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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 1: Every business day we bring you interviews from CEOs, market pros,
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Speaker 2: will find this. Mike, I took a look at the
Speaker 2: four one K man. I crushed it this year.
Speaker 3: You were good at this. You were in stocks, I
Speaker 3: take it. Yeah, you were all in.
Speaker 2: Throw it all in the index place.
Speaker 3: You didn't move out to cash and doing.
Speaker 2: After thirty five years, I don't even think about it.
Speaker 2: That's kind of my investment horizon, though that's kind of
Speaker 2: changing as we go along here. But let's talk to
Speaker 2: somebody who really thinks about it a little bit more
Speaker 2: deeply than I do. Gena Martin Adams, chief equity strategist
Speaker 2: for Bloomberg Intelligence, joins us live here in our Bloomberg
Speaker 2: Interactive Broker studio. So Ginette, first of all, explain to
Speaker 2: me what happened from like October nineteenth to year end
Speaker 2: twenty twenty three. Wow, that we had some big moves
Speaker 2: in stocks and bonds.
Speaker 4: Yeah, I mean I think a few things happened. First
Speaker 4: is we were incredibly oversold. Sentiment was very negative. By
Speaker 4: the end of October. Our market pulse index was sitting
Speaker 4: at panic territory, and it's been pretty good at signaling
Speaker 4: some near term wiggles in the equity market panic to manic,
Speaker 4: panic to manic. It was really the story of twenty
Speaker 4: twenty three. We hit another panic button by the end
Speaker 4: of October. At that same time, in the month of October,
Speaker 4: we started to see the bond market turnover, and I
Speaker 4: think that was a really big catalyst for stocks. With
Speaker 4: the surgeon yields that we experienced in the third quarter
Speaker 4: being really painful for equities, The reversal that emerged in
Speaker 4: the bond market by late October early November was pretty
Speaker 4: profound as a driver of risk tolerance in the equity market,
Speaker 4: and it was off to the races for all markets.
Speaker 4: As we finally got comfortable with the idea that the
Speaker 4: end is here for hawkish monetary policy, we're likely to
Speaker 4: move to a much more dubbish stance throughout the course
Speaker 4: of twenty twenty four, and that's what markets started a
Speaker 4: price in the fourth quarter.
Speaker 3: You know, Gina. It was another one of those years
Speaker 3: where it was the huge megacap growth stocks, you know,
Speaker 3: the Magnificent seven or whatever you want to call them,
Speaker 3: really driving the bus. And I feel like it's been
Speaker 3: frustrating for sort of old school value investors to watch
Speaker 3: this happen year after year, there always seems like there's
Speaker 3: you know, a dawn coming for value and value is
Speaker 3: going to start performing. Is this the year for that?
Speaker 2: Do you think?
Speaker 4: You know, I think that value actually really started to
Speaker 4: get its legs all the way back in twenty twenty two.
Speaker 4: And it's a bit of a misnomber that value as
Speaker 4: a terrible performer last year. It really was about market
Speaker 4: cap more than anything. When you market capajust the value factor,
Speaker 4: it was a pretty flat year. It wasn't a great year,
Speaker 4: but it wasn't a horrible year as you would assume
Speaker 4: when you don't market capajus the value factor. So I
Speaker 4: think that's something to consider. Also, really from the October
Speaker 4: low small caps have been on a rip as well,
Speaker 4: So you like to see small caps performing a little
Speaker 4: while value not necessarily because large caps have been performing also,
Speaker 4: but certainly, lower volatility stocks have underperformed high vall stocks,
Speaker 4: high leverage stocks have outperformed low leverage stocks, so we
Speaker 4: are seeing risk tolerance re emerge. Will it be a
Speaker 4: year for value is a really tough call right now.
Speaker 4: I mean, I think when you look at the composition
Speaker 4: of you know, the value indices versus the growth indices,
Speaker 4: the growth industries still have the favor of earnings trends,
Speaker 4: and with policy sort of the policy impediment going away,
Speaker 4: it's really tough to make a call for value to
Speaker 4: be the big outperformer. With the one exception of maybe financials.
Speaker 4: Inside the value index, you do have a pretty strong
Speaker 4: representation from the financials segment. And if the yield curve
Speaker 4: steeps continues to become more upward sloping, that could benefit
Speaker 4: financials materially. I don't know how much investors are going
Speaker 4: to embrace that trade, because everyone's still quite scared of
Speaker 4: what's on the books of the banks. But nonetheless there
Speaker 4: is an opportunity there, and if you can get some
Speaker 4: stabilization in the commodities complex, that could enable the value
Speaker 4: trade as well.
Speaker 2: Git, I want to talk about earnings. I'm looking just
Speaker 2: at the S and P five hundred and on the
Speaker 2: Bloomberg terminal, looks like there's twelve percent kindish type of
Speaker 2: earnings growth forecast for twenty twenty four. How do you
Speaker 2: feel about that number? Should I considered some earnings risks
Speaker 2: still out there in market?
Speaker 4: You know, I think what's happening with earnings is really
Speaker 4: interesting because if you were purely relying on macro factors
Speaker 4: to forecast earnings, you would have gotten the last year wrong,
Speaker 4: completely wrong. It really isn't a macro driven earnings trends.
