buy backs. I 0:07:29.720 --> 0:07:32.600 just sort of story that Buffett may announce some extremely 0:07:32.680 --> 0:07:36.720 high numbered buy backs next year. It's not that typical 0:07:36.840 --> 0:07:39.720 that those actually go away until a recession happens. So 0:07:39.840 --> 0:07:42.320 if the recession happens, it would be to some degree 0:07:42.320 --> 0:07:45.680 the west of anyone's problems. I I don't necessarily fall 0:07:45.680 --> 0:07:47.760 into the camp that buy backs are really that big 0:07:47.760 --> 0:07:50.640 of a source of fuel for the for the rally. 0:07:50.680 --> 0:07:53.360 I do what you're saying is absolutely right. This is 0:07:53.400 --> 0:07:58.480 a totally unloved and flow less is the word now recovery. 0:07:58.480 --> 0:08:01.840 But to a largic stent, that's part of the bull case. 0:08:01.880 --> 0:08:03.559 I would say, I mean stocks can go up. Stocks 0:08:03.600 --> 0:08:06.800 went up two thousand nine, two thousand eleven with virtually 0:08:06.920 --> 0:08:10.520 zero flows or or the opposite, and most for most 0:08:10.520 --> 0:08:14.720 of the period. It really isn't necessarily the sole driver 0:08:14.840 --> 0:08:16.840 of the market, this idea that money has to be 0:08:16.840 --> 0:08:18.320 being thrown at it. What has to be happening is 0:08:18.360 --> 0:08:22.760 people are driving harder bargains for to sell, and or 0:08:22.800 --> 0:08:24.840 people just the people who are buying are more eager. 0:08:25.120 --> 0:08:27.120 And right now there's a lot of people walking around 0:08:27.120 --> 0:08:29.400 who would say the fact that hedge funds haven't participated, 0:08:29.440 --> 0:08:31.520 the fact that et F flows have been relatively inn 0:08:31.520 --> 0:08:36.319 emic relative to past peaks, like vastly less than September 0:08:36.320 --> 0:08:39.760 and January is something that's yet to go right in 0:08:39.800 --> 0:08:42.560 this market. And the really big bull cases, the sort 0:08:42.559 --> 0:08:45.079 of melt up cases for two thousand nineteen or premised 0:08:45.120 --> 0:08:48.760 on those facts coming out of slightly different perspective from 0:08:48.880 --> 0:08:50.800 from the buy back story exact. I just think they're 0:08:50.840 --> 0:08:54.880 so fundamentally important to preventing downside more than they are 0:08:54.920 --> 0:08:57.800 to spurring upside. Just the idea that you know, a 0:08:57.840 --> 0:08:59.440 lot of these are pre programmed and kind of out 0:08:59.440 --> 0:09:03.600 of the hands of discretionary but the discretionary ones essentially like, 0:09:03.600 --> 0:09:05.280 what what do we know about the structure of the market, 0:09:05.320 --> 0:09:07.440 what do we learning que for QUE four? We learned 0:09:07.440 --> 0:09:10.960 that liquidity is terrible in single stocks. That's why the 0:09:11.080 --> 0:09:14.840 kind of long short tech de leveraging went absolutely awry. 0:09:14.960 --> 0:09:19.040 We learned that futures market depth doesn't really exist, so 0:09:19.160 --> 0:09:21.440 where is the cash bid for equities? That that to 0:09:21.480 --> 0:09:24.640 me means that buy backs are the supporting factor in 0:09:24.720 --> 0:09:27.320 markets that do prevent us from having these kind of 0:09:27.360 --> 0:09:30.760 volatility spirals. So I don't think they're like I think 0:09:30.800 --> 0:09:32.880 we'd maybe end up in the same place. But the 0:09:32.880 --> 0:09:35.080 sharp ratios would be you know, a heck of a 0:09:35.080 --> 0:09:38.079 