WEBVTT - The Coming Paradigm Shift, Big Cap Tech, Economic Data 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.160 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen, and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:47.600 the Bloomberg Terminal, and the Bloomberg Business App. Here's the secret, folks, 0:00:48.120 --> 0:00:50.920 guy asked me. Wonderful guy email me this weekend. He said, 0:00:51.080 --> 0:00:53.239 how in God's name do you do it? And the 0:00:53.320 --> 0:00:57.240 answer is you read, reread. And I learned decades ago 0:00:58.400 --> 0:01:01.680 that if you read anything from Outlage Press, you will 0:01:01.720 --> 0:01:06.759 be happy. It is a esteemed British firm. This little jewel, 0:01:06.800 --> 0:01:10.200 one hundred and sixty five pages came in. This should 0:01:10.200 --> 0:01:13.560 be in the CFA curricula. Immediately he's with federator or 0:01:13.600 --> 0:01:16.559 MESI has to put up with Steve Off. Daniel Parris 0:01:16.720 --> 0:01:20.920 joins US historian PhD. And this is about what Paul 0:01:21.000 --> 0:01:25.920 Sweeney cares about more than anything, the ownership dividend. It 0:01:26.080 --> 0:01:32.639 is a magnificent global Wall Street primer on dividends. Daniel Paris, 0:01:32.680 --> 0:01:36.360 thank you so much for joining us today. You have 0:01:36.480 --> 0:01:41.960 the Paul Sweeney page, which is Cliff Asnes at AQR 0:01:42.560 --> 0:01:46.160 saying we've done the work, don't worry about paying taxes 0:01:46.200 --> 0:01:49.880 on dividends. Dividends are good. What does that mean for 0:01:49.960 --> 0:01:51.320 our listeners, our viewers? 0:01:52.680 --> 0:01:54.480 You know, Tom, thank you for having me on the show. 0:01:54.800 --> 0:01:56.800 The way I phrased it a little bit differently is 0:01:56.840 --> 0:01:59.480 that in my day job, I do run into a 0:01:59.520 --> 0:02:04.600 lot of advisors and clients who really really want to 0:02:04.640 --> 0:02:09.080 subordinate investment policy to tax minimization. It seems to be 0:02:09.160 --> 0:02:12.480 more important to them than the investment policy. And I 0:02:12.560 --> 0:02:15.280 make the simple statement that's a choice, not a necessity. 0:02:15.760 --> 0:02:19.320 Academic finance is really really strong on tax minimization. There's 0:02:19.320 --> 0:02:21.400 nothing wrong with that, but I take a stand as 0:02:21.440 --> 0:02:26.240 a business owner that investment policy should not be subordinated 0:02:26.280 --> 0:02:29.799 to tax minimization policy. And while the tax code is 0:02:29.840 --> 0:02:33.440 often adverse, you know, it's a sign of success or 0:02:33.480 --> 0:02:35.000 victory if you find yourself having to. 0:02:36.680 --> 0:02:37.160 Pay a bit. 0:02:37.240 --> 0:02:40.920 So it's one of the biggest issues I run into 0:02:40.960 --> 0:02:41.840 on a daily basis. 0:02:41.919 --> 0:02:45.200 Page fifty three, Philip Fisher. There was the Old Testament, 0:02:45.320 --> 0:02:48.440 the New Testament, and then there was common stocks in 0:02:48.600 --> 0:02:53.200 uncommon profits a million like a generation ago. Danielle Paris, 0:02:53.240 --> 0:02:54.959 Should Apple raise their dividends? 0:02:56.320 --> 0:02:56.600 Yeah? 0:02:56.800 --> 0:02:59.680 The biggest pushback I get from this book and Apple's 0:02:59.680 --> 0:03:02.680 are perfec example of that is listen, buybacks are fine, 0:03:03.200 --> 0:03:07.920 and I don't dispute the utility of buybacks in certain circumstances, 0:03:07.919 --> 0:03:12.360 not how they're widely used. But I'm challenged and said, well, 0:03:12.560 --> 0:03:14.799 you know where would these dividends come from. We don't 0:03:14.800 --> 0:03:17.760 want to starve companies of growth opportunities, and of course 0:03:17.880 --> 0:03:22.600 we don't companies should invest in positive MPV projects. But 0:03:22.840 --> 0:03:26.000 when there's close to a trillion dollars spent from the 0:03:26.040 --> 0:03:29.000 S and P five