Speaker 4: And I think that this sort of dichotomy between what
Speaker 4: we talk about all the time, which is the sluggish
Speaker 4: macro economy, and what's happening in the earnings environment creates
Speaker 4: a ton of confusion. But what's really driving earnings growth
Speaker 4: right now is margin improvement. It has very little to
Speaker 4: do with top line growth. It has very little to
Speaker 4: do with some of the broad economic indicators that we're
Speaker 4: following with the one exception of inflation, and inflation has
Speaker 4: been incredibly consequential to determining the earnings outlook over the
Speaker 4: course of the last two years. Inflation's acceleration in twenty
Speaker 4: twenty two contributed to massive downdraft in earnings expectations and
Speaker 4: earnings growth. Inflation's deceleration in twenty twenty three became a
Speaker 4: big tailwind. As long as inflation continues to decelerate, as
Speaker 4: long as PPI in particular decelerates faster than CPI, you
Speaker 4: can count on margin improvement to continue to drive some
Speaker 4: degree of s and p five hundred improvement irrespective of
Speaker 4: what's going on in the broader macro and broader volume
Speaker 4: sales environment.
Speaker 3: Yo Gena. Paul was talking earlier about how many rate
Speaker 3: cuts are actually priced y to the short term interest
Speaker 3: rate market. No one seems to really believe we'll get
Speaker 3: six rate cuts as the current pricing suggests. What does
Speaker 3: that mean for the equity market? If there is, you
Speaker 3: start to get some disappointment from the Fed speakers to
Speaker 3: not expect that much easy.
Speaker 4: Yeah, this goes back to something we were talking about
Speaker 4: a little bit earlier, and that is is the yield
Speaker 4: curve going to continue to upwardly steep in? Because that's
Speaker 4: where you see the risk emanate or sort of work
Speaker 4: it work its way into the equity market. Is if
Speaker 4: the yield curve doesn't behave as anticipated, then you start
Speaker 4: to see much more equity market sort of weakness potentially emerge.
Speaker 4: So the question becomes how much of that rate cut
Speaker 4: is priced into the short end versus the long end?
Speaker 4: What's the term premium we're looking at today, which is
Speaker 4: a whole other set of questions that we need to answer.
Speaker 4: I would say it is a risk going into this year,
Speaker 4: but it's nothing like the risk of oh my gosh,
Speaker 4: the FED has to tighten five times, which we faced
Speaker 4: at the beginning of twenty twenty two. And I think
Speaker 4: that's a really significant point to be made. Is the
Speaker 4: risk of the FED not quite doing as much as
Speaker 4: we hoped is very different than the risk of the
Speaker 4: FED really pushing the brakes on the economy, which is
Speaker 4: a very different environment. So I think in nuance it
Speaker 4: means that we could have a lot of wiggles. It
Speaker 4: could be a choppier market than many are anticipating. It
Speaker 4: certainly is not a market that looks exactly like the
Speaker 4: fourth quarter of twenty twenty three, which was almost idyllic. Yeah,
Speaker 4: we're not going to have the perfect environment to merge.
Speaker 4: It's probably a much choppier environment through the next four
Speaker 4: quarters or so, as we contend with a FED that
Speaker 4: is going to be on again, off again and really
Speaker 4: much more data dependant, perhaps than the market is anticipating.
Speaker 2: Get a little technical here, breath in the market. It
Speaker 2: was terrible, arguably for the first nine months of twenty
Speaker 2: twenty three, the Magnificent seven. It seemed to get better
Speaker 2: there during that year. In rally, we had to you
Speaker 2: know the russell, you know out or form we had
Speaker 2: the even if you look at the S and P
Speaker 2: equal weighted, that outer perform the SPX. So it looks
Speaker 2: like the breath kind of got better in that fourth quarter.
Speaker 2: Is it where we want to see it today?
Speaker 4: It's a lot better. It might actually be a little
Speaker 4: overbought at this point in time, and so I hate
Speaker 4: to be the bearer of bad news or anything. But
Speaker 4: when you get to a point where more than seventy
Speaker 4: five percent of sticks they're trading above their fifty day
Speaker 4: moving average, where RSIs are surging above eighty, which is
Speaker 4: where we were by the end of December, it usually
Speaker 4: is a point that triggers some degree of consolidation in
Speaker 4: the equity market. We're already seeing that at the start
Speaker 4: of this year. So we got a bit overbought on breath.
Speaker 4: I don't want to put too much cold water on it,
Speaker 4: because of course, we want more participation to ultimately fuel
Speaker 4: the market's gains, and seeing more participation across the world
Speaker 4: as well as into lower caps is a very good
Speaker 4: thing for the equity market's longer term trend durability. But
Speaker 4: in the short run it probably does indicate that we're
Speaker 4: a little too overbought, and we're due for some consolidation.
Speaker 3: You know, Gene, It's a time of year where a
Speaker 3: lot of the old seasonality tropes get trotted out dependably
Speaker 3: and reliably, you know, as goes January, as goes rest
Speaker 3: of the year. Some people just look at the first
Speaker 3: week and believe that that's a sign of where we're
Speaker 3: going for the year. Are you a buyer of any
Speaker 3: of that?
Speaker 4: Ah, not hugely. I mean, of course, if you have
Speaker 4: a great January, you've got one month under your belt,
Speaker 4: and so it means that one month out of twelve
Speaker 4: is positive, and so the math works in your favor
Speaker 4: a little bit. So if we do have a pretty
Speaker 4: positive January, generally that indicates that your year as more
Speaker 4: likely to be positive. Yeah. I think we have to
Speaker 4: be a little bit more conscientious about short term changes
Speaker 4: and shifts in the broader macro as well as in
Speaker 4: the earnings landscape, and those tend to dominate a lot
Speaker 4: more in my thought process. I do think that after
Speaker 4: the incredible search we had in the fourth quarter, we're
Speaker 4: due for consolidation. But broadly, all of the trends are
Speaker 4: still very supportive of stocks and really have been since
Speaker 4: late twenty twenty two. It won't be a perfect climb higher,
Speaker 4: but it is worth noting that participation is great. We
Speaker 4: want to see this some improvement and momentum is a
Speaker 4: positive thing, and none of these things are things that
Speaker 4: we want to fade over the long run.
