WEBVTT - The Data Detective 0:00:13.000 --> 0:00:16.280 Hello, and welcome to What Goes Up, a Bloomberg Weekly 0:00:16.360 --> 0:00:20.040 Markets podcast. I'm Sarah Pontzak, a reporter on the cross 0:00:20.040 --> 0:00:22.799 As Set team, and I'm Mike Reagan, a senior editor 0:00:22.880 --> 0:00:25.160 on the Markets team. This week on the show, we'll 0:00:25.200 --> 0:00:28.319 dig into the data from Google searches to new home 0:00:28.440 --> 0:00:32.240 sizes and discuss what the signs actually mean for markets, 0:00:32.680 --> 0:00:36.400 and the bond rally continues, Why the insatiable demand and 0:00:36.520 --> 0:00:41.040 why is the US Treasury seriously considering issuance of ultra 0:00:41.200 --> 0:00:44.559 long bonds? And as always, will close out the episode 0:00:44.600 --> 0:00:47.280 with our tradition the Craziest Thing I Saw in Markets? 0:00:47.320 --> 0:00:51.360 This week, Sarah tell the people about our hotline. So 0:00:52.320 --> 0:00:55.600 we have this new hotline. It's the Bloomberg Podcast Hotline. 0:00:56.040 --> 0:00:58.400 As you know, we always do our Craziest Thing I 0:00:58.480 --> 0:01:00.840 Ever Saw in Market segment at end of the show, 0:01:01.160 --> 0:01:02.720 but now you can become a part of it too, 0:01:02.760 --> 0:01:05.480 So call us, leave us a message, let us know 0:01:06.280 --> 0:01:08.000 what you saw that you thought was crazy, or even 0:01:08.000 --> 0:01:10.680 just ask us a question that numbers six four six 0:01:10.880 --> 0:01:15.119 three two four three for nine zero and we may 0:01:15.200 --> 0:01:18.800 even play a recording on the show. Sarah, before we 0:01:18.840 --> 0:01:21.000 introduce our guests. I I've got a crack pot theory 0:01:21.000 --> 0:01:22.760 I want to share with you. Youre ready, You're ready 0:01:22.800 --> 0:01:24.440 for a crap I mean I'm ready for it. To 0:01:24.520 --> 0:01:26.480 be sure, I have several crack pots. I know you do, 0:01:26.600 --> 0:01:28.679 but let's hear the one for today. The one today 0:01:28.840 --> 0:01:31.680 is I think the way you make your name on 0:01:31.720 --> 0:01:34.679 Wall Street. I mean, sure, you can beat the market 0:01:34.840 --> 0:01:37.760 with your stock picks, you can be the best trader 0:01:38.319 --> 0:01:40.319 in the world, But the way I think you really 0:01:40.360 --> 0:01:42.160 make your name is if you have to be a 0:01:42.160 --> 0:01:45.280 good writer. I'll give you some example. Warren Buffett, I 0:01:45.319 --> 0:01:49.200 think is famous as much for his catchy writings in 0:01:49.280 --> 0:01:53.360 his his letters to shareholders. Right Uh, Bill Gross, I 0:01:53.360 --> 0:01:55.440 don't know if you've ever read his month monthly commentary 0:01:55.520 --> 0:01:58.000 when he was still writing it, very very catchy stuff. 0:01:58.360 --> 0:02:01.840 Peter Lynch, the great fun manager of the eighties. Excellent writer. 0:02:02.520 --> 0:02:05.280 And this is all way of leading up to me 0:02:05.400 --> 0:02:08.600 saying one of my favorite writers here on, one of 0:02:08.639 --> 0:02:11.120 my favorite Wall Street writers is a guest on our 0:02:11.160 --> 0:02:16.000 show today. He's a veteran of markets. Started out at 0:02:16.000 --> 0:02:19.400 Credit Swiss First Boston covering the auto industry as an analyst. 0:02:19.760 --> 0:02:23.160 Spent a few years with UH, the legendary hedge fund 0:02:23.200 --> 0:02:26.560 manager Steve Cohen. UH for about a decade he was 0:02:26.600 --> 0:02:31.480 the chief market strategist at converge X. But most excitingly, 0:02:31.600 --> 0:02:34.720 he started his own firm about two years ago called 0:02:34.840 --> 0:02:38.880 Data Trek Research. His name is Nick Cholas. Nick, welcome 0:02:38.919 --> 0:02:41.800 to the show, Thanks very much. And another good writer 0:02:42.080 --> 0:02:47.919 on the show today. Good what a great one. Well 0:02:47.960 --> 0:02:53.240 you get your job is primarily writing, so and that 0:02:53.400 --> 0:02:56.240 is Emily Barrett from our Bonds and and f X team, 0:02:56.320 --> 0:02:58.919 And welcome to the show. Thanks for having me and Nick. 