WEBVTT - Surveillance: Margin Pressure With Wilson 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.080 with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring 0:00:13.119 --> 0:00:17.159 you insight from the best and economics, finance, investment, and 0:00:17.280 --> 0:00:23.280 international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg 0:00:23.360 --> 0:00:28.920 dot Com, and of course on the Bloomberg Terminal. Let's 0:00:28.920 --> 0:00:30.800 get to the nuance right now in the equity markets 0:00:30.800 --> 0:00:33.760 home with Mike Wilson Malkin, Stanley's chief US equity strategist, 0:00:33.840 --> 0:00:36.000 and see I might great a catch up with you 0:00:36.040 --> 0:00:37.960 as always serving. Let's start with margin has been a 0:00:37.960 --> 0:00:40.440 big thing for us this morning. A lot of people 0:00:40.479 --> 0:00:42.599 think that maybe this margin story, which has held up 0:00:42.600 --> 0:00:45.919 in corporate America, that story can persist into a new year. 0:00:46.000 --> 0:00:49.120 Do you think it can? Well, look, I mean I 0:00:49.200 --> 0:00:51.960 think margins have surprise on the upside. That was really 0:00:52.080 --> 0:00:54.320 the call last year, which always happens, as you know, 0:00:54.440 --> 0:00:56.720 coming out of recession you get operating leverage. This time 0:00:56.720 --> 0:01:01.600 it was extraordinary because you had policy support essentially subsidize 0:01:01.640 --> 0:01:04.280 the unemployment that was out there. Right People were home, 0:01:04.280 --> 0:01:06.840 but they were still getting checks from the government and 0:01:06.840 --> 0:01:10.240 they could spend it digitally. So that is unique. Um, 0:01:10.280 --> 0:01:13.240 and we see that being a problem going forward where 0:01:13.240 --> 0:01:16.759 people have made assumptions now that those extraordinary margins are 0:01:16.959 --> 0:01:18.600 going to be carried forward. We see a couple of 0:01:18.600 --> 0:01:22.839 areas of particular consumer discretionary industrials, parts of the technology 0:01:22.880 --> 0:01:25.240 market look to be a little bit lofty in terms 0:01:25.240 --> 0:01:28.520 of margin expectations. That's where we are in the cycle. Um, 0:01:28.520 --> 0:01:30.560 we see no reason why it's gonna be any different. 0:01:30.920 --> 0:01:32.959 And because it was so acute on the upside with 0:01:33.000 --> 0:01:35.640 operating leverage on the upside, it's not going to be 0:01:35.640 --> 0:01:37.360 a surprised as if we see a little bit more 0:01:37.400 --> 0:01:40.000 margin degradations we go into two and that needs to 0:01:40.000 --> 0:01:43.920 get baked into people's expectations. Mike, your great strength as 0:01:43.920 --> 0:01:46.560 a sell side analysts at Morgan Stanley, I know you 0:01:46.600 --> 0:01:49.040 and I are all Jack Welch one oh one on 0:01:49.160 --> 0:01:54.000 pricing power sector to sector analysts to analysts, what does 0:01:54.080 --> 0:01:58.080 your team say about the ability of corporations to adapt 0:01:58.400 --> 0:02:03.000 and generate pricing power? Yeah, it's it's the key question. 0:02:03.040 --> 0:02:06.160 I mean, there's gonna be companies that absolutely have pricing power. 0:02:06.240 --> 0:02:08.400 We've been, you know, looking for those types of companies 0:02:08.400 --> 0:02:11.160 and our recommendations going forward. You know, one thing we've 0:02:11.200 --> 0:02:13.040 noticed time as you know, I mean, the market's gotten 0:02:13.120 --> 0:02:18.000 very narrow. Obviously we've seen companies, higher quality companies and 0:02:18.280 --> 0:02:21.360 larger cap companies who have scale um. The market is 0:02:21.360 --> 0:02:23.480 paying up for those now because those are the types 0:02:23.520 --> 0:02:27.000 of companies that typically have pricing power. Okay, So I 0:02:27.040 --> 0:02:29.040 mean that's the name of the game. It's like costs 0:02:29.040 --> 0:02:31.639 are going up for everyone. So two areas I think 0:02:31.680 --> 0:02:33.840 you can look to to say maybe they'll be protected. 0:02:33.880 --> 0:02:36.079 Companies that don't have as big of a labor component. 