Speaker 2: What's the status of University of Florida football?
Speaker 5: Oh?
Speaker 2: God, do we have to go there?
Speaker 4: I mean, you know, secretly, I was really excited to
Speaker 4: see Michigan beat Alabama. Right, this is the depths of
Speaker 4: my despairs and now looking at other teams because my
Speaker 4: team is no longer in the run. It's been a
Speaker 4: rough couple of years.
Speaker 1: I don't know.
Speaker 4: I would like to say yes, but it's not looking.
Speaker 3: We're optimistic about the market than the Gators.
Speaker 4: It sounds yeah.
Speaker 2: With Gina Martin Adams, chief equity strategist for Bloomberg Intelligence
Speaker 2: and a proud graduate of the University of Florida.
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Speaker 2: We got some delivery data just recently for some of
Speaker 2: the electric vehicle companies, some kind of Tesla Rivian all
Speaker 2: that type of stuff. Let's get the latest here from
Speaker 2: Steve Man. He's a global auto market research leader for
Speaker 2: Bloomberg Intelligence. He's zooming in from our Princeton campus down
Speaker 2: there in Princeton, New Jersey. Steve, let's start with Tesla here.
Speaker 2: The numbers kind of in line with expectation, but I
Speaker 2: know the news headline is Tesla falls behind BYD and
Speaker 2: quarterly EV sales. You spent many years in Hong Kong
Speaker 2: leading our Bloomberg Intelligence effort there, so you had first
Speaker 2: hand look at the growth and development of the Chinese
Speaker 2: electric vehicle market. Tell us what's happening with Well, first
Speaker 2: of all, like who is by D and how do
Speaker 2: they compete against Tesla?
Speaker 5: Well, yeah, that's right, Paul. By D fourth quarter EV
Speaker 5: sales came in about eight percent, about above Tesla's on
Speaker 5: a global level. So it's pretty significant first time ever
Speaker 5: that the Boi D bet Tesla. Well, by D is
Speaker 5: Warren Buffett back electric vehicle manufacturer. You know, they've they're
Speaker 5: very vertically integrated. They've launched a slew of cheaper, less
Speaker 5: expensive models in the China market. So that's you know,
Speaker 5: probably driven a lot of the sales in the fourth
Speaker 5: quarter on the back of you know, weaker macro macroeconomic conditions.
Speaker 5: So they've done well. BYD has done well, and.
Speaker 3: Yet Steve, we don't see any by D vehicles in
Speaker 3: the US. Correct me if I'm wrong about that, at
Speaker 3: least passenger vehicles. I wonder why that is. Is it
Speaker 3: tariffs or trade war issues? Is it just a business
Speaker 3: decision on their part.
Speaker 5: Oh, it's a combination of all that. I think. More importantly, uh,
Speaker 5: BYD just doesn't have, you know, the distribution network like
Speaker 5: the Big Three and some of the European companies have
Speaker 5: here in the US, so it's really hard for them
Speaker 5: to establish themselves to really build the brand in the US.
Speaker 5: So on top of all the stuff you just talked about,
Speaker 5: they you know, their their focus is really not in
Speaker 5: the US, though they are getting into Europe. They're planning
Speaker 5: to build a plant in Hungary in twenty twenty six.
Speaker 5: It's a low cost producing manufacturing country, so they want
Speaker 5: to kind of break into the European market first then
Speaker 5: think about the US. So you know this this, you
Speaker 5: know we were talking about the the EV sales crown.
Speaker 5: I think it's going to be flip flopping between Tesla
Speaker 5: and and buy D in the next year, maybe into
Speaker 5: twenty twenty five, until you know, BID has a plant
Speaker 5: in Europe. You know, that's the you know, that's when
Speaker 5: they you know, move out of their local comfort zone,
Speaker 5: local market in China and expand overseas. And you know,
Speaker 5: that's probably when they're gonna if if you know, I
Speaker 5: do Bid continue to do well, that's probably when they're
Speaker 5: going to solidify the lead for global EV sales.
Speaker 2: You know. Interesting, I'm looking at an interesting article on
Speaker 2: the Bloomberg terminal today from Bloomberg newsctric car models eligible
Speaker 2: for seventy five hundred dollars tax credit cut to thirteen
Speaker 2: from almost two dozen. The new list excludes vehicles that
Speaker 2: use certain Chinese made parts that can't be good for
Speaker 2: EV sales in the United States.
Speaker 5: No, it's it's interesting because the Inflation Reduction Act was
Speaker 5: supposed to generate or supposed to increase EV sales in
Speaker 5: the US. But it's kind of counterintuitive. But I think
Speaker 5: that's only temporary because what the IRA really is trying
Speaker 5: to do is get us to build a supply chain,
Speaker 5: battery supply chain locally here in the US, so that
Speaker 5: battery prices come down. EV's becomes more affordable for the
Speaker 5: US consumer. So if you look out, if you look
Speaker 5: at all the investments that's been made so far on
Speaker 5: battery plants, a lot of those will actually come online
Speaker 5: in twenty twenty five, twenty twenty six. That's gonna make
Speaker 5: US battery production lot more competitive and probably able to
Speaker 5: produce batteries below what the Chinese are producing at. So
Speaker 5: we think that's right. We think ev sales will probably
Speaker 5: take a break in the next couple of years until
Speaker 5: more models come in plays with play with cheaper batteries,
Speaker 5: and hopefully, hopefully the mindset of the US consumer changes
Speaker 5: a bit and they get they become more warmed up
Speaker 5: to EV's, and hopefully demand will improve twenty twenty five
Speaker 5: and beyond.
Speaker 3: You know, Steve, I rode over the weekend in Rivian
Speaker 3: for the first time. My buddy finally got delivery over Rivian.