lot worse without buy back. Can I just say one 0:09:38.080 --> 0:09:40.439 thing about buy back? So there was just a note 0:09:40.880 --> 0:09:42.880 a couple of weeks ago. They've got a huge amount 0:09:42.880 --> 0:09:45.680 of attention with golden things saying that. You know, net 0:09:45.760 --> 0:09:48.520 of issuance, you get about four billion dollars worth the 0:09:48.520 --> 0:09:50.240 buy backs in the US market this year, and it 0:09:50.320 --> 0:09:53.480 dwarfs all other net money that comes into the market 0:09:53.920 --> 0:09:56.839 at the same time. You look at Bloomberg data, something 0:09:56.880 --> 0:10:00.120 like ninety trillion dollars worth of stock trades every or 0:10:00.160 --> 0:10:03.360 in the US US sort of tagged stock market. So 0:10:03.400 --> 0:10:05.640 four in a billion dollars of net cash at the 0:10:05.679 --> 0:10:08.000 margin is certainly a lot of money, but it's a 0:10:08.120 --> 0:10:10.199 drop in the bucket compared to an amount of stock 0:10:10.240 --> 0:10:12.679 that goes back and forth every day. It's basically one 0:10:12.760 --> 0:10:17.040 day's value traded um. It matters, certainly, and it's net 0:10:17.280 --> 0:10:20.520 pure we net. It's easy to measure, but it doesn't 0:10:20.760 --> 0:10:23.760 entirely take into account the gross buying and selling that 0:10:23.760 --> 0:10:26.320 goes on in the market every day, basically people bringing 0:10:26.360 --> 0:10:29.000 their their paychecks to the market and people cashing them out. 0:10:29.040 --> 0:10:31.720 There's obviously ninety trillion arts with selling every year as well. 0:10:32.360 --> 0:10:36.679 Um So framed like that, it's not quite as obvious 0:10:36.720 --> 0:10:39.960 to me how how it single handedly juices the market. 0:10:40.200 --> 0:10:44.040 So we're still likely to see buybacks in the near term, absolutely, 0:10:44.280 --> 0:10:45.960 and there's still a lot of money on the sidelines 0:10:46.000 --> 0:10:48.080 that it seems like could come in to propel this higher. 0:10:48.200 --> 0:10:51.520 But what about the valuation case, Because the argument can 0:10:51.559 --> 0:10:55.040 be made that tech stocks in particular are maybe looking expensive, 0:10:55.280 --> 0:10:57.760 but you also have the handful of people, many people 0:10:57.800 --> 0:11:00.880 out there pointing to interest rates saying well, they're low, 0:11:00.880 --> 0:11:02.960 and if you're saying that stocks are expensive, you're missing 0:11:02.960 --> 0:11:05.480 the whole point. Yeah. So I've been talking about this 0:11:05.559 --> 0:11:07.880 for about ten days, which means I've been wrong for 0:11:07.920 --> 0:11:10.240 ten days, and just looking at things like, you know, 0:11:10.280 --> 0:11:13.360 the NASDAC one hundreds forward p premium to the SMP 0:11:13.440 --> 0:11:17.559 five hundred, that's essentially taken out its peak ratio of 0:11:17.640 --> 0:11:21.880 NASDAC SMP again, taken out that peak high. It's since 0:11:21.880 --> 0:11:24.840 the dot com bubble and then outright and the outright 0:11:24.880 --> 0:11:27.160 things where I I really start to focus in on 0:11:27.280 --> 0:11:29.839 because when the forward p of the NASDACK gets to 0:11:29.920 --> 0:11:33.360 twenty two, that's when things have tended to break. So 0:11:33.480 --> 0:11:35.920 either you have to have the forward p in terms 0:11:35.920 --> 0:11:39.200 of the earnings estimates really going up nicely right now, 0:11:39.840 --> 0:11:42.280 or you should maybe see you