WEBVTT - Staying Invested amid Market Risks 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.840 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.000 or watch us live on YouTube. 0:00:27.160 --> 0:00:30.040 We start strong this morning with Monica the Sense of 0:00:30.120 --> 0:00:33.879 joins us. Thrilled to have her and hear from JP Morgan. 0:00:34.200 --> 0:00:36.800 I gotta go over a year to date down, I'm 0:00:36.960 --> 0:00:41.239 six s and B five hundred ten, NaSTA Composite up 0:00:41.320 --> 0:00:44.440 twelve percent, and as you say, surprise, it's a great 0:00:44.520 --> 0:00:45.360 year for equities. 0:00:45.680 --> 0:00:46.800 It is a message out there. 0:00:47.800 --> 0:00:50.920 I mean, people are still skeptical and nervous, are just funny. 0:00:50.920 --> 0:00:53.000 It's been an amazing year by any measure from an 0:00:53.040 --> 0:00:57.160 equity standpoint. That's a yet feel great. So you could 0:00:57.240 --> 0:00:58.680 argue you just go home and enjoy the rest of 0:00:58.680 --> 0:01:00.840 the year and call it a day. But I think 0:01:00.840 --> 0:01:03.160 the challenge for many people I work with they're still 0:01:03.200 --> 0:01:04.760 sitting in a lot of cash. So it argue not 0:01:04.800 --> 0:01:07.120 everyone has participated in that equity rally. 0:01:07.160 --> 0:01:10.040 Well, not only is everyone participated, but there's a rent 0:01:10.160 --> 0:01:17.320 here between the retail investors I guess participating and institutions 0:01:17.360 --> 0:01:18.480 about smarter themselves. 0:01:18.560 --> 0:01:19.479 Is that how you see it? 0:01:20.240 --> 0:01:23.440 Yeah, I think to a degree, the retail investors tend 0:01:23.480 --> 0:01:26.200 to overanalyze, right, because there's a fair amount of recency 0:01:26.200 --> 0:01:28.960 bias that creeps in there and you can't underestimate. Again 0:01:29.040 --> 0:01:30.760 twenty twenty two, it was a few years ago, but 0:01:30.800 --> 0:01:33.679 it's still very recent people's minds. That the fact that 0:01:33.920 --> 0:01:37.200 when volatility happened, nothing worked equities or down. Bonds were down. 0:01:37.400 --> 0:01:39.040 And that's the big challenge I've been having to get 0:01:39.080 --> 0:01:41.360 people to move out of cash and look at fixed 0:01:41.400 --> 0:01:44.520 income as a real significant allocation their portfolio. 0:01:44.560 --> 0:01:49.960 Again, Paul, the Madrid stock exchange in US dollars, I 0:01:50.000 --> 0:01:52.640 think it's up thirty two percent a year to day. 0:01:52.960 --> 0:01:54.320 I guess we miss that again. 0:01:54.600 --> 0:01:57.360 My word, Monica, when you talk to some of your largest, 0:01:57.840 --> 0:02:01.880 you know, clients, your high networth your high networth clients, are. 0:02:01.760 --> 0:02:03.400 They fully invested? 0:02:03.440 --> 0:02:05.760 Do you feel or do you feel like they're still. 0:02:06.120 --> 0:02:09.400 Just kind of still cash balances? They are a bit 0:02:09.400 --> 0:02:11.359 too high. If you go back over the last ten years, 0:02:11.400 --> 0:02:13.600 I still see cash balances like thirty forty percent higher 0:02:13.600 --> 0:02:16.640 and would have seen in the past from their old balances, right, 0:02:16.720 --> 0:02:19.679 so some you know, I see like fifteen twenty twenty 0:02:19.720 --> 0:02:22.560 five percent cash balances, which is too high for people 0:02:22.600 --> 0:02:24.600 with generational wealth, which you would argue they should have. 0:02:24.600 --> 0:02:25.320 Almost no cash. 0:02:25.440 --> 0:02:27.200 They don't need it, right, they don't need the cash. 0:02:27.240 --> 0:02:30.360 So in fixed income you can actually get real returns 0:02:30.360 --> 0:02:32.040 here today, even like municipal bonds. 