Speaker 3: I don't know what you would I think it was
Speaker 3: like five years ago. I got to say, it's an
Speaker 3: impressive car. I mean, I'm know Matt Miller as far
Speaker 3: as reviewing automobiles. But I was impressed. But then I
Speaker 3: read today Steve that Rivian stock is really taking a
Speaker 3: beating today because their deliveries in the fourth quarter missed estimates. Now,
Speaker 3: I know it's a very spensive vehicle. I wonder if
Speaker 3: that's part of the problem or is it execution? Is
Speaker 3: it still supply chain issues? What's going on with Rivian
Speaker 3: that they're missing estimates?
Speaker 5: Yeah, I think it's down ten percent today, and it's
Speaker 5: it's more of an operational issue. I think. You know,
Speaker 5: a few weeks ago, you know, there was an announcement
Speaker 5: that AT and T was going to buy the Rivian trucks,
Speaker 5: and you know, I think everybody got excited to stop
Speaker 5: search quite a bit. I think that's because people thought,
Speaker 5: you know, the break even is actually sooner than later.
Speaker 5: Right now, Rivian actually uses on every card that they
Speaker 5: that they built. Uh So, now that you know they're
Speaker 5: you know, the they kind of they really didn't really
Speaker 5: miss They kind of kind of hit consensus expectation. But
Speaker 5: I think consensus the street was expecting a lot higher
Speaker 5: number a beat. So the you know, the thinking is
Speaker 5: maybe the breaking even point is not gonna be twenty
Speaker 5: twenty four, twenty twenty five, probably in twenty twenty six.
Speaker 5: So the concern is, you know, how are they gonna
Speaker 5: make it through between now and then?
Speaker 3: Yeah, these are one hundred thousand dollars cars too, right,
Speaker 3: there's no room to cut prices.
Speaker 6: AA true.
Speaker 2: I mean Matt Matt Miller was able to arrange a
Speaker 2: week long test for me of the F one fifty Lightning,
Speaker 2: which was an awesome vehicle. And I'm not an EV person,
Speaker 2: I'm not certainly not a truck person. I'm a Wall
Speaker 2: Street person.
Speaker 3: Biller's just farming out vehicles.
Speaker 2: Yeah, but the sticker on this thing was ninety four grand. Yeah.
Speaker 5: Jo.
Speaker 2: Wow, that's just a serious thing. So all right, Steve More,
Speaker 2: Tesla News, their their deliveries. We're pretty much in line
Speaker 2: with estimates. Is that Is that a good performance for
Speaker 2: Tesla here?
Speaker 5: Well, they did revise their guidance and adviser guidance.
Speaker 6: Yes.
Speaker 5: I think Elon Musk at the beginning of twenty twenty
Speaker 5: three was talking about two million, two million unit number.
Speaker 5: You know, they had a bunch of price cuts, the
Speaker 5: drum at the man drum up demand and you know
Speaker 5: they ended up at one point eight. Uh, it's probably
Speaker 5: gonna be a slower growth, like I said earlier, in
Speaker 5: the next couple of years. We think, you know, Tesla
Speaker 5: maybe can able to do two point one, you know,
Speaker 5: especially with uh, you know the price cuts that the
Speaker 5: series of price cuts that they made in twenty twenty three,
Speaker 5: and maybe cyber truck coming online hopefully you know, Uh,
Speaker 5: they can get that going quickly, get that you know,
Speaker 5: new battery plant going quickly and hit that two point one.
Speaker 5: But there is a risk in terms of earnings. Uh,
Speaker 5: it's it's a it's a it's a tall order for Tesla.
Speaker 5: It's a balancing act.
Speaker 2: You know.
Speaker 5: They want to continue to pump the Model three and
Speaker 5: Model wiout get sales up because that's a cash cow
Speaker 5: for them. But at the same time they're going to
Speaker 5: manage ramping up cyber truck and and the next model
Speaker 5: that they want to introduce, which is a compact you know,
Speaker 5: it's dubbed the Model to the compact vehicle. So you know,
Speaker 5: there's a lot of there's a lot of things they
Speaker 5: got to mention twenty twenty four, and you know, I
Speaker 5: think there is there is a risk to to kensensus earnings.
Speaker 2: All right, Steve Mann, thanks so much. For joining us.
Speaker 2: Steve Man. He's a global auto market research leader for
Speaker 2: Bloomberg Intelligence based now in Princeton, New Jersey, after you
Speaker 2: know managing Bloomberg Intelligence in Hong Kong for many years.
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Speaker 3: Mike.
Speaker 2: If you were a fund manager and you weren't all
Speaker 2: in on the fourth quarter, there's no way you could
Speaker 2: perform last year.
Speaker 3: You have a hard time writing that letter to investors
Speaker 3: at the end last year.
Speaker 2: Exactly right. Let's check in with somebody who does do
Speaker 2: this stuff for loving. Phil Taes. He's the CEO Tay's
Speaker 2: Asset Management, and Phil, thanks for joining us here in
Speaker 2: our studio.
Speaker 3: Here.
Speaker 2: I remember, I believe the last time we chatted with you,
Speaker 2: you had over ninety percent of your assets in cash.
Speaker 2: Hopefully you weren't that positioned in the fourth quarter.
Speaker 7: And thankfully we were not. So we haven't run a
Speaker 7: pretty tight trend following algorithm across our different assets.
Speaker 2: Trend following algorithm.
Speaker 7: Yes, yeah, that's some multi salabc stuff for you there.
Speaker 7: But we came back into the markets early in the
Speaker 7: fourth quarter and we're there for the rest of the year.
Speaker 7: I mean, you remember that downturn we had last year.
Speaker 7: It looked like it was going to turn into something.
Speaker 2: It didn't.