know, the price, do 0:11:42.320 --> 0:11:44.600 a little bit of work, maybe go a little sideways, 0:11:44.720 --> 0:11:47.120 because we are not too far off from that level now. 0:11:47.320 --> 0:11:50.120 But again, like I think Credit SUITEZ recently or or 0:11:50.160 --> 0:11:52.280 socked in one of the one of those banks made 0:11:52.280 --> 0:11:54.720 the case, made the case that you know, in the 0:11:54.720 --> 0:11:58.600 melt up scenarios in which we are envisaging these kind 0:11:58.600 --> 0:12:01.760 of valuation things, especially with high growth, names go completely 0:12:01.760 --> 0:12:03.880 out the window, and it's a complete joke to even 0:12:04.120 --> 0:12:08.920 cast any faith in this. This reminds me of a 0:12:08.960 --> 0:12:11.440 good story you had out, Sarah. I love the headline, 0:12:11.880 --> 0:12:14.640 all the stuff bears are saying to spoil the SMP 0:12:15.559 --> 0:12:18.280 record party. Chris over here is laughing because the headline 0:12:18.880 --> 0:12:22.760 was a baby of his something to blame. I could, 0:12:22.800 --> 0:12:25.199 I could, I could have predicted that it. Yeah, well, 0:12:25.240 --> 0:12:27.440 why is it that we can enjoy a record without 0:12:27.640 --> 0:12:30.360 without seeing what these pesky bears have to say? Is 0:12:30.400 --> 0:12:34.600 it just risk management or story? Well, when it comes 0:12:34.600 --> 0:12:36.760 to the bear argument, there are a lot of bears 0:12:36.800 --> 0:12:39.320 out there, and part of the argument is is just that, Okay, 0:12:39.400 --> 0:12:42.000 yes we're back to those record highs, but we can't 0:12:42.040 --> 0:12:45.520 sustain a seventent rally that we've seen this year at 0:12:45.520 --> 0:12:48.200 the pace that we have seen it. They also point 0:12:48.200 --> 0:12:51.439 to fourth quarter earnings, but the issue is first quarter 0:12:51.440 --> 0:12:53.760 earnings has been a lot better than expected, and now 0:12:53.800 --> 0:12:56.520 it seems like that is falling off the back end. 0:12:56.640 --> 0:12:59.800 And then the valuation case. There are the bears out 0:12:59.800 --> 0:13:01.800 there that will look at the market and tell you 0:13:02.080 --> 0:13:04.200 that it does look expensive to them, and at this 0:13:04.240 --> 0:13:06.839 point in time they would rather be taking profits than 0:13:07.040 --> 0:13:09.560 throwing their money at this market. But look, one thing 0:13:09.600 --> 0:13:12.000 I'm so happy about with with this all time high 0:13:12.080 --> 0:13:14.920 and the one that we previously had in September, like 0:13:15.280 --> 0:13:18.120 what was going on in September that screamed all time high? 0:13:18.360 --> 0:13:21.240 Like where where? Where was the kind of euphoria? Where 0:13:21.280 --> 0:13:24.199 was the dancing in the streets? Don't see it now either. 0:13:24.679 --> 0:13:27.600 The only time I've seen anything this cycle that resembled 0:13:27.640 --> 0:13:29.560 what I am told in all time high should look 0:13:29.559 --> 0:13:33.200 like is January. I want another one of those blow 0:13:33.200 --> 0:13:53.360 off tops. Yeah that was a great fun, Sarah. I'm 0:13:53.400 --> 0:13:56.800 curious if any of these bears we're talking about two 0:13:56.840 --> 0:13:58.480 things that are sort of on my mind. One is 0:13:58.520 --> 0:14:02.320 the strong rallying dollar that we've seen, and also this 0:14:02.760 --> 0:14:05.480 sort of creep higher in oil prices. Uh you know 0:14:05.920 --> 0:14:10.920 West Texas interpetated oils in the neighborhood of what sixty six? There? 