hundred companies, notably concentrated in a 0:03:29.000 --> 0:03:33.040 handful of very very large tech companies on buybacks, shifting 0:03:33.080 --> 0:03:35.120 some of that over time, which I believe will happen 0:03:35.280 --> 0:03:38.520 as interest rates have stopped falling, is not going to 0:03:38.600 --> 0:03:41.200 come at the expense of investment and growth. It's going 0:03:41.240 --> 0:03:44.520 to come out out of the buybacks. And Apple and 0:03:44.600 --> 0:03:47.800 many of the other companies that say they can't afford 0:03:48.240 --> 0:03:50.880 to pay a dividend because they've got so many good 0:03:50.920 --> 0:03:54.200 growth projects are also buying their shares backhand over fist. 0:03:54.440 --> 0:03:56.920 Looks good in a rising market. They need to do 0:03:56.960 --> 0:03:59.560 so when they're issuing shares out the back door to employees. 0:04:00.280 --> 0:04:05.640 But yeah, the payout ratio for the large tech companies 0:04:05.680 --> 0:04:08.680 which is currently pretty low, and for well, it's called 0:04:08.720 --> 0:04:11.760 the Nasdaq one hundred, whether they're in the Nasdaq one 0:04:11.840 --> 0:04:13.600 hundred or not. But I'm just talking about the large, 0:04:13.600 --> 0:04:17.080 mature tech companies. I believe over the next couple years, 0:04:17.120 --> 0:04:18.880 over the next five to ten years, you're going to 0:04:18.920 --> 0:04:25.440 see many of them follow in the footsteps of Meta And. 0:04:25.279 --> 0:04:29.680 There we go. So, Daniel, is there an ideal payout ratio? 0:04:29.839 --> 0:04:31.640 What does the academic research say? 0:04:33.440 --> 0:04:36.200 You just stepped on an academic land mine. I don't 0:04:36.200 --> 0:04:39.760 know if we want to go there. In nineteen sixty one, 0:04:40.080 --> 0:04:42.200 the issue of whether there's an ideal pay at ratio 0:04:42.320 --> 0:04:46.919 was raised and answered definitively. So the answer is no, 0:04:47.880 --> 0:04:51.600 and I don't dispute that finding from nineteen sixty one, though, 0:04:51.720 --> 0:04:56.159 much of my work is historically critical of academic finance, 0:04:56.200 --> 0:04:59.520 of modern academic finance, some would say very critical. But 0:05:00.800 --> 0:05:02.600 in the book I do argue that listen, I don't 0:05:02.640 --> 0:05:03.920 know what the payout ratio is going to be in 0:05:03.960 --> 0:05:05.480 the yield of the S and P five hundred is 0:05:05.520 --> 0:05:07.040 going to be. I just know it's going to be 0:05:07.120 --> 0:05:09.440 higher than it is now. We've had a thirty year 0:05:09.520 --> 0:05:15.800 anomaly of declining yields, declining payout ratios, rising buybacks, and 0:05:15.880 --> 0:05:19.240 other phenomena which I think, as the book articulates, kind 0:05:19.240 --> 0:05:21.560 of came to an end starting in twenty twenty. And 0:05:21.839 --> 0:05:23.440 is the yield of the S and P five hundred ready? 0:05:23.440 --> 0:05:25.479 Is everyone sitting down you know? Is it going to 0:05:25.480 --> 0:05:28.280 be three percent, four percent, four and a half. I 0:05:28.600 --> 0:05:31.720 don't know. I think it's going to normalize in that direction. 0:05:31.800 --> 0:05:35.440 If Tim if Lucas was here from Apple, he'd say, 0:05:35.680 --> 0:05:38.080 all of our research as shareholders don't want to big 0:05:38.160 --> 0:05:40.960 text on that four percent SPX dividend. 