Speaker 7: And yeah, thankfully everyone had most people that they were
Speaker 7: invested at least had a great fourth quarter.
Speaker 3: Yeah, Phil, I was cracking up reading your notes to
Speaker 3: us earlier today. You say the key insight for the
Speaker 3: year is to adopt a George Costanza perspective exactly.
Speaker 5: So.
Speaker 7: I guess they're probably listeners that don't know who George is.
Speaker 7: But on Seinfeld, he made such ubiquitously bad decisions. He
Speaker 7: decided the best way to lead his life was to
Speaker 7: do the opposite of what his judgment told him, right,
Speaker 7: And I think if you look back over the last
Speaker 7: really four years now, you just see that markets were inexplicable,
Speaker 7: Like in twenty twenty and twenty twenty one pre vaccine right,
Speaker 7: markets were soaring after a downturn of course in twenty
Speaker 7: twenty and really almost no one could have predicted that.
Speaker 7: Then again, in twenty twenty two, we thought markets were
Speaker 7: going to do okay, despite the fact that we thought
Speaker 7: the inflation was gonna be transitory, yields wouldn't go higher.
Speaker 7: Markets got hit very hard. And how many people were
Speaker 7: predicting a really great market in twenty twenty three.
Speaker 2: Not many.
Speaker 7: And in fact, if you look at Forbes' collection of
Speaker 7: Wall Street strategists, that was one of the first time
Speaker 7: they were ever in times they were ever negative, thinking
Speaker 7: they would have a five percent loss in twenty twenty three.
Speaker 7: Of course, that obviously didn't happen. So let's just do
Speaker 7: the opposite of what our best judgment tells us for
Speaker 7: twenty twenty four.
Speaker 2: What are your thoughts here as we start the new year?
Speaker 7: Okay, So our approach is different than many. In other words,
Speaker 7: we don't want to be firmly directional for the year.
Speaker 7: We don't think that's wise for reasons I just talked
Speaker 7: about it's almost impossible to predict the markets. So what
Speaker 7: we embrace is an approach we call a behavioral portfolio.
Speaker 7: It's in all seasons approach that does two things. It
Speaker 7: attempts to allow you to be in core asset classes
Speaker 7: like stocks and bonds, but do it in a way
Speaker 7: that addresses contingencies. You know, in my notes I wrote,
Speaker 7: I said gene Fama is a smart guy, but what
Speaker 7: investors want is not the very best performance. They want
Speaker 7: to be in the markets, but not get blown to pieces.
Speaker 7: So for equities, take half your equities, put it into
Speaker 7: hedge equities, so that if markets turned down, you're going
Speaker 7: to have some potentially bolstering offsetting appreciation. And some things
Speaker 7: for fixed income be adaptive, like have an unconstrained fund
Speaker 7: that can be in different parts of the market, T bills,
Speaker 7: high yould bonds, investment grade.
Speaker 3: You know, when you look at some of the indexes
Speaker 3: of trend following as a strategy, you know, I look
Speaker 3: at the CTI ETFs as one example of menaged futures GTF,
Speaker 3: the dB Cross Asset ct index. They had really great
Speaker 3: twenty twenty twos when the when the stock market was
Speaker 3: down and the bond market was down from these indexes.
Speaker 3: Not such a good twenty twenty three when you would think,
Speaker 3: you know, the equity markets seemed to just go in
Speaker 3: one direction last year.
Speaker 2: Is it?
Speaker 3: Is there sort of a bias to being short and
Speaker 3: trend following that you do You do better when you're
Speaker 3: when you're on the short side when the market's going down.
Speaker 7: Well, so I think you have to be careful what
Speaker 7: you look at. So if you're looking at CTAs, often
Speaker 7: they're investing in trend following in futures contracts that are
Speaker 7: not necessarily stock market yeah, right, and so you want
Speaker 7: to focus on something that's more of a pure hedge
Speaker 7: equity play. But right, so often hedged equity strategies will
Speaker 7: trail during a rise market. And I think that that's
Speaker 7: why this combined approach of being hedge equities for half
Speaker 7: of your equities just conventional stuff or the other half
Speaker 7: of your equities on average, if you would have done that,
Speaker 7: you still would have probably been up, you know, nicely
Speaker 7: double digits, maybe a little over twenty percent, not all
Speaker 7: the way with the market, but you would have been
Speaker 7: there for the markets.
Speaker 2: So how much cash do you have now or are
Speaker 2: you essentially fully missed.
Speaker 7: Zero cash, so.
Speaker 3: We went when we went along.
Speaker 7: Okay, now I say that with one caveat and some
Speaker 7: of our unconstrained bond strategies, we do have some T
Speaker 7: build exposure presently, but across all of our equity strategies
Speaker 7: and everything else, we're fully out.
Speaker 2: So in fixed income, I mean fixing gum actually had
Speaker 2: positive returns in twenty twenty three after disester rush twenty
Speaker 2: twenty two. Right, what do you think here? Do if
Speaker 2: am I in fixing them? Do I go take credit risk?
Speaker 2: How do you guys look at that?
Speaker 6: Yeah?
Speaker 7: So, I think the mistake that many people are still
Speaker 7: making is they're looking at how great T bills were
Speaker 7: in twenty twenty two and the first part of twenty
Speaker 7: twenty three and saying that's our bet, or we're gonna
Speaker 7: go to CDEs or fixing nuities or something like that.
Speaker 7: The altourn a five percent rate. That's the wrong trade.