0:02:58.960 --> 0:03:01.160 I wanted to start with you. I we have all 0:03:01.200 --> 0:03:03.280 a stack of your research notes from the past month 0:03:03.360 --> 0:03:05.359 or so. We're gonna get into them a little bit, 0:03:05.400 --> 0:03:07.799 but I wanted to start this kind of high level 0:03:08.120 --> 0:03:11.960 of sort of how you're thinking about the market these days. UM, 0:03:12.000 --> 0:03:14.559 I get the sense from some of your recent reports 0:03:14.600 --> 0:03:17.920 that you're I don't want to say barish, but cautious 0:03:17.960 --> 0:03:20.080 about the equity market right now. Is that is that safe? 0:03:20.240 --> 0:03:22.640 That's very fair. You know, we were positive on markets 0:03:22.840 --> 0:03:25.399 through the first part of the year and saw declining 0:03:25.480 --> 0:03:28.000 rates and fairly stable earnings. Is a good backdrop for 0:03:28.200 --> 0:03:31.239 SMP performance and it was the next This month and 0:03:31.280 --> 0:03:33.400 the next couple of months will be a lot tougher though, 0:03:33.440 --> 0:03:35.840 And it's both the matter of seasonality and the basic 0:03:35.920 --> 0:03:37.960 trends going on now and more than anything, and I 0:03:38.000 --> 0:03:39.960 guess we'll talk about this is the fear of recession 0:03:40.040 --> 0:03:42.040 as being factored in by the yel curb and other things. 0:03:42.720 --> 0:03:46.240 So it's gonna be a choppier time, right, So what 0:03:46.240 --> 0:03:48.960 what's that? How could that manifest? Just more up and 0:03:49.000 --> 0:03:51.360 down days like we saw in August? I mean, is 0:03:51.360 --> 0:03:53.840 that the sort of the new normal for the time being? 0:03:53.880 --> 0:03:55.640 It absolutely is. You know, we went a very very 0:03:55.640 --> 0:03:58.800 long stretch without seeing even one percent days on the SMP. 0:03:59.320 --> 0:04:01.120 I think we had a having a week stretch going 0:04:01.120 --> 0:04:03.040 in through July and early August where there were no 0:04:03.080 --> 0:04:05.560 one percent days, very unusual. So we'll see a lot 0:04:05.600 --> 0:04:08.040 more of those, a vix closer to normal, a lot 0:04:08.040 --> 0:04:10.000 more surn you know, if you look at the last 0:04:10.000 --> 0:04:12.360 couple of weeks with August, just expect as to continue 0:04:12.320 --> 0:04:14.440 to September and October. And I'll add to that, we've 0:04:14.480 --> 0:04:18.039 seen eleven one percent days just this month. That's now 0:04:18.120 --> 0:04:21.000 more than December. So that just goes to show the 0:04:21.080 --> 0:04:23.760 swings that we have been seeing. Something that really stood 0:04:23.760 --> 0:04:25.640 out to me in your research, Nick, was that you 0:04:25.720 --> 0:04:29.320 look and track on Google trends the amount of searches 0:04:29.640 --> 0:04:33.640 for the word or the two words doubt Jones. Why 0:04:33.800 --> 0:04:35.600 is that, Why do you look for these searches and 0:04:35.640 --> 0:04:37.760 what are the implications for what that could potentially mean 0:04:37.800 --> 0:04:40.120 for the economy and the markets. Yeah, I mean the 0:04:40.200 --> 0:04:43.120 issue with Dow Jones is people don't really google SMP 0:04:43.279 --> 0:04:45.440 five hundred when they want to see what the markets doing. 0:04:45.480 --> 0:04:48.880 When regular main street Americans want to see, hey, why 0:04:48.920 --> 0:04:50.960 is the market down today? They google Dow Jones. And 0:04:50.960 --> 0:04:53.600 it's a wonderful indicator of how much attention the public 0:04:53.720 --> 0:04:56.159 is paying on the volatility in the stock market. And 0:04:56.200 --> 0:04:57.800 we looked at that, and you can do this on 0:04:57.839 --> 0:05:00.280 your own Google trans just plug in Dow Jones, get 0:05:00.279 --> 0:05:02.880 the data. And the troublesome thing is the volatility in 0:05:02.880 --> 0:05:07.120 August is now higher, showing higher Google trend searches for 0:05:07.440 --> 0:05:09.360 dal Jones than back in May when we had the 0:05:09.440 --> 0:05:11.600 last bout of volatility. Isn't quite back to where it 0:05:11.640 --> 0:05:13.599 