0:05:41.040 --> 0:05:42.760 So what do you say to that, Daniel about that 0:05:42.800 --> 0:05:45.200 the tax implications here? What's the Kundter argument? I guess 0:05:45.200 --> 0:05:45.599 if there is one? 0:05:45.680 --> 0:05:49.760 Yeah, the only difference right now, remember long term capital 0:05:49.800 --> 0:05:53.520 gains and qualified dividends attacked at the same rate. So 0:05:53.720 --> 0:05:59.360 from a purely investment perspective, or there's no penalty. When 0:05:59.560 --> 0:06:03.080 modern academic finance and when that Apple executive was being trained, 0:06:03.320 --> 0:06:06.479 tax rates were higher on dividends than they were on 0:06:06.520 --> 0:06:08.320 capital gains. That's no longer case, and it hasn't been 0:06:08.520 --> 0:06:10.760 since two thousand and three. The only difference is timing 0:06:11.960 --> 0:06:15.440 so that a investor can time a capital gain or 0:06:15.520 --> 0:06:19.119 capital loss. Again, investors can harvest capital losses as easily 0:06:19.120 --> 0:06:21.440 as they can harvest capital gains, but investor can time that. 0:06:21.440 --> 0:06:25.080 Where's a dividend occurs more regularly. My answer, and it's 0:06:25.080 --> 0:06:26.320 really the theme of the book, and it's in the 0:06:26.360 --> 0:06:30.919 title and you caught it, Tom, is a harvested capital 0:06:30.920 --> 0:06:34.880 gain is a market outcome for which many many people, 0:06:35.040 --> 0:06:36.880 when the market moves up into the right, are very 0:06:36.880 --> 0:06:41.839 happy with. A dividend payment is a business outcome. You 0:06:41.880 --> 0:06:43.600 can choose to play the market, or you can choose 0:06:43.640 --> 0:06:45.600 to be a business owner. Now there are a lot 0:06:45.680 --> 0:06:48.840 of young people in particular who don't care about being 0:06:48.839 --> 0:06:50.800 a business owner. They just think of stocks by low, 0:06:50.880 --> 0:06:52.960 sell high repeat frequently. It goes up to the right 0:06:53.400 --> 0:06:56.240 and that's fine. There's nothing wrong with them that kind 0:06:56.240 --> 0:06:57.680 of a client tele effect. There are a lot of 0:06:57.680 --> 0:07:00.280 people very satisfied with that. I'm just pointing out, if 0:07:00.279 --> 0:07:05.920 you bring a business owner sensibility to stocks the same 0:07:05.920 --> 0:07:08.240 way you might turn real estate or a private enterprise, 0:07:08.680 --> 0:07:12.160 you view a harvesting capital gain as something dramatically different 0:07:12.280 --> 0:07:13.280 from a dividend pact. 0:07:13.360 --> 0:07:15.920 I got one minute left. Daniel Paris is Zuckerberg the 0:07:16.000 --> 0:07:19.320 executive of the year because he turned here here and 0:07:19.520 --> 0:07:21.680 just simply said, no, we're going to change this. We're 0:07:21.680 --> 0:07:24.480 going to do this like a conservative, measured company. 0:07:25.320 --> 0:07:26.960 I just think he's a quick reader. So the book 0:07:27.000 --> 0:07:30.120 came out one day and the very next day, and 0:07:30.240 --> 0:07:32.520 that it made its decision. So I applaud him for 0:07:32.880 --> 0:07:34.600 reading getting a copy and reading it quickly. 0:07:34.880 --> 0:07:37.320 Daniel, thank you so much. He's the federator Mez. But 0:07:37.360 --> 0:07:40.160 I just can't say enough about the history of this, folks. 0:07:40.160 --> 0:07:44.320 This goes back to my grandparents. It's that strong. It's 0:07:44.360 --> 0:07:48.800 got eminem in it, Mertin and Medigliani, all sorts of theories. 0:07:48.920 --> 0:07:51.760 V body, if you're listening up, it be you this morning, 0:07:51.800 --> 0:07:53.880 your great corporate team. This is a book for you 0:07:54.280 --> 0:07:57.800 The Ownership Dividend. It's a pro book, folks. I'm not 0:07:57.800 --> 0:08:00.960 going to kid you. Lots of footnotes, lots of what 0:08:01.000 --> 0:08:05.040 you'd expect in an academics treaties from the PhD historian 0:08:05.200 --> 0:08:09.760 Daniel Parris. The Ownership Dividend. The coming paradigm shift is 0:08:09.800 --> 0:08:13.040 the stock market catches up with Paul Sweeney. That's a 0:08:13.040 --> 0:08:14.280 good Paul, take that book. 0:08:14.320 --> 0:08:14.720 Take it. 0:08:14.720 --> 0:08:16.600 I'm going to give it to mister Tim Cook that 0:08:16.720 --> 0:08:27.440 I see him this spring on the campus of university. 0:08:28.880 --> 0:08:32.080 This is the conversation of the day, flat out. I'm gonnay. 