Speaker 7: And the reason it's the wrong trade is if you
Speaker 7: look at the history of investment grade bonds and high
Speaker 7: yield bonds during a time when the FED is easing,
Speaker 7: there have been historically great returns up ranging up as
Speaker 7: high as fifty percent sometimes, So this idea that five
Speaker 7: percent is the best thing anymore has to vanish. So
Speaker 7: we look at a couple of scenarios. You look at
Speaker 7: soft landing, hard landing, no landing. As long as inflation
Speaker 7: is not resurgent, right, as long as that key measure
Speaker 7: stays low, I think bonds do pretty decently. And then
Speaker 7: that one contingency, which I do think you have to address,
Speaker 7: the possibility of inflation comes higher that could put bonds
Speaker 7: underwater against you need to be. That's why I say
Speaker 7: agile and unconstrained with your bond approach.
Speaker 3: So when you go heavy into cash, it's more a
Speaker 3: reflection of what you expect the soccer bond markets to do.
Speaker 3: It's not that yield you're getting any cash in a
Speaker 3: money market fund or wherever, or T bills that is
Speaker 3: influencing the decision exactly.
Speaker 7: We're we're just going defensive. We're not making a prediction.
Speaker 7: We're just reacting and what's happened to the markets, so
Speaker 7: we're just going defensive it.
Speaker 2: So when I looked at the fixing come returns for
Speaker 2: twenty twenty three, I was really surprised to see that
Speaker 2: the real money was made in high yield, you know,
Speaker 2: kind of a thirteen fourteen percent total return, and that's
Speaker 2: in the midst of everybody every day talking about a
Speaker 2: recession where I would think you wouldn't want to take
Speaker 2: credit risk. Why did HI yield do so well as year?
Speaker 7: Well, I think it's just a function of a couple
Speaker 7: of things. One of the main things is that you know,
Speaker 7: earlier in the earlier in twenty twenty three, highild bonds
Speaker 7: were yielding close to nine percent, right, So if that's
Speaker 7: your starting place before you have any appreciation, that potentially
Speaker 7: looks very good. And then the fact that we had
Speaker 7: this strong fourth quarter and high old bonds rally a
Speaker 7: lot and fourth quarter. So what you were talking about
Speaker 7: earlier is a is a big part of what happened.
Speaker 3: And fell In true Costanza fashion, it looks like you've
Speaker 3: invented your own holiday here, the National Investment Risks Day.
Speaker 3: What's that all about?
Speaker 7: Yeah, So someone of my staff created this on my birthday,
Speaker 7: January the nineteenth, and it's actually registered with the National
Speaker 7: Archives all day. You can find it.
Speaker 3: The fest of us for investors, And we used to.
Speaker 7: Have an acronym policy, but now we've called it NERD
Speaker 7: Day and ird. But here's the thing is, like we
Speaker 7: we continually watch these investments that are super horrible ideas
Speaker 7: become very popular and then maybe have trillions of dollars
Speaker 7: of net worth. And what's so fascinating is that often
Speaker 7: the biggest financial institutions in the world like get on board.
Speaker 7: And so what we're trying to do each year is
Speaker 7: look at things that are like that, things that are
Speaker 7: absolutely crazy.
Speaker 3: What are the most.
Speaker 7: Insane ideas that happen In twenty twenty three, we have
Speaker 7: an esteem staff like the behavioral economist Dan Crosby, Brian Portnoy,
Speaker 7: and I think even you know Bloomberg columnist is coming
Speaker 7: on to oversee the webinar.
Speaker 3: So we're looking forward to that.
Speaker 2: So with the gym in twenty twenty four, what are
Speaker 2: you going to stay? What are you staying away from? Here?
Speaker 2: Is there's something here? I don't know if it's geopolitical
Speaker 2: risk that's causing me to shy away from something. What
Speaker 2: do you stay away from? Do you think at this
Speaker 2: early stage.
Speaker 7: Well, at the moment it's cash, okay, at the moment,
Speaker 7: you just stay away from T bills because I think
Speaker 7: that's the losing trade. Now I say that understanding that
Speaker 7: that things can adapt very quickly. I mean, we're seeing
Speaker 7: clearly we have really a strong sentiment and sentiment indicators
Speaker 7: kind off the charts coming into the end of the year.
Speaker 7: So just that alone would say that we could have
Speaker 7: a downturn here. I don't know how big it could be,
Speaker 7: but I just think you know, if you've already missed
Speaker 7: twenty twenty three, if you were in cash and you
Speaker 7: didn't experience what we had in the fourth quarter, but
Speaker 7: also the rest of the year, that doesn't bode well
Speaker 7: for what may happen in twenty twenty four. If you
Speaker 7: stay in cash.
Speaker 3: Right now, yeah, well fell in quickly. We only have
Speaker 3: about a minute left. But a lot of people pooh
Speaker 3: pooh crypto and bitcoin these days, But with anit CF
Speaker 3: coming up, I gotta think crypto could be attractive to
Speaker 3: a trend filer. Am I Am? I wrong?
Speaker 7: Well, No, crypto is attractive to one of those three
Speaker 7: top categories for the dembest ideas. So here's the trifecta.
Speaker 7: You need to have something that has no asset value,
Speaker 7: something that has no income and no potential for income,
Speaker 7: and has just appreciated eighteen million percent in the last
Speaker 7: twenty years. Right, So if you have all three of those,
Speaker 7: that's like potential dumbest.
Speaker 3: Investment of twenty twenty three.
Speaker 2: Phil Tates, thanks so much for joining us, Philtase, he's
Speaker 2: the CEO founder Tay's Asset Management. Some really excellent performance numbers.
Speaker 2: Appreciate getting a few minutes of his time. The S
Speaker 2: and P five hundred off about six tens of one percent,
Speaker 2: the Doubt absolutely unched on the day, nothing happened in there,
Speaker 2: the Nastak off about one point four percent, the Russell
Speaker 2: kind of hanging in there in terms of relative performance,
Speaker 2: down only a quarter of one percent. So a lot
Speaker 2: of those technicians like to see again the broadening out
Speaker 2: of the market, see some of the small cappers do well,
Speaker 2: or certainly seeing that.