0:02:36.120 --> 0:02:38.480 We do think labor is going to be an issue 0:02:38.480 --> 0:02:40.239 not just for the economy, but the for the fit 0:02:40.360 --> 0:02:42.960 Ultimately that they're gonna have to tap down there and 0:02:42.960 --> 0:02:44.760 and that's that that that's gonna be. You know. So 0:02:44.840 --> 0:02:47.040 technology companies as an example, where they don't have as 0:02:47.120 --> 0:02:49.800 much labor um, they can maybe managed student and of 0:02:49.800 --> 0:02:52.400 course scale always gives you the ability to kind of 0:02:52.440 --> 0:02:56.120 spread costs across a bigger slater revenue. So, Mike, does 0:02:56.120 --> 0:02:58.960 this mean tech continues to outperform and other types of 0:02:58.960 --> 0:03:01.480 sectors the ones that lead the move lower Where you 0:03:01.480 --> 0:03:04.079 see the SMP ending the year below, where we are 0:03:04.120 --> 0:03:08.560 now now I think technology has gotten a double boost here, Lisa. 0:03:08.600 --> 0:03:12.560 I mean, it's obvious candidate for you know, pricing power 0:03:12.680 --> 0:03:15.000 or the ability to kind of manage costs, but it 0:03:15.080 --> 0:03:18.120 also is probably the single biggest beneficiary of this incredibly 0:03:18.440 --> 0:03:21.079 move move lower in rates at the back end, which 0:03:21.080 --> 0:03:23.720 doesn't really jibe with what's going on in the really economy. 0:03:23.800 --> 0:03:26.639 We know why that's happening. The fend has been ultra slow, 0:03:26.760 --> 0:03:30.200 ultra dubbish to to kind of get off the maximum 0:03:30.240 --> 0:03:33.760 accommodation mode. And and so that's been baked in now. 0:03:33.840 --> 0:03:35.800 So as rates move higher, which is our call for 0:03:35.840 --> 0:03:38.280 the rest of this year, you know, the valuation on 0:03:38.360 --> 0:03:40.760 some of these long duration TEX stacks will offset their 0:03:40.760 --> 0:03:44.000 ability to generate the earnings growth that's been spectacular, Mike, 0:03:44.080 --> 0:03:46.280 What does that mean for your index level? Cool going 0:03:46.320 --> 0:03:48.160 into year round? Because you have looked for that index 0:03:48.240 --> 0:03:50.480 level correction as we work on way through this mid 0:03:50.520 --> 0:03:54.200 cycle transition. Where are we now, Mike? So we're you know, 0:03:54.240 --> 0:03:57.400 we're working through that mid cycle transition. We're seeing corrections 0:03:57.480 --> 0:03:59.680 kind of happen around the market, but not at the 0:03:59.800 --> 0:04:02.280 end X level, which is typical to John, you know, 0:04:02.320 --> 0:04:04.920 and then it usually ends with an index level correction 0:04:04.960 --> 0:04:06.800 when the market can't find anywhere else to go where 0:04:06.840 --> 0:04:09.360 there's value. So we think we're kind of in the 0:04:09.440 --> 0:04:11.760 I don't know, six inning um. We probably have three 0:04:11.840 --> 0:04:14.280 or four months left to go for this med cycle transition. 0:04:14.400 --> 0:04:17.800 Usually it ends with the FED finally moving forward with 0:04:17.839 --> 0:04:20.440 either a tightening like it did at ninety four or 0:04:20.520 --> 0:04:23.320 in O four, or some form of tapering or balance 0:04:23.360 --> 0:04:26.600 sheet running off um like it did in two thousand eleven. 0:04:26.640 --> 0:04:29.040 And we think it's no different this time. I mean, 0:04:29.160 --> 0:04:31.159 by the way, that's not a crazy statement. I mean, 0:04:31.279 --> 0:04:32.880 is there anybody in the planet who doesn't think the 0:04:32.880 --> 0:04:35.320 FED is going to be tapering next year? No? Well, 0:04:35.720 --> 0:04:38.160 in fact, if they're not tapering, then that we got 0:04:38.160 --> 0:04:41.520 a serious problem. So the mid cycle transition will end 0:04:41.520 --> 0:04:44.320 with multiple you know, multiples coming down the index level 0:04:44.400 --> 0:04:48.000 because the FED is tightening policy. It's that simple, Mike. 0:04:48.240 --> 0:04:50.360 A lot of people expect the FED to tighten policy, 0:04:50.360 --> 0:04:52.719 and as you said, if they don't, that may become 0:04:52.760 --> 0:04:55.479 more of a problem. You said that the one point 0:04:55.560 --> 