0:08:32.080 --> 0:08:35.079 We're gonna talk to Sarah a rap report about Queen 0:08:35.520 --> 0:08:38.880 in the next hour. This is, without question, the conversation 0:08:39.080 --> 0:08:43.960 of the day. Patrick Armstrong believes in the frenzy. He says, 0:08:43.960 --> 0:08:47.000 it's not a frenzy, and you gotta own Amazon the 0:08:47.080 --> 0:08:50.280 rest and what date matters. Here's the date that matters, 0:08:50.320 --> 0:08:54.320 market on your surveillance calendar, May twenty fourth in Nvidia 0:08:54.440 --> 0:08:58.480 reports Again, Patrick Armstrong, why do you own in Vidia? 0:09:00.400 --> 0:09:03.400 Well, it's obviously a great company. It's the epicenter of 0:09:03.440 --> 0:09:07.880 everything that's AI, and it's not trading at a ridiculous multiple. 0:09:08.440 --> 0:09:11.920 Stock is up four hundred percent over the last fourteen months. 0:09:11.960 --> 0:09:14.360 Earnings are up over one thousand percent over that time. 0:09:14.400 --> 0:09:17.679 It's a thirty two times twelve month forward earnings twenty 0:09:17.679 --> 0:09:21.920 six times twenty four months forward. So elevated multiple great company, 0:09:21.960 --> 0:09:25.800 incredible margins, and it can produce as much as there 0:09:25.840 --> 0:09:28.200 is demand for his product. So I love companies with 0:09:28.240 --> 0:09:30.920 pricing power that basically set the price and people are 0:09:30.920 --> 0:09:33.840 clamoring to get whatever they can from whatever it produces. 0:09:33.600 --> 0:09:36.000 Over the weekend. And thanks to shout out to zero head, 0:09:36.040 --> 0:09:39.280 he does a great service on this. They have the 0:09:39.360 --> 0:09:44.960 Golden Sax Hedge fund by side long only long short report. 0:09:45.080 --> 0:09:49.120 It's absolutely spectacular. Thank you for that service. And Patrick, 0:09:49.160 --> 0:09:53.120 it's simple. In the last x number of days institutions 0:09:53.120 --> 0:09:57.640 have sold what Patrick Armstrong owns in retail is bought 0:09:57.720 --> 0:10:01.320 what Patrick arms Strong owns. What's that signal to you. 0:10:02.800 --> 0:10:05.120 I don't know if it's a strong signal either way, 0:10:05.240 --> 0:10:09.160 but you always have an instinct to take profits on 0:10:09.240 --> 0:10:12.240 something that's gone up so much. But I just look 0:10:12.280 --> 0:10:16.480 at the valuations versus the price, and valuations aren't rising. 0:10:16.640 --> 0:10:19.200 It's the price that's rising for in video, So I'm 0:10:19.280 --> 0:10:21.560 sticking with it right now. You've got the earnings in 0:10:21.600 --> 0:10:23.560 May that you just reference. But in March, the middle 0:10:23.600 --> 0:10:26.559 of March, they're coming out with their next generation chip. 0:10:26.679 --> 0:10:28.840 What that's capable of as well, And I think that's 0:10:28.840 --> 0:10:30.800 going to be a really important date that you don't 0:10:30.800 --> 0:10:33.920 schedule that ahead after incredible blowout earnings unless you know 0:10:34.400 --> 0:10:37.040 you're going to really shop the market again and just 0:10:37.120 --> 0:10:40.560 basically create that momentum that everyone's clamoring for on the 0:10:40.559 --> 0:10:45.679 retail side of things. But it's not two thousand type bubble, right, 0:10:45.800 --> 0:10:50.199 it's maybe the estimates are too high. That's possibility basically 0:10:50.240 --> 0:10:52.400 if another company comes in with a competing chip and 0:10:52.440 --> 0:10:54.480 then in video all of a sudden has to compete 0:10:54.480 --> 0:10:56.760 on price. They don't have to compete on price right now. 0:10:56.800 --> 0:10:59.960 But it's not a multiple story. It may be overall 0:11:00.080 --> 0:11:03.240 domestic earning macimates, but I actually believe those area. 0:11:03.640 --> 0:11:06.520 Listening to Patrick Armstrong Neil Datta at run Back, thank 0:11:06.520 --> 0:11:09.319 you Neil for getting off the Delta airplane, and Neil 0:11:09.480 --> 0:11:12.680 says it's simple consensus is wrong. He agrees with the 0:11:12.720 --> 0:11:15.000 optimistic tone that we are from mister Armstrong. 