0:02:32.040 --> 0:02:33.200 I mean, I don't know where you're you're. 0:02:33.040 --> 0:02:35.440 A US taxpayer, means are a no brainer. If you write, 0:02:35.440 --> 0:02:37.360 like me, the privilege of living in New York City, 0:02:37.440 --> 0:02:40.240 it's especially no brainer. You're talking high single digit tacticle 0:02:40.320 --> 0:02:43.560 than yields with I would argue you much less risk 0:02:43.560 --> 0:02:45.919 than you're gonna get in equities, So probably do better 0:02:45.960 --> 0:02:47.440 than I think you will in US equities over the 0:02:47.480 --> 0:02:48.760 next twelve months with less risk. 0:02:48.960 --> 0:02:52.960 That seems about alternatives, I mean, you know, private equity, 0:02:53.040 --> 0:02:55.480 hedge funds, private credit, real estate. 0:02:55.440 --> 0:02:57.640 I mean, how do you guys talk to your clients 0:02:57.639 --> 0:02:58.560 about alternatives. 0:02:59.040 --> 0:03:01.360 It's a big allocation for large families because again they 0:03:01.360 --> 0:03:03.559 don't need the liquidity, so you tend to see allocations 0:03:03.560 --> 0:03:05.679 and alternatives they could be as high as fifty percent 0:03:05.680 --> 0:03:08.760 of them. Markelia, Yeah, it's not, it's not where we start, 0:03:08.960 --> 0:03:10.120 but that is what I see for some of the 0:03:10.160 --> 0:03:10.760 larger families. 0:03:10.760 --> 0:03:16.280 Expert have the blue button Detroit Lions blue button. You 0:03:16.400 --> 0:03:21.520 have a wonderful resume for this question. Forget about family 0:03:21.639 --> 0:03:25.079 networth JP Morgan Mega hitters. You know eight zero's off 0:03:25.120 --> 0:03:28.639 to the left of the decimal point. Should people have 0:03:28.800 --> 0:03:31.040 alternative investments in their four oh one? 0:03:31.120 --> 0:03:31.280 Kay? 0:03:33.040 --> 0:03:37.080 If for long term money? Yes, because you know data 0:03:37.120 --> 0:03:39.240 tells me you're going to compound at a rate higher 0:03:39.280 --> 0:03:42.920 than you would in public markets. Now that's that there 0:03:42.960 --> 0:03:45.480 is a different risk protofile there, and you always want 0:03:45.520 --> 0:03:47.880 people to be comfortable with that risk. And so it 0:03:47.920 --> 0:03:49.720 depends what age you are, right, if you're in your 0:03:49.760 --> 0:03:52.880 thirties or forties, yeah, that wouldn't scare me. If you're 0:03:52.920 --> 0:03:55.280 in your fifty sixties seventies, are tapping to that money sooner? 0:03:55.360 --> 0:03:56.400 That's a different question. 0:03:56.440 --> 0:03:58.600 Okay, So let's you mentioned cash earlier. 0:03:58.600 --> 0:04:02.680 What's the to do list for Monica Descenzo going into 0:04:02.760 --> 0:04:03.280 labor day? 0:04:03.480 --> 0:04:06.000 People are like, I need to do action. What's the 0:04:06.080 --> 0:04:07.040 action mandate? 0:04:07.320 --> 0:04:08.960 If you believe what the market is telling you, which 0:04:09.000 --> 0:04:10.680 is the feed is in a cut in September. You 0:04:10.760 --> 0:04:12.840 need to own more fixed income because your cash is 0:04:12.880 --> 0:04:15.120 going to earn you less. And it seems so obvious, 0:04:15.240 --> 0:04:17.200 but people don't believe it because I think they've been 0:04:17.240 --> 0:04:19.680 hearing people like me say cuts are coming, cuts are coming, 0:04:19.720 --> 0:04:21.400 and they haven't been coming as fast as people thought. 0:04:21.600 --> 0:04:22.760 Do you want to weigh in on NATO? 0:04:24.160 --> 0:04:26.760 You know, it's it's a thing I talk about with 0:04:26.800 --> 0:04:28.240 a lot of clients, but then have to remind them, 0:04:28.320 --> 0:04:30.800 do not let your geopolitical concerns on the tail wag 0:04:30.839 --> 0:04:34.039 the dog because generally speaking, over any intermediate term, it 0:04:34.040 --> 0:04:34.760 doesn't matter for me. 0:04:34.920 --> 0:04:39.679 It's just it's a nuts summer. Where were two hundred 0:04:39.720 --> 0:04:43.039 and forty days in the in the term? Monica, thank you, 0:04:43.480 --> 0:04:44.560 soone's too short a visit. 