was in December when we had that huge puke point 0:05:13.680 --> 0:05:17.120 in the year, but definitely people are paying attention to 0:05:17.680 --> 0:05:19.960 this volatility, and that's worrisome because even if you don't 0:05:19.960 --> 0:05:22.719 own stock, you know that if your company's stock prices down, 0:05:23.000 --> 0:05:26.040 your risk of layoff goes up. And going into holiday season, 0:05:26.040 --> 0:05:28.320 that's another kind of worrisome thing. So to me, it's 0:05:28.320 --> 0:05:30.960 a transmission mechanism between the volatility the stock market and 0:05:31.000 --> 0:05:33.640 consumer spending. When these people see people paying attention to 0:05:33.640 --> 0:05:36.480 stock market volatility, you have to start worrying about consumer 0:05:36.520 --> 0:05:39.200 spending going into the fourth quarter. So the searches for 0:05:39.279 --> 0:05:43.080 dal jones recently were even higher than May, and and 0:05:43.320 --> 0:05:45.720 was that almost as high as December. I wonder if 0:05:45.720 --> 0:05:48.640 the clustering of them so close together, you know, is 0:05:48.640 --> 0:05:51.640 is also worrisome. Um. You know, it's one thing to 0:05:51.680 --> 0:05:54.520 have one sort of a correction in a year, but 0:05:54.560 --> 0:05:57.039 to have have a couple back to back to back 0:05:57.080 --> 0:06:00.080 like this, Uh does that sort of sending on a 0:06:00.200 --> 0:06:02.279 sign going forward? It does, because if you look at 0:06:02.320 --> 0:06:04.440 the data from December of last year and then January 0:06:04.440 --> 0:06:07.160 of this year, interest in Dow Jones just plummeted. Once 0:06:07.240 --> 0:06:09.640 the market began to recover, people said, okay, things are fine. 0:06:10.240 --> 0:06:12.160 If you do see another couple of months of volatility 0:06:12.200 --> 0:06:14.599 and still elevated Google searches. To my mind, it's a 0:06:14.640 --> 0:06:18.800 worrisome sign going into holiday because people might rightly think, Okay, 0:06:18.839 --> 0:06:20.800 if the stock markets volitgi and perhaps my jobs at 0:06:20.880 --> 0:06:23.360 risk and we gotta start spending a little bit less money. 0:06:23.440 --> 0:06:25.800 I've got to say, you inspired me, and I looked 0:06:25.880 --> 0:06:28.600 up on Google trends searches for recession too, and I 0:06:28.600 --> 0:06:31.680 found that actually this month we're on pace to see 0:06:32.000 --> 0:06:35.280 the most Google Trends searches for recession since all the 0:06:35.320 --> 0:06:37.719 way back in on nine, which I thought was astounding. 0:06:37.760 --> 0:06:40.680 Did this does Let's go back to the discussion of 0:06:40.720 --> 0:06:44.520 talking yourself into a recession. People get worried, people talk 0:06:44.600 --> 0:06:47.760 themselves into being scared and then not going out and 0:06:47.920 --> 0:06:51.680 spending potentially. Yeah, that is definitely the narrative. I'll tell 0:06:51.680 --> 0:06:53.919 you that I've never actually seen it work, and I 0:06:53.920 --> 0:06:56.080 mean I covered the autos in the nineties, so pickltality 0:06:56.200 --> 0:06:58.200 was a major issue. I mean, you know, sort of 0:06:58.200 --> 0:07:01.279 to cut to the chase about this recession conversation, the 0:07:01.360 --> 0:07:03.800 yield curve is spooking everybody, and I guess we'll talk 0:07:03.800 --> 0:07:05.680 more about that, But to my mind, it's not the 0:07:05.680 --> 0:07:08.200 most important indicator for a future recession, and that the 0:07:08.240 --> 0:07:12.000 real important indicator is gasoline prices and oil prices even 0:07:12.000 --> 0:07:13.920 though we've never had a recession without an inverted y 0:07:13.960 --> 0:07:17.480 occur First, we haven't had a recession without oil prices 0:07:17.520 --> 0:07:20.600 doubling in a year since back in the ninety three. 