0:11:15.320 --> 0:11:17.640 So Patrick, in addition to Nvidia, how do you feel 0:11:17.640 --> 0:11:21.319 about those other big cap magnificent five six names. You know, 0:11:21.400 --> 0:11:24.559 whether it's the Amazon's, the Googles and metas, do you 0:11:24.640 --> 0:11:27.120 have a similar level of conviction to remain long those 0:11:27.200 --> 0:11:27.760 names here? 0:11:28.480 --> 0:11:31.079 So I own Google, I own Meta And those are 0:11:31.160 --> 0:11:34.240 companies that aren't trading at demanding multiples. They're trading at 0:11:34.240 --> 0:11:37.240 discounts to the Nasdaq, trading almost in line with the SMP. 0:11:37.440 --> 0:11:40.240 But they're growing at a faster rate. They're buying back 0:11:40.280 --> 0:11:42.480 shares at a faster rates, still producing a lot of 0:11:42.520 --> 0:11:45.640 free cash flow. You've got a lot of advertising risk 0:11:45.720 --> 0:11:49.200 with that, but you've got an incredibly resilient consumer, and 0:11:49.240 --> 0:11:51.840 I think advertising is going to continue to drive revenue 0:11:51.840 --> 0:11:53.800 growth to those companies. So I owned both of those. 0:11:54.000 --> 0:11:56.520 I own Amazon as well, which is again a play 0:11:56.600 --> 0:11:58.640 on the US consumer that's just very strong. 0:11:58.840 --> 0:12:00.640 All right, So wow, I know who? 0:12:01.400 --> 0:12:03.880 Yeah, yeah, doubt you're exactly right town doubt component today. 0:12:04.120 --> 0:12:06.080 All right, So Patrick, you and Tom you're both long 0:12:06.120 --> 0:12:08.000 the big tech names that have been working. Both of 0:12:08.040 --> 0:12:10.280 you guys are just clipping coupons. The rest of us 0:12:10.320 --> 0:12:12.960 are out there working for our money here. How about energy? 0:12:13.360 --> 0:12:15.440 What do you feel about ENERGYE? Looking at WTI crude 0:12:15.440 --> 0:12:17.599 here at seventy six bucks a barrel. How do you 0:12:17.640 --> 0:12:18.640 think about the energy space. 0:12:19.520 --> 0:12:21.920 I like the oil and gas companies for a number 0:12:21.920 --> 0:12:24.440 of reasons. I think you get an in built geopolitical 0:12:24.480 --> 0:12:26.959 hedge against unfortunate events that might be happening in the 0:12:27.000 --> 0:12:29.959 Middle East or with Russia, or the war expanding in 0:12:30.000 --> 0:12:32.360 the Middle East, where more sanctions come on around things 0:12:32.400 --> 0:12:34.960 like that. But if you look at the future strip, 0:12:35.960 --> 0:12:38.400 bought prices for WTI are the same as they were 0:12:38.440 --> 0:12:40.880 six months ago and twelve months ago, but the longer 0:12:40.960 --> 0:12:43.360 dated contracts are up to thirty percent over that time. 0:12:43.400 --> 0:12:45.560 So oil and gas stocks are flat over the last 0:12:45.559 --> 0:12:49.080 twelve months, but they're implied profitability based on the future 0:12:49.120 --> 0:12:51.560 strip going out the next ten years. That part of 0:12:51.559 --> 0:12:53.440 the curve is really jumped higher, and I think the 0:12:53.480 --> 0:12:57.640 companies aren't really reflecting that higher for longer food prices, 0:12:57.679 --> 0:13:00.200 and I do think they'll start to move that way. 0:13:00.480 --> 0:13:03.600 So it's interesting here because we're looking at the supply 0:13:03.640 --> 0:13:07.560 and demand out there for energy, and again I'm not 0:13:07.559 --> 0:13:10.080 sure what's driving this thing is it's the supply side 0:13:10.080 --> 0:13:11.760 of the equation of the demand side of the equation, 0:13:12.520 --> 0:13:15.840 But I guess if you feel like the economies in 0:13:15.880 --> 0:13:18.080 the US are going to remain strong, that would suggest 0:13:18.160 --> 0:13:19.960 maybe higher oil. Is that how you think about it. 0:13:21.040 --> 0:13:23.160 I'm not sure if it's going to be higher, But 0:13:23.480 --> 0:13:25.760 the bolt case on oil and gas companies don't need 0:13:25.840 --> 0:13:28.880 higher