0:04:58.160 eight percent year on target for the ten year note 0:04:58.279 --> 0:05:01.559 actually could be conservative because the FED is so behind 0:05:01.600 --> 0:05:04.360 the curve and may be forced to raise rates faster 0:05:04.600 --> 0:05:07.520 than expected. Play out what that would look like and 0:05:07.520 --> 0:05:10.920 when we would know that perhaps race should rise more 0:05:11.040 --> 0:05:14.200 and that would be later this year, right, it could 0:05:14.200 --> 0:05:16.080 be sooner than later this year. It could be next month, 0:05:16.279 --> 0:05:18.840 you know. I mean, let's see how the FED wants 0:05:18.880 --> 0:05:21.440 to communicate this path. I mean, maybe it starts at 0:05:21.520 --> 0:05:23.599 Jackson Hole, and maybe it starts in September, which is 0:05:23.600 --> 0:05:26.120 our bet that they start to communicate when they're gonna 0:05:26.160 --> 0:05:28.560 do this. And you know, but the other way to 0:05:28.560 --> 0:05:30.240 think about, at least is the bomb market. You know, 0:05:30.240 --> 0:05:33.000 it's not stagnant. The bomb market will start to challenge 0:05:33.080 --> 0:05:36.039 the FED in their timing of that communication if it 0:05:36.080 --> 0:05:39.280 believes they're falling too far behind the curve. Right, I mean, 0:05:39.560 --> 0:05:42.560 we're we're basically close to full employment now based on 0:05:42.800 --> 0:05:45.040 you know, the wage increases that we're seeing in the commentary. 0:05:45.040 --> 0:05:47.039 We're hearing from companies like we don't really know what 0:05:47.200 --> 0:05:49.840 neghru is. Maybe it's four percent, maybe it's four and 0:05:49.839 --> 0:05:51.880 a half, maybe it's five percent, we don't really know. 0:05:52.240 --> 0:05:54.599 What we do know is that labor supply has probably 0:05:54.600 --> 0:05:57.880 been impaired during the pandemic. Maybe permanently we'll find out, 0:05:58.360 --> 0:06:01.479 and you know, typically the FED is tightening policy long 0:06:01.520 --> 0:06:04.720 before we get the neighbor. They start the process. You know. 0:06:04.920 --> 0:06:07.400 Once again, I don't think anybody would disagree with this statement, 0:06:07.400 --> 0:06:10.280 which is, does it seem right that we have emergency 0:06:10.360 --> 0:06:13.119 monetary accommodation at a time when the economy is growing 0:06:13.120 --> 0:06:15.279 six and a half percent real eight and a half 0:06:15.360 --> 0:06:19.200 nine percent nominally. That doesn't seem like it. Jibs and 0:06:19.279 --> 0:06:21.560 I think the delta variant is the market is same. Okay, 0:06:21.680 --> 0:06:23.560 let's see how the delta varian plays out. But if 0:06:23.640 --> 0:06:27.280 we find that the delta barian is fading, schools are reopening, 0:06:27.520 --> 0:06:29.200 we are going to get back to work. You know. 0:06:29.240 --> 0:06:31.800 The BAB market can adjust quickly, very much like we 0:06:31.839 --> 0:06:34.159 saw in January and February, the last time that we 0:06:34.200 --> 0:06:36.479 were kind of out of consentus on the rate moves, 0:06:36.760 --> 0:06:38.760 you know, probably surprising at the upset. It's such a 0:06:38.760 --> 0:06:40.440 good final point, Mike, I'm gonna leave it that it's 0:06:40.440 --> 0:06:43.760 gonna catch up SA Michael Wilson, Morgan Stanley, Chief US 0:06:43.800 --> 0:06:51.640 Equity Strategists, and see a decade ago or even more, 0:06:51.680 --> 0:06:56.480 I should say I learned about field economics from Pascaline Dupart. 0:06:56.520 --> 0:06:59.680 Her colleague is Esther Duflo, who won the Nobel Prize 0:06:59.680 --> 0:07:04.800 with Energy Energy and the Flow become definitive on poverty economics. 0:07:04.839 --> 0:07:08.320 That new effort out is good Economics for hard Times 0:07:08.360 --> 0:07:13.960 out in paperback today and Esther, congratulations again, not only 0:07:14.080 --> 0:07:18.120 on the acclaim you've received, but the persistency that you've 0:07:18.160 --> 0:07:22.840 worked with in studying poverty. And part of that is 0:07:22.880 --> 0:07:25.120 in one of the chapters of your book, the End 0:07:25.160 --> 0:07:33.320 of Growth. Give us the optimism that growth is not ended. Oh, 0:07:33.440 --> 0:07:35.360 I don't know if I can give you the optimism. 