0:04:44.839 --> 0:04:48.840 Let's do this sooner. Monica Descenzo is with JP Moore. 0:04:50.560 --> 0:04:51.279 Stay with us. 0:04:51.520 --> 0:04:54.760 More from Bloomberg's Surveillance coming up after this. 0:05:02.000 --> 0:05:05.560 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:05:05.640 --> 0:05:09.159 weekday afternoons from seven to ten am Eastern Listen on Apple, 0:05:09.200 --> 0:05:12.520 Karplay and Android Otto with the Bloomberg Business app, or 0:05:12.680 --> 0:05:14.200 watch us live on YouTube. 0:05:14.440 --> 0:05:19.040 Jim Karen Torstenslack publishes moments ago in Apollo Global Management 0:05:19.120 --> 0:05:22.840 on what I walked in the building and looked at today, which. 0:05:22.640 --> 0:05:23.520 Is a yield curve. 0:05:23.600 --> 0:05:26.919 The vanilla curve is comparing the two year yield with 0:05:26.960 --> 0:05:29.279 a ten year I went out and looked at the 0:05:29.320 --> 0:05:33.200 two year as compared to the thirty year yield, and 0:05:33.279 --> 0:05:35.200 they answer, I think a lot of people Jim Karen 0:05:35.279 --> 0:05:39.320 don't know this. Going back thirty years, the steepness, the 0:05:39.360 --> 0:05:43.800 difference in yield of the two's thirty yield curve is 0:05:43.839 --> 0:05:47.160 not even back to normal. We were so negative. We're 0:05:47.200 --> 0:05:48.720 still trying to get back to normal. 0:05:48.920 --> 0:05:49.479 Is that right? 0:05:50.560 --> 0:05:54.400 That is absolutely correct. If I look at there are 0:05:54.480 --> 0:05:56.600 various curves that people look at. Some people look at 0:05:56.600 --> 0:05:59.839 the three month T bill rate versus the ten year yield, 0:05:59.839 --> 0:06:02.600 and some people look at FED funds versus tenure. If 0:06:02.640 --> 0:06:04.840 you look at the yield curves, right now, we are 0:06:04.880 --> 0:06:09.279 still below historical averages, so the curve has a lot 0:06:09.400 --> 0:06:11.920 more it could potentially steepen, and that has a lot 0:06:11.920 --> 0:06:15.760 of implications, right because in one sense, we're talking about 0:06:15.800 --> 0:06:18.120 FED rate cuts, and yes, that means that front end 0:06:18.200 --> 0:06:21.400 rates can come down, but it doesn't necessarily mean that 0:06:21.480 --> 0:06:25.039 back end rates actually have to come down, and that 0:06:25.160 --> 0:06:29.840 might actually be not exactly an intended consequence if you're 0:06:29.839 --> 0:06:33.479 trying to lower mortgages or longer term borrowing rates. 0:06:34.200 --> 0:06:36.840 I mean, within all, this is the basic idea, Paul 0:06:36.880 --> 0:06:39.600 am I right, A steeper yield curve is evil. 0:06:40.279 --> 0:06:42.960 I mean FORBOSEI one oh one, I don't know, Jimkaren. 0:06:43.080 --> 0:06:46.839 Is a steeper yield curve bad for our listeners and viewers? 0:06:48.000 --> 0:06:49.960 No, not necessarily right. 0:06:50.240 --> 0:06:53.800 So it depends on why the curve is steepening and 0:06:53.839 --> 0:06:56.600 what the conditions are that are surrounding it. So in 0:06:56.600 --> 0:07:00.000 some cases a steep yield curve is actually really positive 0:07:00.440 --> 0:07:03.360 for the financial sector and for banks. Why because bends 0:07:03.880 --> 0:07:07.200 Banks borrow at the short term at a low interest rate, 0:07:07.279 --> 0:07:10.880 and they lend longer terms. So therefore the spreads get wider, 0:07:11.240 --> 0:07:13.760 banks can earn more money, and what that means is 0:07:13.760 --> 0:07:16.720 that banks are more willing to lend into the economy. 