0:07:21.160 --> 0:07:23.360 So in order to see a recession, and this is 0:07:23.400 --> 0:07:25.720 a more logical conduit for me, in order to see 0:07:25.760 --> 0:07:27.360 a recession of believing recession, I think you've got to 0:07:27.360 --> 0:07:30.040 see gas prices spike, and they obviously haven't. So if 0:07:30.040 --> 0:07:32.400 we see Google searches for cheap gas, and then I'll 0:07:33.080 --> 0:07:36.600 look out. Believe it or not, we do that. We 0:07:36.680 --> 0:07:40.680 do look at that cheap gas, coupons, ammunition and can goods. 0:07:40.680 --> 0:07:44.640 And it's funny, prepping has actually declined in popularity in 0:07:44.640 --> 0:07:47.040 the last two years. Oh, you've been tracking that. We 0:07:47.160 --> 0:07:51.800 track everything. That's great. Well. Emily as Nick said that 0:07:51.880 --> 0:07:55.600 the yield curve has a lot of people spooked avid 0:07:55.640 --> 0:07:58.080 listeners to this podcast. No, we've sort of beaten that 0:07:58.200 --> 0:08:03.280 topic to death. But um, you know, especially low long 0:08:03.400 --> 0:08:07.400 end yields. Uh this week, uh ten year yielded a 0:08:07.520 --> 0:08:10.280 little more than one and a half percent. I think Nick. 0:08:10.480 --> 0:08:13.560 According to one year reports, it's only been something like 0:08:13.720 --> 0:08:17.160 forty days in the past since the sixties that we've 0:08:17.200 --> 0:08:19.800 seen a lower yield than this. I mean, it's crazy. 0:08:20.120 --> 0:08:24.120 And Emily, you've been writing about UM and reporting on 0:08:24.160 --> 0:08:27.720 this issue of the Treasury actually looking at long ultra 0:08:27.800 --> 0:08:31.760 long bonds now, so either fifty year or hundred year 0:08:32.200 --> 0:08:36.200 UH maturity treasuries. Tell us about that reporting is it? 0:08:36.440 --> 0:08:39.920 Does this sound like something that could possibly happen? Well, look, 0:08:39.960 --> 0:08:41.720 it would make a lot of sense for the Treasury 0:08:41.760 --> 0:08:44.920 to try and lock in record low funding for you know, 0:08:44.960 --> 0:08:47.000 a fifty or a hundred year bond at this point. 0:08:47.000 --> 0:08:49.600 And surely, I mean some people have said, look, everybody's 0:08:49.600 --> 0:08:51.760 doing it, why wouldn't the US do it as well? Right? 0:08:52.160 --> 0:08:55.079 But I think that there are I mean, first of all, 0:08:55.240 --> 0:08:57.439 this is the second time this administration that this idea 0:08:57.480 --> 0:09:00.120 has been floated. So it was floated back in and 0:09:00.160 --> 0:09:02.160 at that point tea back, which are kind of the 0:09:02.559 --> 0:09:05.120 whispers to the Treasury about what the market wants and 0:09:05.120 --> 0:09:08.040 what the market can take. UM was very cool on 0:09:08.080 --> 0:09:10.520 the idea, and they don't seem to have really changed 0:09:10.600 --> 0:09:12.680 their tone that much at this point. Although it's hard 0:09:12.720 --> 0:09:15.320 to say until we see them actually gather and comment 0:09:15.360 --> 0:09:17.520 on it. Um. But you know we've done some of 0:09:17.520 --> 0:09:19.560 my colleagues have done some fantastic reporting on this. Lea's 0:09:19.600 --> 0:09:22.960 Kevin McCormick, um, Alex Harris as well as written about this. 0:09:23.400 --> 0:09:26.000 It's um. You know what we need to see is 0:09:26.040 --> 0:09:28.800 despite the fact that there is this global Hunger Federation 0:09:29.160 --> 0:09:31.840 and for yield wherever it shows up, you just still 0:09:31.880 --> 0:09:33.800 find that people are saying, well, we don't need to 0:09:33.840 --> 0:09:38.359 disrupt kind of the regular and reliable performance of Treasury issuance. 0:09:38.720 --> 0:09:40.960 We don't want to see the Treasury doing something that 0:09:41.080 --> 0:09:44.400 is kind of opportunistic um to try and hit a 0:09:44.400 --> 0:09:46.560 low yield at this point in time that might end 0:09:46.640 --> 0:09:48.560 up being disruptive for the rest of the market. Well, 0:09:48.800 --> 0:09:52.679 you know, I can only imagine uh, groups of pension 0:09:52.679 --> 0:09:56.200 fund managers and insurance companies, you know, hiring a marching 0:09:56.240 --> 0:09:59.360 band ago performed at Stephen Nutchem's house to say we 0:09:59.520 --> 0:10:01.679 want the right I mean, so what what would be 0:10:01.720 --> 0:10:06.000 the downside? Why? Why