0:07:35.440 --> 0:07:37.800 I think it depends if you have a left has 0:07:37.800 --> 0:07:40.360 food or left has empty type of person. Because the 0:07:40.400 --> 0:07:42.880 tooth is we don't know, We have no idea ghost 0:07:42.960 --> 0:07:46.440 does whatever it wants to do. Economies have found very 0:07:46.440 --> 0:07:50.840 difficult to predict how to do nurtur it. We know 0:07:50.960 --> 0:07:53.600 very went how to kill it. Venezuela is a good 0:07:53.640 --> 0:07:56.640 case study on how to kill ghoth. But once the 0:07:56.760 --> 0:07:59.920 basic conditions are there, we don't really know how to 0:08:00.120 --> 0:08:02.800 nurturing it. So that's the bad news. But the good 0:08:02.840 --> 0:08:07.040 news also means that it also comes and goes and 0:08:07.040 --> 0:08:09.560 and and policy makers and economies can do a lot 0:08:09.560 --> 0:08:13.000 of things to make sure that once it's there, everyone 0:08:13.040 --> 0:08:17.280 in the economy, including the poor, take maximum advantage of it. 0:08:18.360 --> 0:08:21.720 I look at the idea of growth and poverty, and 0:08:21.720 --> 0:08:24.440 of course the foundation of this is Robert Solo at 0:08:24.480 --> 0:08:27.360 your M I T and the study of growth over 0:08:27.400 --> 0:08:31.280 the years. And the elephant in the room is technology 0:08:31.360 --> 0:08:37.120 and its advantages. Can we process technology over to relieve 0:08:37.320 --> 0:08:41.320 poverty or is the benefits of technology the benefits of 0:08:41.360 --> 0:08:46.040 the elite. Well, another thing Bobsulo told us he was 0:08:46.080 --> 0:08:49.040 really one of the gen field is that technology is 0:08:49.120 --> 0:08:52.240 really the measure of our ignorance. And what it called 0:08:52.280 --> 0:08:55.199 technology is basically what we're not very good at measuring. 0:08:56.040 --> 0:09:00.480 And for the certain reasons, we don't know whether it 0:09:00.600 --> 0:09:03.760 helps or hot. And but it depends a little bit 0:09:03.760 --> 0:09:07.200 on what we are doing. For example, if we have 0:09:07.520 --> 0:09:11.560 a new machines that replace workers, it happened during the 0:09:11.600 --> 0:09:15.679 Industrial Revolution, is happening again today with autovation with AI. 0:09:16.440 --> 0:09:19.880 There is no big law of economics that says that 0:09:19.960 --> 0:09:23.400 these workers will necessarily find another job, and there is 0:09:23.400 --> 0:09:25.439 no big law of economics that says that they want 0:09:25.760 --> 0:09:29.520 the tools. That it depends on whether their help, whether 0:09:29.559 --> 0:09:32.480 they are accompanied, whether they are trained in the new 0:09:32.520 --> 0:09:35.360 technology to find new jobs. So there is a massive 0:09:35.480 --> 0:09:41.640 rule for policy and for policymaking to accompany the process 0:09:41.640 --> 0:09:45.360 of the diffusion of technology too, to all out our 0:09:45.440 --> 0:09:48.319 economies and to make it a post for good as 0:09:48.360 --> 0:09:52.400 oppose as a post for destruction. And a perfect example, frankly, 0:09:52.520 --> 0:09:55.040 is the technology that we've seen deployed for the m 0:09:55.120 --> 0:09:58.400 R and A and arculations that have at least helped 0:09:58.440 --> 0:10:02.400 save off some of the progress of the COVID nineteen virus. 0:10:02.440 --> 0:10:05.000 One thing I find fascinating is that your book, which 0:10:05.040 --> 0:10:08.600 was first published in November two nine, focused intensely on 0:10:08.640 --> 0:10:11.840 the need to get vaccines across the world to prevent 0:10:11.960 --> 0:10:15.040 certain diseases. Why has there not been more money and 0:10:15.080 --> 0:10:17.760 more of a coordinated effort to create a network of 0:10:17.840 --> 0:10:24.319 vaccinations globally well before this pandemic. Well, what is really 0:10:24.400 --> 0:10:26.440 sad in a way is that to some extent this 0:10:26.520 --> 0:10:30.800 network does exist. There is a very successful international initiative 0:10:30.840 --> 0:10:35.840 gold Gaby, that has been quite effective at promoting the 0:10:35.840 --> 0:10:39.840 spread of ammunition around the world before the COVID nineteen pandemic. 