0:14:12.440 --> 0:14:14.600 Is it? What we get to the point where we 0:14:14.640 --> 0:14:18.320 have to worry about oil prices again? We're you know, 0:14:18.480 --> 0:14:23.040 is this economy so leveraged to oil production that it's 0:14:23.040 --> 0:14:26.080 it's the higher the better. So starting with oil, I 0:14:26.080 --> 0:14:28.840 would say the majority of investors I've spoken, particularly in 0:14:28.840 --> 0:14:31.760 this last week, they're not so worried about higher oil 0:14:31.800 --> 0:14:34.040 prices because now you look at the US and we 0:14:34.120 --> 0:14:36.120 are a net exporter of oil, and they say this 0:14:36.120 --> 0:14:38.840 could actually benefit the U. S economy in a way 0:14:38.840 --> 0:14:41.640 because of the businesses on the dollar component. I will 0:14:41.640 --> 0:14:43.720 say I was speaking with someone this past week who said, 0:14:44.000 --> 0:14:46.560 the dollar is now getting to levels that we are 0:14:46.600 --> 0:14:50.160 getting concerned about, especially for some of these more multinational 0:14:50.200 --> 0:14:53.280 companies that do a lot of their business overseas, because 0:14:53.320 --> 0:14:55.680 this could harm them. You have a stronger dollar overseas 0:14:55.720 --> 0:14:58.800 that could potentially mean lower sales are not as competitive 0:14:59.440 --> 0:15:01.800 and you but you haven't really seen that like three 0:15:01.920 --> 0:15:04.480 m a side during that happened, but you haven't really 0:15:04.480 --> 0:15:07.480 seen that generally priced int equities like look at the 0:15:07.560 --> 0:15:09.440 look at the pocket of US that we've been talking 0:15:09.440 --> 0:15:12.520 about is underperforming the most recently, you know, the Russell persistently. 0:15:12.840 --> 0:15:15.680 It should be a you know, domestic focus, a bigger 0:15:15.720 --> 0:15:19.080 beneficiary of the strong dollar. Quickly. On the oil point, 0:15:19.080 --> 0:15:22.120 it's been interesting just from a mathematical standpoint, the positive 0:15:22.120 --> 0:15:24.440 correlation between changes in oil and changes in the s 0:15:25.560 --> 0:15:27.880 pretty durn high. So that's actually it's actually been like 0:15:27.960 --> 0:15:32.080 positively correlated, good contributor to the rally. But again on 0:15:32.120 --> 0:15:34.920 the dollar side, the the fun thing is that it 0:15:35.000 --> 0:15:37.480 does seem to be hurting the rest of the world. 0:15:37.760 --> 0:15:39.280 If you look at you know, M S c I 0:15:39.360 --> 0:15:42.640 all World x US and then you know, running correlations 0:15:42.640 --> 0:15:45.200 with the Bloomberg Dollar Spot Index, you'll actually see that 0:15:45.200 --> 0:15:47.240 the dollar strength is weighing on the rest of the 0:15:47.240 --> 0:15:49.320 world equities. And a large part of that is just 0:15:49.640 --> 0:15:52.960 this strait currency translation effect that it's having. You know, 0:15:53.000 --> 0:15:55.080 those are price and local and then once you convert 0:15:55.080 --> 0:15:58.160 into US, you know, you're you're fighting against the tide there. 