0:07:16.760 --> 0:07:19.239 So that could actually be a positive thing. So usually 0:07:19.560 --> 0:07:22.160 a steeper yale curve could be a positive. The other 0:07:22.320 --> 0:07:26.800 thing that also it creates is some form of easier leverage, 0:07:26.840 --> 0:07:29.160 meaning if you can borrow at those shorter term rates 0:07:29.280 --> 0:07:33.000 at those lower rates, and you can invest longer term, 0:07:33.440 --> 0:07:38.160 then you could actually you can actually generate more potential revenues. 0:07:38.520 --> 0:07:42.920 But usually the yeal curve steepens when the FED starts 0:07:42.920 --> 0:07:47.280 to cut interest rates aggressively, and that's usually in response 0:07:47.320 --> 0:07:51.600 to something bad happening in the economy. So that's the 0:07:52.200 --> 0:07:56.000 coincident component of the indicator that you may be referring to. 0:07:56.000 --> 0:07:56.320 Tom. 0:07:56.960 --> 0:07:59.920 Hey, Jim, Tomorrow, Tom's gonna get on the Gulf stream 0:08:00.720 --> 0:08:02.120 and head out to Jackson Hole. 0:08:02.760 --> 0:08:03.240 What are you. 0:08:03.240 --> 0:08:06.840 Looking for from Jackson Hole? Fed Cherirman J pallin Friday. 0:08:08.320 --> 0:08:09.680 So I really think that. 0:08:11.240 --> 0:08:15.880 He's not going to alert us to a potential rate cut, 0:08:15.880 --> 0:08:17.800 but I think he's going to open the door. I 0:08:17.800 --> 0:08:20.480 think what he's going to do his mission is ultimately 0:08:20.560 --> 0:08:24.640 just to basically say that the risks are more balanced 0:08:24.720 --> 0:08:29.680 and potentially tilted to the downside, especially as it pertains 0:08:29.720 --> 0:08:34.560 to the employment situation that gives him the opportunity to 0:08:34.600 --> 0:08:37.360 cut interest rates. Now, we have a payroll number before 0:08:37.400 --> 0:08:40.240 the next FED meeting in mid September, and we also 0:08:40.320 --> 0:08:44.400 have inflation data coming out. The payroll numbers coming out 0:08:44.440 --> 0:08:47.120 over the next several months, are not going to be good. 0:08:47.520 --> 0:08:49.720 I think it's on September ninth, we have a quarterly 0:08:49.760 --> 0:08:52.880 sensus of employment and wages. This is that downward revision 0:08:52.880 --> 0:08:55.840 that we're supposed to get in jobs data, So we 0:08:55.960 --> 0:08:59.880 may actually start to realize that our monthly job's rate 0:09:00.120 --> 0:09:02.800 of growth over the past six months or so has 0:09:02.840 --> 0:09:06.280 actually been a lot worse than what's actually been reported 0:09:06.280 --> 0:09:09.040 by the BLS. So I think the labor data is 0:09:09.400 --> 0:09:12.840 sending a very strong signal that the jobs market is 0:09:13.000 --> 0:09:16.079 not overly strong right now. And I think we know that, 0:09:16.160 --> 0:09:18.040 and I think that opens the door for the FED 0:09:18.080 --> 0:09:22.160 to interest rates, and I think that POW will probably 0:09:22.280 --> 0:09:25.719 allude to something along those lines with respect to the 0:09:25.760 --> 0:09:26.480 labor market. 0:09:27.160 --> 0:09:30.360 Jim, you're the CIO of Cross Asset Solutions. I have 0:09:30.440 --> 0:09:33.400 no idea what that means, but I guess I'm guessing 0:09:33.400 --> 0:09:34.840 it means you and your team can look at a 0:09:34.840 --> 0:09:36.559 lot of different places for value. 0:09:36.600 --> 0:09:38.079 Where do you see value these days? 0:09:39.360 --> 0:09:43.760 Yeah, So effectively, what we're seeing right now is actually 0:09:44.000 --> 0:09:48.560 equities look a bit more attractive than fixed income does 0:09:49.080 --> 0:09:53.520 now let me let me explain that. So clearly, fixed 0:09:53.559 --> 0:09:55.720 income has a higher yield and has a higher coupon, 0:09:55.840 --> 0:09:56.240 and it's good. 0:09:56.280 --> 0:09:58.480 It's very good, stable place to put. 0:09:58.360 --> 0:10:02.640 Your money, and it's a good component a portfolio for diversification. However, 0:10:02.800 --> 0:10:05.680 we think that within the equity markets, if you look 0:10:05.720 --> 0:10:08.760 at the broader parts