oil. They need oil to maintain these prices because 0:13:28.960 --> 0:13:31.920 right now, the cash flows they're producing are incredible, and 0:13:32.000 --> 0:13:33.880 they've paid off a big chunk of debt over the 0:13:33.960 --> 0:13:37.720 last twelve months. They've bought back shares, paying dividends as well, 0:13:37.720 --> 0:13:40.760 and all of those things are boring compared to the 0:13:40.800 --> 0:13:43.640 technology companies. But the market is going to re rate 0:13:44.240 --> 0:13:48.079 as you see persistently high food prices based on going 0:13:48.120 --> 0:13:51.920 demand and supply not quite keeping up. Basically, there's not 0:13:51.960 --> 0:13:55.440 been enough capex to probably deliver the new supply that's 0:13:55.480 --> 0:13:57.120 going to be needed to meet demand. 0:13:57.640 --> 0:14:01.960 What shorts have been working for you, guys, Patrick, So you. 0:14:02.000 --> 0:14:06.000 Talked about the auto companies, we're short Rivian short forward 0:14:07.080 --> 0:14:10.800 and yeah, I love companies that have pricing power. I 0:14:10.840 --> 0:14:14.600 hate companies that are market takers of price. And unfortunately, 0:14:14.600 --> 0:14:17.760 if you're an EV producer, there's still demand for what 0:14:17.800 --> 0:14:20.480 you're producing, but you've really got to compete on the truck. 0:14:20.560 --> 0:14:25.640 Looks really cool though, product, but I've yet to see 0:14:25.680 --> 0:14:29.680 a positive review. Yeah seriously, Yeah, I mean Lisa took 0:14:29.680 --> 0:14:32.040 one for driving this week. Lisa, what do you think 0:14:32.040 --> 0:14:35.640 of the Tesla? The car? Yeah? 0:14:35.880 --> 0:14:37.720 Would you feel like you're out of a version of 0:14:37.760 --> 0:14:38.440 Mad Max? 0:14:38.920 --> 0:14:41.360 You know we're not, Patrick, We're just going to Lisa 0:14:41.400 --> 0:14:44.280 to talk, you know, cyber truck and all that. Patrick, 0:14:44.320 --> 0:14:46.200 I want to ask your pro question. You got your 0:14:46.240 --> 0:14:49.680 own PLAAMI Capital. Now, what would you do as a 0:14:49.720 --> 0:14:54.680 portfolio manager if they said, Patrick, you own thirteen percent 0:14:54.720 --> 0:14:57.880 in Meta, you own ten percent in Amazon, you got 0:14:57.920 --> 0:15:01.200 to lighten up based on prospectus. How would you respond 0:15:01.200 --> 0:15:01.520 to that? 0:15:02.960 --> 0:15:05.600 Well, in our useage funds, we do have those restrictions. 0:15:05.600 --> 0:15:07.560 In Europe, there's a five to ten forty rule, meaning 0:15:07.600 --> 0:15:09.720 you can only have ten percent in one position. But 0:15:10.480 --> 0:15:13.440 with global mandates that's more than enough for me. Anyway, 0:15:13.440 --> 0:15:15.960 in a US centric mandate, you might start to feel 0:15:15.960 --> 0:15:18.760 constrained by those kind of things. I'm happy to run 0:15:18.760 --> 0:15:20.960 in a global mandate less than ten percent of those 0:15:21.000 --> 0:15:23.120 kind of stocks. So I don't want my portfolios to 0:15:23.160 --> 0:15:26.760 be one stop. That's a client can do that themselves, 0:15:26.840 --> 0:15:30.480 but we manage a thirty stock portfolio, so that's not 0:15:30.560 --> 0:15:32.400 a constraint for me really that I worry about. 0:15:33.160 --> 0:15:36.680 So Patrick, what's your aside from the big tech here? 0:15:36.880 --> 0:15:39.560 What are there any themes that you're playing here in 0:15:39.600 --> 0:15:41.480 twenty twenty four and beyond. 0:15:42.360 --> 0:15:46.320 So we like the big cap tech, We like Energy, Novo, 0:15:46.360 --> 0:15:49.360 nordist Eli, Lilly. Those are the other market darlings that 0:15:49.400 --> 0:15:50.320 I still think. 0:15:50.200 --> 0:15:53.120 Maybe Okay, So yeah, you're right, there are all the 0:15:53.120 --> 0:15:55.240 good spots there, tech and weight loss. 0:15:55.600 --> 0:15:58.400 I can't say enough the value of talking to Patrick Arnstein. 