0:15:58.280 --> 0:16:00.000 But that's what I think is the interesting point because 0:16:00.040 --> 0:16:03.640 we know generally a strong dollar is is not good 0:16:03.640 --> 0:16:06.280 for the world. It tightens credit conditions globally, so I 0:16:06.280 --> 0:16:08.800 can understand why oil prices are rising. It's really centered 0:16:08.840 --> 0:16:11.920 around supply. This week was really peaked after the Trump 0:16:11.920 --> 0:16:14.280 administration came out and said that they were going to 0:16:14.480 --> 0:16:18.480 end the waivers as it relates to exports from Iran. 0:16:18.920 --> 0:16:21.480 But when it comes to the dollar, I'm having a 0:16:21.520 --> 0:16:25.320 bit harder of a time understanding just the momentum that 0:16:25.360 --> 0:16:27.600 we continue to see. I mean, is this just another 0:16:28.680 --> 0:16:30.920 re Ducks where everyone thought we would see a weaker dollar, 0:16:31.000 --> 0:16:33.880 but maybe that's not the case exactly and almost for 0:16:33.920 --> 0:16:36.560 the same reason. I think that if you look at 0:16:36.560 --> 0:16:39.640 the strength in the equity market, like TDS economists and 0:16:39.760 --> 0:16:42.960 TV strategists Mark McCormick, he's been on this for a 0:16:42.960 --> 0:16:45.800 while saying essentially, if you think the US equity market 0:16:45.840 --> 0:16:48.360 is going to outperform, if you think, you know, rate 0:16:48.400 --> 0:16:50.760 spreads around the world are going to be fairly stable, 0:16:51.280 --> 0:16:54.840 then portfolio inflows into US equities should be a driver 0:16:54.960 --> 0:16:57.080 of the dollar. And I think it's it's a story 0:16:57.120 --> 0:17:00.200 that fits for now, so I like it. I like 0:17:00.280 --> 0:17:03.960 it too then Chris, are you worried about the dollar? No? No, 0:17:04.320 --> 0:17:07.640 uh yeah, you see things like the three mble up 0:17:07.640 --> 0:17:11.000 this week. You remember that it can it can do 0:17:11.119 --> 0:17:15.240 damage the big profit edifice. But and and like Luke 0:17:15.359 --> 0:17:18.600 was saying, it's uh the main sort of temperature taker 0:17:18.680 --> 0:17:22.840 on financial conditions. So yeah, along with everything else, it's 0:17:23.200 --> 0:17:26.159 a kind of a secondary concern. It's what about the 0:17:26.240 --> 0:17:29.359 relationship between oil and energy stocks though, because you look 0:17:29.400 --> 0:17:33.520 at crude up about this year. Energy can this kind 0:17:33.520 --> 0:17:35.760 of just add to that bowl case in a way, right, 0:17:35.800 --> 0:17:38.240 because energy hasn't been a huge particiption. I mean, energy 0:17:38.280 --> 0:17:40.760 is up a lot of energy stocks. But yeah, right, 0:17:40.800 --> 0:17:42.639 there's an argument that it hasn't caught up with with 0:17:42.720 --> 0:17:46.480 oil yet. Um and you know, another one of these 0:17:46.520 --> 0:17:49.119 basically arguments that some good things left to happen in 0:17:49.160 --> 0:17:54.080 the market and that that's going to be energy stocks rallies. 0:17:54.160 --> 0:17:58.560 Kind of difficult to get to be that disappointed. Look 0:17:58.600 --> 0:18:01.560 at what happened recently. What was the It was Snovis 0:18:01.600 --> 0:18:05.240 buying anti darko. If you look Abron Chevron, Chevron buying 0:18:05.280 --> 0:18:07.280 anti Darko. So if you look at that, you know, 0:18:07.280 --> 0:18:09.640 look at x l E. So you're more integrated players 0:18:09.680 --> 0:18:12.639 and how they've done versus how x OP the producers 0:18:12.680 --> 0:18:15.639 explorers have done. Look at that, track the oil price, 0:18:15.800 --> 0:18:18.280 see the gap, and you know the transaction completely and 0:18:18.280 --> 0:18:20.720 immediately makes sense. So I wonder if you know the 0:18:20.760 --> 0:18:22.680 market will start to say, hey, you know we're gonna 