of the market, so not the 0:10:08.800 --> 0:10:11.600 top flying mag seven, but the other four ninety three, 0:10:12.120 --> 0:10:14.439 what we're starting to see right now is a broadening 0:10:14.520 --> 0:10:17.680 out of earnings revisions to the upside. In fact, second 0:10:17.760 --> 0:10:21.280 quarter earnings which just came out, we're actually very very 0:10:21.280 --> 0:10:25.720 strong from a historical standpoint. We're very strong that many 0:10:25.760 --> 0:10:28.599 of these companies in the second quarter actually beat expectations 0:10:28.640 --> 0:10:33.559 quite significantly, and that is actually pretending to something relatively 0:10:33.640 --> 0:10:36.560 strong going into the future. So when we think about 0:10:36.600 --> 0:10:38.680 the markets and we think about the next six to 0:10:38.679 --> 0:10:41.199 eight nine months ahead, I don't like to think very 0:10:41.240 --> 0:10:44.480 short term, but if we think over that period of time, 0:10:45.160 --> 0:10:48.360 what we have to recognize is that we have some 0:10:48.559 --> 0:10:51.680 tower fallout that we're going through right now. Inflation's likely 0:10:51.720 --> 0:10:54.440 to be higher over the next couple of months. But 0:10:54.520 --> 0:10:57.040 once we get beyond that, what we're left with is 0:10:57.080 --> 0:10:59.640 a lot of business investment, a lot of cap x, 0:11:00.040 --> 0:11:02.520 a lot of companies starting to invest in their own future, 0:11:02.840 --> 0:11:05.480 and I think what that's going to do is increase 0:11:06.160 --> 0:11:09.560 private sector jobs growth, and I think that's a positive. 0:11:09.760 --> 0:11:12.319 Are you managing for the coupon right now or can 0:11:12.360 --> 0:11:14.200 you actually make total return forward? 0:11:15.720 --> 0:11:17.520 That's a great question. Tom. 0:11:18.160 --> 0:11:21.480 What I've been saying in fixed income is I'm managing 0:11:21.520 --> 0:11:22.800 for the coupon right now. 0:11:23.679 --> 0:11:26.400 The reason I say that, do you realize that only. 0:11:26.240 --> 0:11:29.160 Twelve percent of our audience Jim Karen has ever done 0:11:29.240 --> 0:11:30.280 that because there. 0:11:30.200 --> 0:11:31.040 Wasn't a coupon. 0:11:32.000 --> 0:11:37.280 Yes, well that is true, but well effectively, I think 0:11:37.360 --> 0:11:40.320 that the duration movement. So what Tom is referring to 0:11:40.440 --> 0:11:42.200 is if you get this drop in interest rates, you 0:11:42.240 --> 0:11:45.080 get this increase in price, this total return just in 0:11:45.160 --> 0:11:48.320 terms of price. I think that interest rates are have 0:11:48.480 --> 0:11:53.720 already fallen reasonably enough at this point. They may fall 0:11:53.800 --> 0:11:55.600 a little bit more, but I don't think that's going 0:11:55.679 --> 0:11:57.320 to be the majority of the game. I think the 0:11:57.400 --> 0:11:59.240 majority of the game that you can look for in 0:11:59.280 --> 0:12:02.880 fixed income is the yield or it's the actual COUPI 0:12:03.440 --> 0:12:06.679 So for fixed income, it's really a question of that stability, 0:12:06.760 --> 0:12:09.280 and you can add that to your portfolio for diversification, 0:12:09.480 --> 0:12:11.079 which is which is what we're doing well. 0:12:11.120 --> 0:12:14.120 Sweeney's been lecturing me on a daily basis. Jim Karen, 0:12:14.600 --> 0:12:19.760 thank you so much. Margan Stanley, stay with us. More 0:12:19.880 --> 0:12:22.800 from Bloomberg Surveillance coming up after this. 0:12:30.040 --> 0:12:33.640 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:12:33.679 --> 0:12:36.880 weekday afternoons from seven to ten am Eastern Listen on 0:12:36.920 --> 0:12:40.319 Apple Karplay and Android Auto with the Bloomberg Business app, 0:12:40.520 --> 0:12:42.319 or watch US Live on YouTube. 0:12:42.559 --> 0:12:45.840 We speak with Douglas Cast a Pinata on Wall Street. 