would the Treasury not necessarily want 0:10:06.040 --> 0:10:08.840 to provide these securities I mean and correct me if 0:10:08.840 --> 0:10:10.960 I'm wrong. Wouldn't wouldn't you assume the pensions and the 0:10:11.000 --> 0:10:12.920 and the insurance companies would be would be all over 0:10:12.960 --> 0:10:15.000 an ultra law. I mean you would to a certain 0:10:15.040 --> 0:10:17.200 extent because their buy and hold investors, they want to 0:10:17.240 --> 0:10:19.360 match their liabilities. They want to make sure that they 0:10:19.360 --> 0:10:21.120 have enough money to pay out when people retire. And 0:10:21.120 --> 0:10:23.280 obviously PIMCO did a great piece not so long ago 0:10:23.720 --> 0:10:26.840 about that being a driver of negative yields globally. Right, 0:10:26.920 --> 0:10:30.160 this insane demand the Treasury wants to I mean, look, 0:10:30.720 --> 0:10:33.319 you can't really say that. There was a great interview 0:10:33.400 --> 0:10:35.439 by by one of our colleagues and in d C 0:10:35.600 --> 0:10:39.280 Sila who actually spoke to munition and uh and you know, 0:10:39.320 --> 0:10:42.920 they say they're seriously considering this, and but it's clear 0:10:43.000 --> 0:10:46.000 that the Treasury wants to keep raising this as an issue. Right. 0:10:46.040 --> 0:10:50.280 This is there's it's compelling um for investors in it. 0:10:50.480 --> 0:10:53.120 You know, it seems like it would be a great match. 0:10:53.160 --> 0:10:54.839 It seems like you would see global investors want to 0:10:54.880 --> 0:10:58.160 pour and global investors don't tend to be huge participants 0:10:58.400 --> 0:11:01.800 and sort of uh US long duration you know that 0:11:01.880 --> 0:11:03.679 they're kind of a portion of the buyers, but they 0:11:03.720 --> 0:11:06.920 also have to satisfy asset managers here in the US. 0:11:07.040 --> 0:11:09.120 Which is a sort of a compelling market as well, 0:11:09.640 --> 0:11:11.560 and so you know why it might be great for 0:11:11.760 --> 0:11:15.560 buying hold investors, it's just difficult to always rely on 0:11:15.720 --> 0:11:17.760 you know, for instance, they may have their funding levels 0:11:17.800 --> 0:11:19.560 sorted out at this point in time, but they're not 0:11:19.640 --> 0:11:23.040 later on. There's this cyclicality element that might sort of 0:11:23.080 --> 0:11:25.600 disturb demand and make it less different. And the problem 0:11:25.800 --> 0:11:28.439 is if there isn't demand sufficient demand for this, it 0:11:28.520 --> 0:11:30.840 ends up on dealer balance sheets. Dealer balance sheets don't 0:11:30.840 --> 0:11:32.440 have a lot of room on them at the moment. 0:11:32.880 --> 0:11:34.760 And it also means that you know, sort of costs 0:11:34.800 --> 0:11:38.560 across the curve could rise for taxpayers. So you know 0:11:38.600 --> 0:11:40.280 that's one thing. I mean, where yet to see We're 0:11:40.280 --> 0:11:42.600 doing some reporting to time and see what what global 0:11:42.640 --> 0:11:46.520 investors really think about this um, you know, so we'll 0:11:46.520 --> 0:11:52.400 see what happens neck you buying Well obviously personally, no, 0:11:56.480 --> 0:11:59.800 it is an interesting question because opportunistically it does make 0:11:59.840 --> 0:12:02.079 it kind of sense. But you know, the dollars reserve 0:12:02.160 --> 0:12:05.560 currency for a reason. It's because this system is extremely 0:12:05.640 --> 0:12:07.560 stable and if you look at the folks that have 0:12:07.600 --> 0:12:13.280 done hundred year bonds, not exactly a great set of cops. Well, 0:12:13.320 --> 0:12:15.280 I have to ask. You mentioned the dollar, and I 0:12:15.280 --> 0:12:17.360 want to bring it to actually dollar price action that 0:12:17.400 --> 0:12:19.760 we have seen. And I feel like we discussed this 0:12:19.840 --> 0:12:23.120 every single week because it seems like everyone is or 0:12:23.200 --> 0:12:25.760 many people are always calling to find a bump in 0:12:25.800 --> 0:12:27.680 the dollar rally. But yet again this week you see 0:12:27.760 --> 0:12:31.280 the dollar rallying, the Bloomberg Dollar Spot Index touching the hyacinth. 