0:18:22.680 --> 0:18:24.680 be Chevron, We're gonna buy the producers, and I will 0:18:24.720 --> 0:18:27.160 say there is an e t F that tracks oil 0:18:27.200 --> 0:18:30.560 services companies and that et F is up more So 0:18:30.680 --> 0:18:32.439 you do see a difference when you dial in and 0:18:32.440 --> 0:18:34.800 really look on these coming natural guess is not having 0:18:34.840 --> 0:18:37.159 a great year, right so x and I'm SURES and 0:18:37.160 --> 0:18:40.800 gigantic natural gas producer, Luke. You keep a pretty close 0:18:40.800 --> 0:18:44.159 eye on volatility markets, and now with this rally its 0:18:44.200 --> 0:18:48.400 all time highs. We see the VIX CBOE Volatility Index 0:18:49.000 --> 0:18:51.040 at what about twelve and a half twelve and change, 0:18:51.440 --> 0:18:54.600 but moving higher, but moving higher, training higher, but moving high. 0:18:54.600 --> 0:18:57.920 I think that's been the most interesting development that's taken 0:18:58.000 --> 0:19:01.040 place with the VIX as we kind of made this 0:19:01.080 --> 0:19:05.240 martial all time highs. You'll remember that in January, uh 0:19:05.280 --> 0:19:08.320 stocks up, valls up was a persistent common theme and 0:19:08.359 --> 0:19:10.960 everyone was trying to make excuses for it and talk 0:19:11.000 --> 0:19:14.359 around it, and then faultel the exploded, and uh, you know, 0:19:14.400 --> 0:19:16.760 we realized that maybe that was a warning sign. Last 0:19:16.800 --> 0:19:19.199 time we had stocks up falls up was June and 0:19:19.240 --> 0:19:21.359 we got you know, like a three percent sell off 0:19:21.600 --> 0:19:24.280 and the immediate aftermath. But this kind of this is 0:19:24.320 --> 0:19:26.879 something I'm watching, as you know. It's a sign that 0:19:26.920 --> 0:19:29.520 people are starting to either heade of this or wildly 0:19:29.600 --> 0:19:31.760 chase upside. And from what I can tell, looking at 0:19:31.800 --> 0:19:34.359 the implied volatilities of you know, out of the money 0:19:34.400 --> 0:19:37.920 options on the SMP five, it seems more that the 0:19:38.000 --> 0:19:41.760 downside being sought is the factory here. So folks, folks 0:19:41.800 --> 0:19:44.119 are starting to get worried about this as we you know, 0:19:44.560 --> 0:19:47.320 as we hit all time highs during earning season but 0:19:47.400 --> 0:19:50.639 still have a supportive but definitely not stellar macro back. 0:19:51.000 --> 0:19:54.440 You know what, another year follows up stocks up the 0:19:55.040 --> 0:19:57.840 whole year, Right, I think people would take that they'd 0:19:57.840 --> 0:19:59.640 be willing to live with a fifteen or twenty ViXS 0:19:59.680 --> 0:20:02.720 if they could get the We're not at that point 0:20:02.800 --> 0:20:06.240 in two thousand and eighteen where there's so much complacency. 0:20:06.480 --> 0:20:10.000 People were selling the VIC shorting the VIS basically to 0:20:10.320 --> 0:20:12.080 you know, pick up those nickels in front of the 0:20:12.080 --> 0:20:14.679 steam roller. Do you get the sense that we're not 0:20:15.160 --> 0:20:17.640 due for repeat of that as the lesson been learned? Well, 0:20:17.680 --> 0:20:20.639 I think just like a the products are gone, so 0:20:20.760 --> 0:20:23.000 we can't we can't so that that can't happen. That 0:20:23.000 --> 0:20:25.280 can't happen again. We can't have we can't have a repeat. 0:20:25.280 --> 0:20:26.919 We we will not have a repeat. That just that 0:20:27.040 --> 0:20:31.000