0:12:46.000 --> 0:12:48.000 People love to go after him, but the fact is 0:12:48.000 --> 0:12:52.120 it's an esteemed career starting out a kidder peavity, A. 0:12:52.120 --> 0:12:54.920 Zillion people started, a lot of people done. 0:12:55.720 --> 0:12:58.160 It was great for him. Doug Cast joins US now 0:12:58.200 --> 0:13:01.760 with Seaberg's partners. He is been cautious on the market 0:13:02.120 --> 0:13:04.960 and run, Doug. I just looked at a toothpaste company. 0:13:05.000 --> 0:13:08.199 We'll keep the name out that. Since the Poldic has 0:13:08.240 --> 0:13:12.800 made four point five percent return, there's basically two markets. 0:13:13.280 --> 0:13:17.040 Have you been wrong because you missed Meg seven or 0:13:17.040 --> 0:13:19.520 have you been wrong for another specific reason. 0:13:20.840 --> 0:13:21.640 That's a good question. 0:13:21.720 --> 0:13:23.280 I just want to warn you that I prep for 0:13:23.320 --> 0:13:26.520 this interview with one hour of Peppa Pig and Baby. 0:13:26.120 --> 0:13:27.679 Shark with my granddaughter Carlin. 0:13:28.280 --> 0:13:30.160 Good look. 0:13:30.200 --> 0:13:31.520 I'm painfully honest. 0:13:33.400 --> 0:13:35.600 I don't go on Bloomberg or any of the other 0:13:35.640 --> 0:13:38.560 shows to improve my brand or sell a service. I 0:13:38.640 --> 0:13:41.520 try typically to explain my view in the market's individual 0:13:41.559 --> 0:13:45.760 stocks without an agenda to promote that view. My view 0:13:45.880 --> 0:13:49.040 is currently is often a contraryan one it is today. 0:13:49.679 --> 0:13:52.080 So I'm going to briefly explain how dumb I've been 0:13:52.120 --> 0:13:55.200 in the market, but how I addressed and managed through 0:13:55.240 --> 0:13:59.160 a wrong sided market view, effectively managing risk and even profiting. 0:13:59.559 --> 0:14:02.480 I think that it's instructive for your viewers. It'll benefit 0:14:02.520 --> 0:14:07.280 from my transparency and technique because I honestly to be blunt. 0:14:07.280 --> 0:14:10.280 Few come on market surveillance and say how wrong they've been. 0:14:10.760 --> 0:14:14.440 The opposite is the case. People usually talk about their successes, 0:14:14.480 --> 0:14:17.120 the winners in the forum. They want to appear smart 0:14:17.160 --> 0:14:20.720 and conveniently forget their views and performance during drawdowns like 0:14:20.760 --> 0:14:23.600 in twenty twenty two. It reminds me of the old 0:14:24.000 --> 0:14:27.479 Harold arl And and Johnny Mrcy's song. Accentuate the positives, 0:14:27.520 --> 0:14:30.880 the emphasize the negatives. So since we first we last met, 0:14:30.920 --> 0:14:33.320 and with the exception of the fall in February and March, 0:14:33.680 --> 0:14:36.080 and really since the S and P was fifty eight hundred, 0:14:36.080 --> 0:14:37.120 I've basically. 0:14:36.760 --> 0:14:37.720 Been burish and wrong. 0:14:38.360 --> 0:14:41.880 But astonishingly, Lee, my hedge Front Sea Breeze has been 0:14:41.920 --> 0:14:45.400 net short in almost every month except for the March 0:14:45.440 --> 0:14:49.960 April sell off since early twenty twenty four. Despite that, 0:14:50.080 --> 0:14:52.800 our monthly returns have been positive and eighteen of. 0:14:52.840 --> 0:14:55.080 The last done that. But Doug, how is you? 0:14:55.520 --> 0:14:57.280 I've done it? That's a great question. 0:14:58.200 --> 0:15:03.640 We employee good risk management by taking a number of 0:15:03.680 --> 0:15:08.680 small losses rather than get involved in shurre evaluation AI 0:15:09.040 --> 0:15:14.120 AI mag seven short of the mundane companies business models 0:15:14.720 --> 0:15:15.360 we're roading. 