0:12:32.960 --> 0:12:38.040 Do you see this relentless dollar rally just continuing from here? Yes? 0:12:38.200 --> 0:12:40.760 The short answer is yes, there's no reason why it shouldn't. 0:12:40.760 --> 0:12:42.760 If the economies of the world are slowing down and 0:12:42.800 --> 0:12:46.040 you're looking for risk free assets or a more stable 0:12:46.080 --> 0:12:48.760 place to invest, the U S is it, The dollar 0:12:49.000 --> 0:12:51.680 is it? And the reserve currency status at lea seems 0:12:51.760 --> 0:12:54.680 rock solid and there's no viable competitor for the next 0:12:54.720 --> 0:12:57.480 ten years at least, So yes, no reason why not. 0:13:13.400 --> 0:13:15.840 N I wanted to run through a few of some 0:13:15.960 --> 0:13:19.040 of the factulids from some of your recent research because 0:13:19.240 --> 0:13:21.360 some some really fascinating stuff and I love the way 0:13:21.400 --> 0:13:25.680 you sort of look at uh data points that the 0:13:25.720 --> 0:13:28.160 rest of us, the rest of us have missed. The 0:13:28.440 --> 0:13:31.680 one I'm really fascinated with is you look at the 0:13:31.720 --> 0:13:36.120 proportion of households in the country that are one person households, 0:13:36.840 --> 0:13:41.440 and how it affects then the average home size being built. 0:13:41.600 --> 0:13:44.120 Walk us through this research and sort of how you 0:13:44.200 --> 0:13:49.600 apply what you found out in these stats to investment ideas. Yeah, 0:13:49.640 --> 0:13:52.320 so this is a very long term kind of analysis, 0:13:52.320 --> 0:13:54.600 and it basically those like this. The beginning anything sixties, 0:13:54.600 --> 0:13:57.160 the average household America had roughly three point three people 0:13:57.160 --> 0:14:00.160 according to the Census, and the average household size was 0:14:00.240 --> 0:14:03.560 roughly seventeen hundred square feet a little bit less. And 0:14:03.600 --> 0:14:06.360 over the last fifty sixty years, the number of people 0:14:06.360 --> 0:14:09.120 per household has declined from three point three to two 0:14:09.160 --> 0:14:12.720 point five, the biggest single factor being people who live alone. 0:14:13.040 --> 0:14:15.280 It used to be thirteen percent back in the sixties. 0:14:15.320 --> 0:14:17.800 Now it's well over twenty and you're more likely to 0:14:17.840 --> 0:14:20.400 walk into a house in Americans see one person than 0:14:20.480 --> 0:14:23.120 four people, which is sort of the traditional nuclear family 0:14:23.200 --> 0:14:25.800 versus the person living alone. At the same time, the 0:14:25.880 --> 0:14:28.720 size of houses has increased from seventeen hundred square feet 0:14:28.760 --> 0:14:30.920 to twenty seven hundred square feet at the peak in 0:14:30.960 --> 0:14:34.080 two thousand fifteen, And to me, it's like the American 0:14:34.080 --> 0:14:39.240 consumption story. Bigger houses, lower household densities, and since people 0:14:39.240 --> 0:14:42.280 living together tend to share assets, the less sharing, the 0:14:42.320 --> 0:14:44.640 more consumption we need. So it's been a huge tail 0:14:44.680 --> 0:14:46.680 went for the American consumer in the American economy for 0:14:46.720 --> 0:14:49.240 the last fifty sixty years, basically the entire post World 0:14:49.240 --> 0:14:53.160 War two expansion. But now it's beginning to change because 0:14:53.360 --> 0:14:55.400 land prices have gotten so high that new houses are 0:14:55.400 --> 0:14:58.240 now actually getting smaller again, and they typically only gets 0:14:58.280 --> 0:15:01.120 smaller in recessions as home builders shift to smaller homes. 0:15:01.440 --> 0:15:03.640 But if you think about the aging the population, this 0:15:03.760 --> 0:15:06.320 propensity to live alone, and a bunch of other factors, 0:15:06.320 --> 0:15:08.160 to me, it's kind of a cautionary tale about what 0:15:08.240 --> 0:15:10.440 the American economy can grow at over the next ten 0:15:10.520 --> 0:15:13.000 twenty thirty years if we no longer have this tail 0:15:13.040 --> 0:15:15.880 wind of fewer people in bigger houses. Right, And that's 0:15:15.880 --> 0:15:18.000 a trend that you think should keep going for a while, 0:15:18.120 --> 0:15:21.240 is homes, you know, fewer, fewer people in the household. 