0:10:40.240 --> 0:10:42.880 Childhood a munician, and there has been a lot of 0:10:42.920 --> 0:10:47.680 progress in the decade starting two thousand uh till put 0:10:47.720 --> 0:10:52.640 thousand nineteen in childhood ammunition. And we haven't found a 0:10:52.760 --> 0:10:56.920 more effective or coustictive where to save life than childhood musician. 0:10:57.720 --> 0:11:01.880 So when COVID nineteen pandemic came and thanks to technology 0:11:01.920 --> 0:11:08.640 and wonderful with that ingenuity and love effort and government funding, 0:11:09.040 --> 0:11:13.439 we had a vaccine so quickly this network was clear existing, 0:11:14.080 --> 0:11:16.920 but somehow to this date we haven't been able to 0:11:16.960 --> 0:11:21.920 mobilize it to uh with the code mine to immunize 0:11:22.400 --> 0:11:25.439 the entire world against COVID. And this is really sad 0:11:25.520 --> 0:11:28.560 because in a sense it was there. It really wasn't 0:11:28.600 --> 0:11:32.280 going to take much more than money and single minded 0:11:32.360 --> 0:11:35.680 focused on the entire award and not just on the 0:11:35.800 --> 0:11:41.079 US or Professor Thank you so much, greatly, greatly appreciate 0:11:41.160 --> 0:11:45.920 this morning and celebration of her new effort with Professor 0:11:46.000 --> 0:11:55.320 Banerji as well. Right now, Joy Maryland Watson joins US 0:11:55.320 --> 0:11:58.240 with black Rock, head of Global Fundamental Fixed Income Strategy. 0:11:58.559 --> 0:12:00.839 Her public service to the United Kingdom working at the 0:12:00.880 --> 0:12:04.520 Bank of England, noted Maryland, I look at the band 0:12:04.559 --> 0:12:09.320 market right now and it's a jumble. In fiscal stimulus 0:12:09.360 --> 0:12:13.160 in the United States, is the fiscal stimulus in the 0:12:13.240 --> 0:12:17.560 United States a global phenomenon or is it discreet to 0:12:17.640 --> 0:12:22.160 the United States. So I think that the fiscal stimulus 0:12:22.200 --> 0:12:24.760 that we saw before certainly was a global phenomenon, and 0:12:24.800 --> 0:12:28.839 it certainly did help to promote growth globally, even though 0:12:28.840 --> 0:12:31.920 we did see these issues obviously with the pandemic and 0:12:31.960 --> 0:12:36.400 supply chain issues, UM and and global mobility really being restricted. 0:12:36.679 --> 0:12:39.000 I think going forward, when we do see the new 0:12:39.280 --> 0:12:44.240 package coming through, it will be largely very pertinent to 0:12:44.280 --> 0:12:46.439 the US, particularly when you think when you look at 0:12:46.440 --> 0:12:49.320 the focus on infrastructure and on things that are very 0:12:49.360 --> 0:12:52.679 domestic to the US that wasstanding. I do think it 0:12:52.760 --> 0:12:55.160 was going to still have a significant impact globally as well, 0:12:55.160 --> 0:12:57.240 when you look at the demand that you might have 0:12:57.400 --> 0:13:00.200 for um, you know, for commodities from abroad, you look 0:13:00.240 --> 0:13:02.760 at the demand for various things that will feed into 0:13:03.520 --> 0:13:05.920 the different packages. I do think it will have some 0:13:05.960 --> 0:13:08.480 impact globally, but this time around, I think it will 0:13:08.520 --> 0:13:10.760 be more pertinent to the US. How big will the 0:13:10.760 --> 0:13:13.480 impact be on the bond market? Maryland tends right now 0:13:13.480 --> 0:13:17.079 at one thirty three, Yeah, so the market I think 0:13:17.160 --> 0:13:19.800 is already pricing it into you know, to do it 0:13:19.840 --> 0:13:21.720 to a large degree. I think at the moment, I mean, 0:13:21.760 --> 0:13:23.480 when you look at the bond market, it really is 0:13:23.600 --> 0:13:27.560 very difficult to really understand why yields are still down 0:13:27.600 --> 0:13:29.520 at this level. And I heard you know, your previous 0:13:29.520 --> 0:13:31.560 speakers and you saying that you know, we do think 0:13:31.559 --> 0:13:35.400 the tends will rise further throughout this year. I think 0:13:35.440 --> 0:13:37.640 at the moment, you know, the market is