0:15:58.520 --> 0:16:01.800 Look for his work been quoted in essays in the 0:16:01.800 --> 0:16:05.320 Financial Times as well. Patrick Armstrong, thank you so much. 0:16:05.360 --> 0:16:09.120 Form Plurimi Wealth their chief investment. 0:16:09.240 --> 0:16:17.440 Officers Society General great offices in Paris. Man I was there. 0:16:17.600 --> 0:16:20.880 I love those offices there. Subajo Rajapa joints that she's 0:16:20.880 --> 0:16:24.000 head of US rate strategy for Society General or is 0:16:24.040 --> 0:16:27.160 the old school we call it sac gen Sbajo. What 0:16:27.320 --> 0:16:29.800 is our Federal Reserve going to do next? Because we've 0:16:29.800 --> 0:16:32.760 had some guests come in here the past couple of weeks, 0:16:32.800 --> 0:16:36.440 I would say that, say you have in your scenario analysis, 0:16:36.560 --> 0:16:39.520 you have to have a rate hike in your scenario analysis, 0:16:39.600 --> 0:16:41.920 I'm like, what a rate hike? I'm just like, when 0:16:41.920 --> 0:16:44.160 are they cutting and how fast can they cut? Is 0:16:44.200 --> 0:16:47.360 there a scenario where maybe they think about pushing rates 0:16:47.400 --> 0:16:47.840 up a little bit? 0:16:49.000 --> 0:16:51.640 I don't see that scenario at least as of now. 0:16:52.160 --> 0:16:56.480 Perhaps the off chance and we see a sharp prize 0:16:56.560 --> 0:17:01.280 in geopolitical risks leading to supply chain destruct options and 0:17:01.400 --> 0:17:05.399 the economy remaining resilient under the circumstances could argue for 0:17:05.480 --> 0:17:10.560 a policy adjustment. But really, everything we've heard from our 0:17:11.240 --> 0:17:15.399 FED speakers so far has been that yields have peaked, 0:17:15.920 --> 0:17:20.520 so we're looking towards perhaps, you know, if anything, if 0:17:20.560 --> 0:17:23.080 the economy remains strong and resilient, that they might that 0:17:23.160 --> 0:17:26.840 they might cut rates later than the market expects, okay, 0:17:27.160 --> 0:17:30.920 and less than the market expects, but not necessarily hike 0:17:31.000 --> 0:17:32.480 from here on for. 0:17:32.480 --> 0:17:34.680 Better or worse. It's a presidential year. How does that 0:17:34.760 --> 0:17:38.000 factor into kind of the Fed's behavior. Do you think 0:17:38.160 --> 0:17:40.520 a lot of folks are saying they probably got to 0:17:40.560 --> 0:17:43.160 do something no later than June because you don't want 0:17:43.200 --> 0:17:46.000 it to feel like you're starting a rate cutting cycle 0:17:46.160 --> 0:17:47.480 in an election period. 0:17:47.520 --> 0:17:49.120 I guess so. 0:17:49.080 --> 0:17:52.480 Paul has told us that they're not, you know, partisan 0:17:52.560 --> 0:17:55.400 in any way. They're not focused on the political scenario, 0:17:55.400 --> 0:17:58.760 and they tend to do what's what's right for the economy, 0:17:58.760 --> 0:18:01.400 and I do believe them in that. But that said, 0:18:01.440 --> 0:18:05.680 there is no precedence for the FED cutting rates or 0:18:05.680 --> 0:18:10.000 adjusting policy just before an election. So in some respects 0:18:10.000 --> 0:18:13.159 that argues for perhaps a May or June rate cut 0:18:13.480 --> 0:18:16.000 kind of get that process started, even though if they 0:18:16.040 --> 0:18:20.040 don't deliver on subsequent meetings, I think that they might 0:18:20.080 --> 0:18:23.239 space outcuts, but I don't think they take it all 0:18:23.280 --> 0:18:25.879 the way to November to cut rates. 0:18:26.400 --> 0:18:29.960 I want you to overlay your world into the equity 0:18:30.040 --> 0:18:33.560 melt up we're seeing right now, largely from Globin Sachs 0:18:33.640 --> 0:18:35.439 was just done, and he made very clear it's an 0:18:35.440 --> 0:18:40.720 economics call, a productivity call, better economy up, everything goes. 0:18:40.840 --> 0:18:43.719 Do you buy that? How do you link fixed income 0:18:43.880 --> 0:18:45.959 into the equity melt up we're living? 