0:15:15.480 --> 0:15:16.480 Paul wants to get in here. 0:15:16.480 --> 0:15:18.440 I want to ask you one question, Paul Sweeney's got 0:15:18.480 --> 0:15:19.800 to be you can ask me any question in a 0:15:19.840 --> 0:15:23.680 short time. I on the Bloomberg have Walmart. It's a 0:15:23.760 --> 0:15:28.040 pe of forty point one six. Can you explain to 0:15:28.120 --> 0:15:31.880 me by somebody dropping pennies down to the bottom line 0:15:32.360 --> 0:15:36.240 deserves a forty multiple. You're the only one living who 0:15:36.280 --> 0:15:37.800 remembers the nifty to fifty? 0:15:38.120 --> 0:15:39.680 How do we get here with Walmart? 0:15:41.720 --> 0:15:43.000 It is astonishing to me. 0:15:43.240 --> 0:15:46.000 We are been short our largest short exposure in the 0:15:46.080 --> 0:15:49.200 last year and a half have been in consumer stocks. 0:15:49.360 --> 0:15:53.480 We actually recently showed at Walmart. And I think it's 0:15:53.800 --> 0:15:58.080 condition of the market. It's what's It's what Warren Buffett 0:15:58.080 --> 0:16:02.000 wrote in a in a report to his Berkshire Hathaway 0:16:02.040 --> 0:16:06.120 shareholders in nineteen ninety nine. God's plan basically, people wait up, 0:16:06.160 --> 0:16:08.440 wake up in the morning, expect stock prices to go 0:16:08.560 --> 0:16:12.920 ever higher. So you've seen that this substantial expansion reevaluation 0:16:13.600 --> 0:16:18.080 in price earnings ratios, and we think that equity is 0:16:18.080 --> 0:16:22.040 a terribly overpriced against interest rates. The equity risk premium 0:16:22.120 --> 0:16:25.320 is a two decade low that's typically consistent with the 0:16:25.360 --> 0:16:28.840 slide in stocks. The S and P dividend yield is 0:16:28.840 --> 0:16:31.280 at a near record low one point twenty five percent, 0:16:31.320 --> 0:16:35.600 and spread between that and the ten year treasury has 0:16:35.720 --> 0:16:38.400 rarely been so wide. As you know, I'm very close 0:16:38.440 --> 0:16:42.160 to Coops. Iway was Lee's director of research for a 0:16:42.160 --> 0:16:45.400 while to make advisors Lee fields bonds or over prices. 0:16:45.480 --> 0:16:49.200 Stocks may be overpriced against overpriced sixt income And. 0:16:49.160 --> 0:16:51.840 That's just real. 0:16:51.920 --> 0:16:55.640 Quickly, given that stance, given that conservative outlook on maybe evaluation, 0:16:56.760 --> 0:16:58.320 how are you positioned here today? 0:16:59.880 --> 0:17:03.080 I've been net short between ten and twenty percent, as 0:17:03.120 --> 0:17:06.800 I said, for most of the last nineteen months, and 0:17:06.960 --> 0:17:12.040 we are currently considering expanding our next short exposure. Outside 0:17:12.040 --> 0:17:15.560 of that range, I think current valuations are twenty four times. 0:17:15.840 --> 0:17:19.040 That's in the ninety eighth percentile. It's a poor launching 0:17:19.080 --> 0:17:22.720 pad for future investment returns. Bob Barrel, in one of 0:17:22.720 --> 0:17:25.760 his ten Lessons of Investing, said there are no new 0:17:25.800 --> 0:17:30.320 eras excesses are never permanent. The SMP index trailing multiple 0:17:30.400 --> 0:17:32.320 is twenty six. You take out the twenty three p 0:17:32.920 --> 0:17:35.840 in twenty twenty one, and it's similar to the valuation 0:17:35.960 --> 0:17:38.439 of August twenty two thousand, right before two year by 0:17:38.880 --> 0:17:39.280 bear Mark. 0:17:39.359 --> 0:17:41.399 I'm going to pick up on this with Paul jumping here. 0:17:41.560 --> 0:17:44.800 So, Doug, how about in the fixed income space? Here 0:17:44.840 --> 0:17:47.600 are you can you go there and just clip coupons? 0:17:47.600 --> 0:17:48.800 Here is our opportunity there. 