still digesting 0:13:37.800 --> 0:13:41.520 some negative news around covid um, and also it's still 0:13:41.520 --> 0:13:45.040 continuing to see this huge amount of suppression coming from 0:13:45.040 --> 0:13:47.480 the central banks. As you do start to get more 0:13:47.559 --> 0:13:50.560 from the FMC, as they do start to start to taper, 0:13:50.840 --> 0:13:54.240 start to withdraw this very very very comgeliative munship policy, 0:13:54.520 --> 0:13:56.960 I think that will help to shift yields higher. And 0:13:57.000 --> 0:13:58.880 then I also think that you know you are seeing 0:13:59.240 --> 0:14:01.199 in the equity mark kits, you're seeing in the bond 0:14:01.280 --> 0:14:04.400 market as well, already pricing in the stimulus that you're 0:14:04.400 --> 0:14:06.320 going to come through from the fiscal as well. And 0:14:06.360 --> 0:14:09.240 we started to discriminate within credit Marly, and given what's 0:14:09.240 --> 0:14:12.040 happened with the data arrant in this country, I'm thinking 0:14:12.040 --> 0:14:14.559 of the likes of Carnival and others in the credit market, 0:14:14.600 --> 0:14:18.440 we're starting to discriminate a little bit more. I think 0:14:18.480 --> 0:14:21.240 that's right. So obviously, at the beginning of the pandemic 0:14:21.280 --> 0:14:23.840 you did see quite a large amount of dispersion and 0:14:23.840 --> 0:14:27.640 discrimination between the different names. I think now again where 0:14:27.640 --> 0:14:31.560 you see that spreads are still incredibly tight, really across 0:14:31.560 --> 0:14:34.200 the board, across all sectors, when you look at the 0:14:34.280 --> 0:14:37.480 huge amount of crowding that we have in different asset 0:14:37.480 --> 0:14:40.400 classes and the sectors of the bond market, because again 0:14:40.480 --> 0:14:43.440 the Montro policy stimulus is really pushing investors down the 0:14:43.560 --> 0:14:46.240 risk spectrum. Now, I think is the time where you 0:14:46.320 --> 0:14:49.000 really are to see a lot more from a bottom 0:14:49.040 --> 0:14:51.440 up perspective, and I think it's important as you start 0:14:51.480 --> 0:14:53.320 to look where to invest in the bond market at 0:14:53.360 --> 0:14:57.200 these incredibly tight spreads um and they're pretty rich valuations 0:14:57.320 --> 0:15:00.240 in general, then I think, you know, it's really, really 0:15:00.280 --> 0:15:02.560 really important that you really understand from a boss up 0:15:02.600 --> 0:15:06.440 perspective exactly the dynamics behind that company, behind the sector, 0:15:06.840 --> 0:15:09.640 and you really have a very very high conviction in 0:15:09.680 --> 0:15:11.160 the bonds that you're buying. And I think we are 0:15:11.160 --> 0:15:12.520 starting to see that, and I think we'll see that 0:15:12.560 --> 0:15:15.640 further going forward, and it's incredibly important now Maryland. A 0:15:15.640 --> 0:15:17.640 lot of people have said that the credit cycle is dead. 0:15:17.680 --> 0:15:19.360 What you are saying is that it is not. And 0:15:19.360 --> 0:15:21.320 that is why it is so important to do bottom 0:15:21.400 --> 0:15:24.880 up research. What does this credit cycle look like? Given 0:15:24.880 --> 0:15:27.040 where we are with treasury yields and given where we 0:15:27.080 --> 0:15:29.800 are with the balance sheets of corporate America that are 0:15:29.800 --> 0:15:33.400 pretty good. Yeah, they do look pretty good. And you know, 0:15:33.440 --> 0:15:35.880 I think I think there are quite a few positives 0:15:35.880 --> 0:15:37.360 when you look at the as you say, the balance 0:15:37.400 --> 0:15:39.920 sheets some of these corporates. When you think that even 0:15:39.920 --> 0:15:42.280 when the FED does start to reduce, you know, it's 0:15:42.320 --> 0:15:44.560 a covert amount of policy, it's still going to be 0:15:44.600 --> 0:15:47.280 incredibly supportive for a very long time. And as the 0:15:47.320 --> 0:15:50.280 economy continues to do well, we're seeing this huge amount 0:15:50.280 --> 0:15:53.920 of demand. And you spake earlier about the demand supply um, 0:15:53.960 --> 0:15:57.080 you know imbalance that still will take some time to correct. 