0:15:21.280 --> 0:15:23.720 If you look at populations in Europe and Japan, for example, 0:15:23.720 --> 0:15:25.200 there are a couple of years of us in terms 0:15:25.200 --> 0:15:28.720 of average age of a citizen, they're already seeing higher 0:15:28.800 --> 0:15:30.920 levels in Japan. I think a thirty five percent of 0:15:30.960 --> 0:15:33.880 households or one person households, and it's about I want 0:15:33.880 --> 0:15:37.360 to say, thirty five in Europe, both trending higher. So 0:15:37.400 --> 0:15:39.360 we're a little bit behind, but seems like we're going 0:15:39.400 --> 0:15:41.400 to catch up if for another reason than the average 0:15:41.440 --> 0:15:43.600 mortality of a man is five years less than every 0:15:43.640 --> 0:15:47.600 mortality of woman. Something I find really interesting to that point, though, 0:15:47.600 --> 0:15:49.840 is that this year we've seen home builder stocks really 0:15:49.840 --> 0:15:51.400 just take off. I mean, you look at the SMP 0:15:51.520 --> 0:15:55.360 home Building Index, It's up something like this year, and yes, 0:15:55.560 --> 0:15:58.840 a large part of that is due to falling interest 0:15:59.000 --> 0:16:01.280 rates as well. Would you say that people who are 0:16:01.400 --> 0:16:05.000 really buying into this story or maybe missing out on 0:16:05.000 --> 0:16:07.240 a big part of the picture now, because I think 0:16:07.280 --> 0:16:08.680 the you know, you have to look at what the 0:16:08.680 --> 0:16:10.800 fundamentals are, and for home bowlders, it's interest rates, and 0:16:10.840 --> 0:16:13.400 that's totally fine. And that group got creamed over the 0:16:13.400 --> 0:16:14.880 past couple of years, so it should have had a 0:16:14.920 --> 0:16:17.160 bounce back. Look, there still will always be a home 0:16:17.200 --> 0:16:18.880 building industry, and I think that industry has done a 0:16:18.880 --> 0:16:21.960 good job more than anything of managing their cost structures 0:16:22.000 --> 0:16:25.320 and managing their buying of land to be sustainably profitable 0:16:25.360 --> 0:16:28.760 because they obviously got destroyed during the crisis. And so 0:16:28.800 --> 0:16:30.960 the number one thing that that's those companies have to 0:16:30.960 --> 0:16:33.080 do to improve their valuations, which are so quite low, 0:16:33.440 --> 0:16:36.120 is proved profitability through a downturn. And they're doing a 0:16:36.200 --> 0:16:38.720 very good job of managing cost structures and building plans 0:16:38.720 --> 0:16:40.880 and growth plans so that when the next recession comes, 0:16:41.320 --> 0:16:43.960 they don't have to, um, you know, go to banks 0:16:44.040 --> 0:16:45.680 or go to the credit markets. They can stell be 0:16:45.720 --> 0:16:48.120 self sustaining and over time that I'll earn a higher 0:16:48.200 --> 0:16:50.600 valuation as a cyclical as analyst, that really resonates with me. 0:16:50.680 --> 0:16:53.040 That's how you earn a higher valuation over the next ten, fifteen, 0:16:53.040 --> 0:16:55.520 twenty years. Yea, Emily. It all gets back to the 0:16:55.520 --> 0:17:00.600 interest rates, doesn't it. And absolutely when did you refinance? 0:17:00.800 --> 0:17:02.480 I wish, I wish I had just done this. I 0:17:02.480 --> 0:17:05.800 know it's getting temping again. So you you talked to 0:17:06.359 --> 0:17:09.840 UH fixed income investors all day? Um, what is the 0:17:09.880 --> 0:17:14.119 mood out there? Are people coming around to the idea 0:17:14.200 --> 0:17:17.960 that rates are low forever? Now? I mean, the whole 0:17:17.960 --> 0:17:19.840 market seemed to be on the wrong foot when the 0:17:19.880 --> 0:17:22.800 year began. Everyone was expecting the Fed to hike and 0:17:23.160 --> 0:17:25.560 rates to be you know, ten year yield to be 0:17:25.600 --> 0:17:29.800 above three percent. Maybe what's sort of the temperature on 0:17:29.800 --> 0:17:31.639 the street now. I mean, I'm kind of really interested. 