0:17:50.280 --> 0:17:51.040 I think that. 0:17:52.600 --> 0:17:54.879 If you're a high net worth individual I listened to 0:17:54.880 --> 0:18:00.199 your prior segment about just earning the coupon, you can 0:18:00.200 --> 0:18:02.960 get a seven and a half percent pre tax equivalent 0:18:03.080 --> 0:18:07.160 if you're a high net worth individual in municipals. So 0:18:07.480 --> 0:18:11.480 I think that four point three percent is thereabouts where 0:18:11.520 --> 0:18:14.199 the ten year yield is it's a good place to 0:18:14.240 --> 0:18:16.639 hang out. And if you go a little riskier in credit, 0:18:16.920 --> 0:18:20.520 you get equity like returns for limited risk and no volatility. 0:18:21.359 --> 0:18:23.960 Doug, I got time for one more question. I got 0:18:23.960 --> 0:18:24.920 eight ways to go here. 0:18:25.200 --> 0:18:27.359 Don't ask me about the Yankees. I'm not going to 0:18:27.560 --> 0:18:29.199 about the Yankees. I hang up. 0:18:30.440 --> 0:18:32.760 Well you should, and you know it's a glorious and 0:18:32.760 --> 0:18:36.000 beautiful thing, Doud Cass, I want you to speak to 0:18:36.040 --> 0:18:39.880 the people listening and viewing who aren't sophisticates. They didn't 0:18:39.960 --> 0:18:43.600 have an office next to Julian Robertson. They haven't done 0:18:43.680 --> 0:18:46.720 what you've done. They haven't been as visible an Opinionata 0:18:46.880 --> 0:18:50.639 like you. What do you say to our audience about 0:18:50.680 --> 0:18:54.119 this addiction, this belief in MEG seven. 0:18:57.520 --> 0:18:59.040 Well, I'm I'm you know. 0:18:59.160 --> 0:19:02.399 No one I know is concerned that there'll be a 0:19:02.480 --> 0:19:07.560 large drawer down inequities. And I think there's any number 0:19:07.840 --> 0:19:11.080 of conditions that could bring down the market meaningfully. And 0:19:11.119 --> 0:19:14.240 the most important one as it relates to MAG seven, 0:19:14.720 --> 0:19:18.160 is a hiccup and AI. For example, a slow down 0:19:18.200 --> 0:19:21.280 in AI cap spending could occur. We could see growing 0:19:21.320 --> 0:19:24.560 evidence of double and triple chip ordering. We could see 0:19:24.560 --> 0:19:27.280 the failure of AI to improve from its current state. 0:19:27.920 --> 0:19:30.240 We can see the failure of use sets to develop 0:19:30.320 --> 0:19:33.920 for AI. We could see an accounting scandal in AI 0:19:34.480 --> 0:19:40.640 because companies Hyperscalers are depreciating their massive capital expenditures over 0:19:40.680 --> 0:19:44.160 ten years well in excess of useful life. I've written 0:19:44.200 --> 0:19:46.920 over one hundred and five columns on the street about that, 0:19:47.000 --> 0:19:52.680 called wartales from Navidia. I think Navidia and the Hyperscalers, 0:19:53.320 --> 0:19:56.080 and on long two of them, Meta and Amazon are 0:19:56.200 --> 0:19:57.200 over earning. 0:19:58.320 --> 0:20:01.440 Right, Derek, quickly, You're an Apple? You long your short? Apple? 0:20:03.080 --> 0:20:03.760 No position? 0:20:03.800 --> 0:20:08.199 I was short into the move under two hundred and 0:20:08.280 --> 0:20:10.720 I have no position. I think it's overvalued, but I 0:20:10.720 --> 0:20:12.600 think they are far better shorts available. 0:20:12.640 --> 0:20:14.320 Can the Red Sox make the Wild Card? 0:20:16.000 --> 0:20:19.520 Red Sox, I believe are tied with the Yankees five 0:20:19.560 --> 0:20:23.040 games out. The Red Sox are four and six in 0:20:23.080 --> 0:20:26.720 the last ten. The Yankees is seven to three. The 0:20:26.800 --> 0:20:29.720 leading team, Toronto is five and five. The momentum is 0:20:29.760 --> 0:20:32.480 with the Yankees. There go the Yankees. 0:20:34.000 --> 0:20:36.159 Thank you so much. Get back to Peppa Pig with 0:20:36.200 --> 0:20:40.120 your granddaughter. Mister kass Is with Seabreez Partners. He's been 0:20:40.240 --> 0:20:44.240 very open about missing a great bullmark. 0:20:44.320 --> 0:20:47.960 Greatly appreciate it. Stay with us. 0:20:47.960 --> 0:20:58.639 More from Bloomberg Surveillance coming up after this. 0:20:58.640 --> 0:21:02.120 This is the Bloomberg serve Balen's podcast. Listen live each 0:21:02.160 --> 0:21:05.199