0:15:57.320 --> 0:15:58.800 I think we're going to continue to see a lot 0:15:58.840 --> 0:16:01.120 more demand going forward, and this is going to bode 0:16:01.120 --> 0:16:03.800 I think very well, particularly those companies that have already 0:16:03.800 --> 0:16:06.600 been investing that are going to be investing in you 0:16:06.600 --> 0:16:09.840 know there in technology communications, They're going to be improving 0:16:09.880 --> 0:16:12.720 their supply chains, and I think that those companies will 0:16:12.720 --> 0:16:15.200 do well as we see growth continue to you know, 0:16:15.560 --> 0:16:17.840 carry on at this very very robust pace that we're seeing. 0:16:17.880 --> 0:16:21.040 All right, Marylyn, what's more important for an investor clipping 0:16:21.080 --> 0:16:23.120 coupons and a company that looks like it has a 0:16:23.120 --> 0:16:26.000 promising trajectory, even if that coupon is a lot lower, 0:16:26.360 --> 0:16:29.000 or searching for some sort of growth story at a 0:16:29.040 --> 0:16:31.600 time when the economy does seem to be expanding and 0:16:31.600 --> 0:16:33.240 when the consumer does have a lot of money to 0:16:33.280 --> 0:16:36.840 spend well. I actually think that you need a balance 0:16:36.920 --> 0:16:40.360 of both. It's very hard at the moment. You really 0:16:40.360 --> 0:16:42.840 have to do a lot of altimate research to find 0:16:42.880 --> 0:16:45.800 those companies where you are going to see the significant 0:16:45.800 --> 0:16:48.920 growth and you can really capture the price appreciation, so 0:16:48.960 --> 0:16:51.800 to speak. Um. I also think it's important to find, 0:16:51.920 --> 0:16:54.240 you know, in the bond market areas of carry where 0:16:54.280 --> 0:16:56.280 you can get that steady income that you need. It 0:16:56.320 --> 0:16:59.040 also depends on the investor. So we've seen, you know, 0:16:59.120 --> 0:17:03.440 the huge continuing amount of demand even for juries from 0:17:03.520 --> 0:17:06.639 patient funds that have very very good funding status, is 0:17:07.080 --> 0:17:11.080 from investors from abroad. You're continuing to see investors, corporate 0:17:11.119 --> 0:17:15.000 investors investing in um, you know, corporate bonds, even high 0:17:15.040 --> 0:17:16.720 yield where they're looking for a little bit more carry 0:17:16.760 --> 0:17:19.760 to match their liabilities. So I think both are important, 0:17:19.880 --> 0:17:24.040 but I think really understanding the liquidity of those positions, 0:17:24.080 --> 0:17:27.520 understanding the risk award dynamic, understanding the potential volatility of 0:17:27.560 --> 0:17:30.600 all very important. And actually think a very well constructed 0:17:30.640 --> 0:17:34.080 balanced portfolio is the most important thing. Now, thank you, 0:17:34.119 --> 0:17:35.920 It's going to catch up. As always Marin and Watson, 0:17:36.000 --> 0:17:43.679 their blackdog head of global fundamental fixed income strategy. The 0:17:43.800 --> 0:17:47.160 research report is so important for Doug has Paul Sweeney 0:17:47.400 --> 0:17:49.760 that we've got to get right to it. But have 0:17:49.880 --> 0:17:54.240 you noticed like Brett Gardner just endures. Every time I 0:17:54.280 --> 0:17:56.320 hear somebody say we need to trade in orcutto I'm 0:17:56.320 --> 0:17:58.840 like you crazy, if for no other reason, then he 0:17:58.880 --> 0:18:02.840 shows up every day. No oblique, there's no oblique tears, 0:18:03.000 --> 0:18:06.600 there's no I know everybody hit two. He's there every day. 0:18:06.960 --> 0:18:09.399 Doug Cass joins us to further the conversation now with 0:18:09.480 --> 0:18:14.280 Seabres Partners. Brett Gardner, would you trade him? Doug, so 0:18:14.359 --> 0:18:16.719 much to say about the markets in the red sox, 0:18:16.760 --> 0:18:20.760 but so little time. All I could say is the 0:18:20.840 --> 0:18:23.359 last time I appeared Paul with you and Tom, the 0:18:23.359 --> 0:18:26.160 odds makers I mentioned had the Yankees out of four 0:18:26.200 --> 0:18:29.000 percent odds of making the playoffs. As I said on 0:18:29.040 --> 0:18:32.000 the show, I made that bet. Now