Speaker 6: Today you're listening to the Tape Canser Live program Bloomberg
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 6: You can also listen live on Amazon Alexa from our
Speaker 6: flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
Speaker 2: Michael Reagan and Paul Sweeney were live here in a
Speaker 2: Bloomberg Interactive, Gropper Studio or streaming live on YouTube, so
Speaker 2: you can check us out there. Unfortunately, there's no shortage
Speaker 2: of geopolitical hotspots around the world, and we're fortunate to
Speaker 2: have someone who can really help us stay on top
Speaker 2: of it all. That's Mick mulroy. He's the co founder
Speaker 2: of the Lobo Institute. That's just the beginning. He's a
Speaker 2: former Deputy Assistant Secretary of Defense for the Middle East
Speaker 2: at the US Department of Defense, former paramilitary operations officer,
Speaker 2: and then for many many years a US Marine Infantry officer.
Speaker 2: We thank him for all of his service here. Sincerely, Mick,
Speaker 2: I don't know where to start. There's so many hotspots
Speaker 2: around the world. Let's just start in the Middle East.
Speaker 2: I guess the latest headline is Iran is kind of
Speaker 2: poking around there. What's your latest assessment on what's happening
Speaker 2: there in the greater Middle East these days?
Speaker 8: So great to be with you guys in happy New Year.
Speaker 8: I think obviously Iran's been poking around all this the
Speaker 8: entire time. They are the common denominator behind him, ask
Speaker 8: as the Huthis and the militias that keep attacking our
Speaker 8: positions in Syria and Iraq. But now they are entering
Speaker 8: the Red Sea with one of their naval vessels, which
Speaker 8: looks like they want to be somewhat confronting the United
Speaker 8: States without confronting and certainly looking like they are, And
Speaker 8: that's of course not going to be helpful when it
Speaker 8: comes to the US interest in containing this conflict in
Speaker 8: Gaza to Gaza and not spreading to a regional war.
Speaker 3: Well, Beck, I was going to ask you, what is
Speaker 3: the chance of that happening? I mean, could this really
Speaker 3: escalate into the type of thing where the US and
Speaker 3: Iran are fighting more directly? Is that a threat these days?
Speaker 8: So I do think it's a threat. It's something we
Speaker 8: don't want. I don't think Iran wants, and it's not
Speaker 8: obviously in any country in the region's interest. I think
Speaker 8: the biggest threat from that comes from Hesba, Lebanese Hezbela,
Speaker 8: who is incurrently in violation of UN resolutions where they
Speaker 8: are up at the border between Lebanon and Israel. Israel's
Speaker 8: made several statements their senior officials, including their Ministure of Defense,
Speaker 8: that they might need to actually take action to push
Speaker 8: them off that border. If that happens, this would be
Speaker 8: expanding substantially, and it's one of the reasons why the
Speaker 8: US set so many naval assets through the region just
Speaker 8: in case it was a significant second front and in
Speaker 8: this conflict, that we would be there potentially to assist
Speaker 8: our Israel if they needed. I don't think that means
Speaker 8: that Iron's going to become directly involved in the conflict.
Speaker 8: I think they're happy to fight to the last proxy force,
Speaker 8: but generally don't want to put their troops into the mix.
Speaker 8: But that's something that's to be determined whether if this
Speaker 8: expands that could happen, or whether Israel takes more strikes
Speaker 8: specifically against Iran if they feel threatened.
Speaker 2: Nick, I guess what's the latest do you think we're
Speaker 2: seeing hearing from the Israelis about kind of where they
Speaker 2: want to take this here. I know they've brought some
Speaker 2: troops home, but is there any change do you think
Speaker 2: to their strategy here?
Speaker 8: So the US, of course has been pushing for this
Speaker 8: new phase, going from what they're calling high intensity combat
Speaker 8: to low intensity conflict. I would point out that doesn't
Speaker 8: mean it's not a conflict. There's still going to be
Speaker 8: combat operations. But I think this withdrawal of five brigades
Speaker 8: is substantial. It was partially because a lot of these
Speaker 8: are reservist and they need to essentially go back to
Speaker 8: their full time occupation, but it does indicate to many
Speaker 8: that this might be that transition, so we might go
Speaker 8: from this large scale combat operations conventional forces to a
Speaker 8: more targeted, precise, intel driven special operations type of mission.
Speaker 5: There.
Speaker 8: That said, it's been clear that Israeli senior officers have
Speaker 8: said that this could last to the entirety of two
Speaker 8: thousand and twenty four, so that we're far from it
Speaker 8: being over. But I think the US would like to
Speaker 8: see this switch into this next phase, which hopefully would
Speaker 8: also have far fewer civilian casualties and the potential to
Speaker 8: increase the humanitarian aid going into the Gaza, which is
Speaker 8: storally needed.
Speaker 3: You know, Mick, if we shift gears a little bit
Speaker 3: to the situation in Ukraine, it seems to me that
Speaker 3: the political will in the US to continue to fund
Speaker 3: the Ukrainian resistances starting to run low, and potentially this
Speaker 3: might be the year where we actually stop funding that
Speaker 3: were What does Ukraine and really the world look like
Speaker 3: if that's the case, I mean, is it just pretty
Speaker 3: much an instant Russian takeover of Ukraine, or how do
Speaker 3: you see that plane out?
Speaker 8: So I don't think it'd be an instant Russian takeover
Speaker 8: Ukraine because of the Ukrainians. They will fight to the end.
Speaker 8: They've proven that, and I think we should take note
Speaker 8: of that because if you remember when this started, a
Speaker 8: lot of very senior military analysts, including intelligence services, we're
Speaker 8: predicting their fall within weeks, and look where we are now.