0:18:47.080 --> 0:18:49.240 You know, the equity melt up in the strength of 0:18:49.280 --> 0:18:52.200 the economy is definitely caught everybody by surprise. We have 0:18:52.600 --> 0:18:55.919 very strong growth momentum going into the second half of 0:18:56.040 --> 0:18:59.199 last year, and the momentum in the first quarter is 0:18:59.240 --> 0:19:00.440 also very. 0:19:00.840 --> 0:19:02.600 To get ahead of this because the time because Paul 0:19:02.600 --> 0:19:06.000 wants to jump in here, what's it mean in the 0:19:06.040 --> 0:19:08.840 fixed income space? What does CFOs do? Are we going 0:19:08.880 --> 0:19:12.200 to have an issue ince frenzy? Because times are good. 0:19:12.840 --> 0:19:15.240 We've already seen a little bit of an issuance frenzy 0:19:15.280 --> 0:19:17.800 in the first month of the year, and that's carrying 0:19:17.840 --> 0:19:23.120 over into February with tenny yields coming from say five 0:19:23.160 --> 0:19:26.320 percent last year to around four and a quarter percent now. 0:19:26.920 --> 0:19:31.600 But broadly speaking, it is a buyer's market in bonds 0:19:31.680 --> 0:19:36.879 because yields are very attractive, whether it be in investment 0:19:36.960 --> 0:19:40.719 grade or high yield, as well as in treasures. I mean, 0:19:40.760 --> 0:19:44.040 we get two year and five year bonds being issued, 0:19:44.920 --> 0:19:46.960 you know, this week, and you're going to see a 0:19:47.000 --> 0:19:50.479 pretty decent amount of demand from investors because of the 0:19:50.640 --> 0:19:53.280 higher interest rates that you can and yield that you 0:19:53.320 --> 0:19:53.920 can pick up. 0:19:54.720 --> 0:19:57.840 So I'm looking at a ten year like four point 0:19:57.920 --> 0:20:02.280 two four percent here. Are we going meaningfully higher here? 0:20:02.400 --> 0:20:04.240 Or can are Do you expect rates in the back 0:20:04.280 --> 0:20:06.640 half of this year to come down as we look 0:20:06.640 --> 0:20:08.440 at our yield curve, I. 0:20:08.359 --> 0:20:11.160 Do expect rates to come down gradually during the course 0:20:11.200 --> 0:20:14.120 of this year. I think the tenure yields around four 0:20:14.119 --> 0:20:16.720 and a quarter percent is a buy. In my view, 0:20:17.480 --> 0:20:20.680 investors are going to be looking at you know, two 0:20:20.720 --> 0:20:24.360 years around four seventy five and tens around for twenty 0:20:24.400 --> 0:20:28.840 five as a buying opportunity. And every time you know, 0:20:28.920 --> 0:20:31.800 bonds sell off, I see the buye the dip mentality 0:20:31.840 --> 0:20:35.240 come in and put a cab on how high yields 0:20:35.240 --> 0:20:38.240 can rise. So that's our base case, and I think 0:20:38.240 --> 0:20:41.879 we think teny yields will probably decline to around you know, 0:20:41.920 --> 0:20:45.200 three seventy five sometime in the middle of this year, 0:20:45.640 --> 0:20:48.200 and then perhaps start rising towards the end of the year. 0:20:48.240 --> 0:20:50.399 Again, what does the tenure really you'ld do with a 0:20:50.440 --> 0:20:53.760 three seventy five nominal yield? You take the nominal yield, folks, 0:20:54.119 --> 0:20:58.119 you subtract out Sivadra's best guess on inflation, and that 0:20:58.240 --> 0:21:02.719 gives you the residualtion adjusted yield. What's that number? Can 0:21:02.760 --> 0:21:05.120 you get down to two point zero zero? One point 0:21:05.240 --> 0:21:05.760 zero zero? 0:21:06.320 --> 0:21:10.200 So tenre yields around ten real yields I should say 0:21:10.240 --> 0:21:13.840 around two percent or higher is again a buying opportunity 0:21:13.840 --> 0:21:18.240 over the long run, because inflation expectations aren't really moving 0:21:18.280 --> 0:21:21.920 that much ten year break heavens have been anywhere between 0:21:22.400 --> 0:21:23.840 two and two and a half percent. 0:21:24.000 --> 0:21:26.320 So you have a three seventy five nominal. Right, you 0:21:26.440 --> 0:21:29.280 just said that, where does the ten year real yield end? 0:21:30.440 --> 0:21:33.359