0:17:31.640 --> 0:17:34.399 We always see this very different sort of glass off empty, 0:17:34.400 --> 0:17:38.160 glass of full full attitude between equities and fixed income investors. 0:17:38.160 --> 0:17:40.120 And I have to say a lot of the people 0:17:40.160 --> 0:17:42.600 I speak to are very down in the mouth about 0:17:42.640 --> 0:17:45.080 what's happening at the moment in terms of the prospect 0:17:45.119 --> 0:17:48.520 of high yields, of volatility, like volatility is obviously coming 0:17:48.560 --> 0:17:51.040 back in the market, but they just don't see that 0:17:51.119 --> 0:17:53.920 much opportunity for yields to lift from where they are now. 0:17:53.960 --> 0:17:55.880 And so there's been more and more of that sort 0:17:55.880 --> 0:17:57.760 of drumbeat of well, how low can it go? You 0:17:57.840 --> 0:18:00.600 keep asking this question. It keeps breaking through every single 0:18:00.640 --> 0:18:03.359 barrier that people have been talking about. But the interesting 0:18:03.400 --> 0:18:05.600 thing about this is, you know, now we've got the 0:18:05.600 --> 0:18:08.520 FED cutting rates again, you would think people would be emboldened, 0:18:08.520 --> 0:18:10.719 you know, heading out into Okay, we've got some yielding 0:18:10.760 --> 0:18:13.320 stuff out there, we've got some emerging markets, and I'm 0:18:13.320 --> 0:18:15.600 really interested to hear so many people saying, yeah, it's 0:18:15.680 --> 0:18:17.080 close to the end of the cycle, and it's been 0:18:17.119 --> 0:18:20.600 close to the end of cycle for the last it's 0:18:20.640 --> 0:18:22.560 it is really hard I think for a lot of 0:18:22.560 --> 0:18:24.680 investors out of bits and a where to step next? Nick, 0:18:24.720 --> 0:18:27.600 what's your view? Obviously it's very difficult to time the markets. 0:18:27.600 --> 0:18:30.480 And as Emily said, many people are looking at this saying, well, 0:18:30.480 --> 0:18:32.320 it has to come to an end sometime soon. We're 0:18:32.320 --> 0:18:35.919 at the end of the cycle. Do you believe that? Well, 0:18:36.080 --> 0:18:37.679 the way I look at it is just you know. 0:18:37.840 --> 0:18:39.720 So I'll give you an example. Look at what the 0:18:39.920 --> 0:18:41.800 ten year bond has done for the last year. As 0:18:41.800 --> 0:18:43.880 of last week, it was about three teaen point three 0:18:43.920 --> 0:18:49.320 percent after inflation over the last since n the treasury, 0:18:49.520 --> 0:18:54.120 then your treasury has returned two after inflation on average 0:18:54.160 --> 0:18:56.840 through that time frame, and the sanentiviation of those returns 0:18:56.880 --> 0:18:59.560 is roughly nine points. So we are well above one 0:18:59.560 --> 0:19:01.840 senor viation in terms of trailing one year returns and 0:19:01.880 --> 0:19:04.600 that inflation and typically, and if you go back and 0:19:04.600 --> 0:19:07.119 look at the history, you don't make much more money 0:19:07.160 --> 0:19:10.040 than that over the next year. So if you're buying 0:19:10.080 --> 0:19:13.719 treasuries here statistically historically says you're not going to make 0:19:13.760 --> 0:19:16.159 a whole lot more going forward. And there have been 0:19:16.280 --> 0:19:18.720 rafts of people that have died on the hill of 0:19:18.800 --> 0:19:20.879 calling the you know, the top and the treasury markets. 0:19:20.920 --> 0:19:23.480 I'm not trying to do that, but just statistically speaking, 0:19:23.720 --> 0:19:26.600 if you own long bonds here, history says you are 0:19:26.600 --> 0:19:27.840 not going to make a whole lot more for the 0:19:27.880 --> 0:19:30.199 next twelve months. You might not lose very much. But 0:19:30.400 --> 0:19:34.199 this has been a dot com size rally in treasuries, 0:19:34.600 --> 0:19:36.760 and you have to sort of put that in perspective, 0:19:36.760 --> 0:19:38.760 and and and and really respect the fact that if 0:19:38.760 --> 0:19:42.400 you're hanging on here, your best case scenario is flat, right, 0:19:42.720 --> 0:19:45.280