Speaker 8: You know, when it comes to the United States credibility,
Speaker 8: I think it would be shocked to be frank, this
Speaker 8: is a partner who is in an existential fight. If
Speaker 8: we were to pull out now, our credibility when it
Speaker 8: comes to that, I think would go down substantially. And
Speaker 8: it's not just it is I think the morally right
Speaker 8: thing to do for a partner that's been invaded by
Speaker 8: an adversary of ours, but it's also in our own age.
Speaker 8: I mean, last month alone, according to multiple reports, the
Speaker 8: Russians lost thirty thousand soldiers. Well, I mean, think about that,
Speaker 8: thirty thousand soldiers. They have degraded the Russian military capacity
Speaker 8: below fifty percent of what it was before this started.
Speaker 8: That means every dime we've spent has added to our
Speaker 8: own national security benefit. It would make no sense to me,
Speaker 8: and I don't do politics, but it makes no sense
Speaker 8: to me why we would continue that support. It's in
Speaker 8: our own interest. Every dollar we spent on that assists
Speaker 8: us when it comes to our own national defense.
Speaker 2: Nick as we get into I can't remember what year
Speaker 2: we are of this war unfortunates much longer than anyone
Speaker 2: would like. Is there any expectation that there will be
Speaker 2: a negotiated settlement here? Admirals Stravitis, former head of NATO,
Speaker 2: made the comment recently to us that he believed is
Speaker 2: something like a Korea peace for land type situation is
Speaker 2: probably the best outcome.
Speaker 8: So that certainly could happen. I think what the Ukrainians
Speaker 8: need is to really push the capacity of Russia to
Speaker 8: stay in Crimea, which will push them to the negotiation table.
Speaker 8: I think right now what the US can do is
Speaker 8: to really start providing them more offensive weapon systems. We
Speaker 8: started that they started their counter offensive before they had
Speaker 8: anything near what we would need to do what they
Speaker 8: have been trying to do, which means more or F
Speaker 8: sixteen's which are just getting there, more main battle tanks
Speaker 8: and more long range artillery, which really has been a
Speaker 8: game changer. If they can start challenging Russ's ability to
Speaker 8: stay in Crimea, That's when I think President Puutin will say,
Speaker 8: maybe I need to start talking about a negotiated settlement.
Speaker 8: And then I think it's up to the Ukrainian people
Speaker 8: what they're willing to potentially give for peace, and that's
Speaker 8: something I think we should support. We should also allow
Speaker 8: them to make that decision and not push it on them, you.
Speaker 3: Know, Mick, As Paul said, there sure are a lot
Speaker 3: of hotspots around the world these days. So I want
Speaker 3: to take you over to China a little bit too.
Speaker 3: You know. One of the big concerns in years was
Speaker 3: some aggression from China towards Taiwan. We seem to have
Speaker 3: dodged that bullet, but am I being sort of too optimistic?
Speaker 3: There is that still a risk going into twenty twenty
Speaker 3: four that we see some sort of aggression towards Taiwan.
Speaker 8: So I do think it's still a risk and we
Speaker 8: should not take that lightly. I think what we're doing
Speaker 8: in Ukraine actually impacts that. When China looks at the
Speaker 8: type of partner the United States is to the Ukrainians
Speaker 8: after Russia essentially invaded them. They're going to look at
Speaker 8: potentially what we might do with Taiwan if they were
Speaker 8: to either do a blockade or an actual attempt to
Speaker 8: invade a Taiwan. So that's the first thing. The second
Speaker 8: thing is that the Chinese military is not ready to
Speaker 8: do this yet. So it's not that we've dodged a bullet.
Speaker 8: They just don't have the capacity. I don't think to
Speaker 8: even do a blockade that would actually hold up yet.
Speaker 8: But they're driving that direction. They're significantly improve in their navy,
Speaker 8: their significant and improving their overall military capacity in part
Speaker 8: so they could do this in the future if they
Speaker 8: like to do that. Right now, I think we need
Speaker 8: to be a good partner to show that we're a
Speaker 8: good partner. So they have that understanding, and Taiwan obviously
Speaker 8: needs to take the lessons learned from Ukraine and start
Speaker 8: looking at how they can make themselves a harder target,
Speaker 8: because that might be ultimately what makes the Chinese decide
Speaker 8: it's not worth it.
Speaker 2: Hey, Mick, just about twenty seconds left. Where could we
Speaker 2: see a positive surprise in some of these hot spots
Speaker 2: around the world.
Speaker 8: This year, So a positive surprise. If you just said
Speaker 8: a surprise, that an easy edge, a positive surprise. I
Speaker 8: would hope that once we get all the weapons systems
Speaker 8: that we've promised and we support Ukraine, that Ukraine could
Speaker 8: get to a point where Putin realizes he could be
Speaker 8: in a phase of catastrophic failure. I think strategically he
Speaker 8: has already failed, but a catastrophic failure is regarding Ukraine itself,
Speaker 8: and that would push him to the negotiation table. But
Speaker 8: it requires all of the partners of Ukraine are allies,
Speaker 8: to continue support and of course them do their job
Speaker 8: which they are, which is fighting tooth and nail to
Speaker 8: get back every piece of territory that Russia took.
Speaker 2: All right, very good as always. Mcmutley, co founder of
Speaker 2: the Lobo Institute, giving us the latest on the geopolitical
Speaker 2: issues out there facing a lot of folks.
Speaker 1: Thanks for listening to the Bloomberg Markets podcasts. You can
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Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 1: at Matt Miller nineteen seventy three.
Speaker 2: And I'm fall Sweeney. I'm on Twitter at pt Sweeney
Speaker 2: before the podcast. You can always catch us worldwide at
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