the odds opposed 0:18:32.040 --> 0:18:36.400 to Tampa Bay. Toronto and the Yankees have each one 0:18:36.480 --> 0:18:39.359 eight of the last ten ball game. The Red Sox 0:18:39.400 --> 0:18:43.560 have lost eight of the last ten. It's August for 0:18:43.640 --> 0:18:51.000 the Red Sox. You know Latin, I say, races loqual Tour. Yeah, 0:18:51.080 --> 0:18:55.720 it's the It's the August of my many childhoods as well. Doug. 0:18:55.800 --> 0:18:59.120 Let's move on to the markets. In an important research 0:18:59.200 --> 0:19:05.560 note from you yesterday, with a single sentence, well, I 0:19:05.560 --> 0:19:09.000 would distill my my current view by twisting around a 0:19:09.080 --> 0:19:12.560 quote from a student of Bob Farrell, Walt Eamer. Now, 0:19:12.600 --> 0:19:16.200 while he, like Bob, is a legendary technical analyst who 0:19:16.200 --> 0:19:18.720 worked at Putnam when I was there, And while he 0:19:18.800 --> 0:19:21.359 used to say, when the time comes to buy, you 0:19:21.400 --> 0:19:25.040 won't want to, so I say, now twisting around his quote, 0:19:25.400 --> 0:19:28.160 when the when the time comes to sell or short, 0:19:28.280 --> 0:19:31.280 you won't to you won't want to either. I think 0:19:31.359 --> 0:19:34.800 we're in a well defined tug of war. On one hand, 0:19:35.040 --> 0:19:38.760 we have a quickening federal debt spiral that is now 0:19:38.760 --> 0:19:43.520 out of control. The rate of domestic economic growth is decelerating. 0:19:43.920 --> 0:19:46.600 We have a mark slow down in China, which has 0:19:46.600 --> 0:19:49.840 been the engine of global growth over the last twenty years. 0:19:50.359 --> 0:19:54.000 The federal reserve is like the dissume pivot. Inflation and 0:19:54.000 --> 0:19:59.240 inflationary expectations are climbing. Course pressures are intensifying. There's an 0:19:59.280 --> 0:20:03.120 acceleration in the spread of delta variant and the individual 0:20:03.160 --> 0:20:06.320 and corporate tax rates moving higher. Moreover, and this is 0:20:06.359 --> 0:20:09.000 really important. I touched on it last time. A lot 0:20:09.040 --> 0:20:12.239 of demand has to pull forward, as we learned in 0:20:12.400 --> 0:20:17.639 the quarterly releases at Apple, Amazon and terrorists, Facebook, Netflix 0:20:17.680 --> 0:20:20.359 and many others, and that pull forward is now ending 0:20:20.359 --> 0:20:23.520 as people begin to normalize the life their lies. I 0:20:23.560 --> 0:20:27.360 think to make matters worse. Historic valuations based upon all 0:20:27.440 --> 0:20:32.159 traditional metrics, mostly at all time highs. In fact, I 0:20:32.280 --> 0:20:38.119 have fifteen metrics on the SMPS valuation and three quarters 0:20:38.160 --> 0:20:43.240 of them are at the historic percentile. Now we have 0:20:43.320 --> 0:20:46.040 to be balanced, and on the other hand, the positives 0:20:46.040 --> 0:20:49.760 are also pretty clear. The offset to my concerns is 0:20:49.800 --> 0:20:52.879 obviously something you touched on in the last segment. The 0:20:52.960 --> 0:20:56.479 tailwind of liquidity. Last time I was with you and 0:20:56.520 --> 0:20:59.679 Paul I stated that if we grafted the Fed's balance 0:20:59.760 --> 0:21:03.120 sheet with the SMP index, it's a perfect fit. It's 0:21:03.119 --> 0:21:06.560 a high R squared or coefficient determination. And for the 0:21:06.560 --> 0:21:10.200 CFAs out there, I know you reference the failing rate 0:21:10.720 --> 0:21:14.119 of CFAs over the last twelve months. Our square is 0:21:14.160 --> 0:21:17.480 basically the proportion of the variation. Here we go in 0:21:17.840 --> 0:21:23.119 a dependent variable from an independent vable Bob Shill. Of course, 0:21:23.480 --> 0:21:26.440 so for some time it's been clear to end this 0:21:26.840 --> 0:21:31.680 modern and undisciplined physical and monetary policy, coupled with the 0:21:31.720 --> 0:21:35.160 market structure, have been the primary determinant of market support. 0:21:35.680 --> 0:21:38.119 And it could be argued today that investors are the 0:21:38.200 --> 0:21:42.920 least informed and least educated because the role Listen to you, Yeah, 0:21:43.000 --> 0:21:47.119