Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg
Speaker 1: dot Com, and of course on the Bloomberg Terminal. Let's
Speaker 1: get to the nuance right now in the equity markets
Speaker 1: home with Mike Wilson Malkin, Stanley's chief US equity strategist,
Speaker 1: and see I might great a catch up with you
Speaker 1: as always serving. Let's start with margin has been a
Speaker 1: big thing for us this morning. A lot of people
Speaker 1: think that maybe this margin story, which has held up
Speaker 1: in corporate America, that story can persist into a new year.
Speaker 1: Do you think it can? Well, look, I mean I
Speaker 1: think margins have surprise on the upside. That was really
Speaker 1: the call last year, which always happens, as you know,
Speaker 1: coming out of recession you get operating leverage. This time
Speaker 1: it was extraordinary because you had policy support essentially subsidize
Speaker 1: the unemployment that was out there. Right People were home,
Speaker 1: but they were still getting checks from the government and
Speaker 1: they could spend it digitally. So that is unique. Um,
Speaker 1: and we see that being a problem going forward where
Speaker 1: people have made assumptions now that those extraordinary margins are
Speaker 1: going to be carried forward. We see a couple of
Speaker 1: areas of particular consumer discretionary industrials, parts of the technology
Speaker 1: market look to be a little bit lofty in terms
Speaker 1: of margin expectations. That's where we are in the cycle. Um,
Speaker 1: we see no reason why it's gonna be any different.
Speaker 1: And because it was so acute on the upside with
Speaker 1: operating leverage on the upside, it's not going to be
Speaker 1: a surprised as if we see a little bit more
Speaker 1: margin degradations we go into two and that needs to
Speaker 1: get baked into people's expectations. Mike, your great strength as
Speaker 1: a sell side analysts at Morgan Stanley, I know you
Speaker 1: and I are all Jack Welch one oh one on
Speaker 1: pricing power sector to sector analysts to analysts, what does
Speaker 1: your team say about the ability of corporations to adapt
Speaker 1: and generate pricing power? Yeah, it's it's the key question.
Speaker 1: I mean, there's gonna be companies that absolutely have pricing power.
Speaker 1: We've been, you know, looking for those types of companies
Speaker 1: and our recommendations going forward. You know, one thing we've
Speaker 1: noticed time as you know, I mean, the market's gotten
Speaker 1: very narrow. Obviously we've seen companies, higher quality companies and
Speaker 1: larger cap companies who have scale um. The market is
Speaker 1: paying up for those now because those are the types
Speaker 1: of companies that typically have pricing power. Okay, So I
Speaker 1: mean that's the name of the game. It's like costs
Speaker 1: are going up for everyone. So two areas I think
Speaker 1: you can look to to say maybe they'll be protected.
Speaker 1: Companies that don't have as big of a labor component.
Speaker 1: We do think labor is going to be an issue
Speaker 1: not just for the economy, but the for the fit
Speaker 1: Ultimately that they're gonna have to tap down there and
Speaker 1: and that's that that that's gonna be. You know. So
Speaker 1: technology companies as an example, where they don't have as
Speaker 1: much labor um, they can maybe managed student and of
Speaker 1: course scale always gives you the ability to kind of
Speaker 1: spread costs across a bigger slater revenue. So, Mike, does
Speaker 1: this mean tech continues to outperform and other types of
Speaker 1: sectors the ones that lead the move lower Where you
Speaker 1: see the SMP ending the year below, where we are
Speaker 1: now now I think technology has gotten a double boost here, Lisa.
Speaker 1: I mean, it's obvious candidate for you know, pricing power
Speaker 1: or the ability to kind of manage costs, but it
Speaker 1: also is probably the single biggest beneficiary of this incredibly
Speaker 1: move move lower in rates at the back end, which
Speaker 1: doesn't really jibe with what's going on in the really economy.
Speaker 1: We know why that's happening. The fend has been ultra slow,
Speaker 1: ultra dubbish to to kind of get off the maximum
Speaker 1: accommodation mode. And and so that's been baked in now.
Speaker 1: So as rates move higher, which is our call for
Speaker 1: the rest of this year, you know, the valuation on
Speaker 1: some of these long duration TEX stacks will offset their
Speaker 1: ability to generate the earnings growth that's been spectacular, Mike,
Speaker 1: What does that mean for your index level? Cool going
Speaker 1: into year round? Because you have looked for that index
Speaker 1: level correction as we work on way through this mid
Speaker 1: cycle transition. Where are we now, Mike? So we're you know,
Speaker 1: we're working through that mid cycle transition. We're seeing corrections
Speaker 1: kind of happen around the market, but not at the
Speaker 1: end X level, which is typical to John, you know,
Speaker 1: and then it usually ends with an index level correction
Speaker 1: when the market can't find anywhere else to go where
Speaker 1: there's value. So we think we're kind of in the
Speaker 1: I don't know, six inning um. We probably have three
Speaker 1: or four months left to go for this med cycle transition.
Speaker 1: Usually it ends with the FED finally moving forward with
Speaker 1: either a tightening like it did at ninety four or
Speaker 1: in O four, or some form of tapering or balance
Speaker 1: sheet running off um like it did in two thousand eleven.
Speaker 1: And we think it's no different this time. I mean,
Speaker 1: by the way, that's not a crazy statement. I mean,
Speaker 1: is there anybody in the planet who doesn't think the
Speaker 1: FED is going to be tapering next year? No? Well,
Speaker 1: in fact, if they're not tapering, then that we got
Speaker 1: a serious problem. So the mid cycle transition will end
Speaker 1: with multiple you know, multiples coming down the index level
Speaker 1: because the FED is tightening policy. It's that simple, Mike.
Speaker 1: A lot of people expect the FED to tighten policy,
Speaker 1: and as you said, if they don't, that may become
Speaker 1: more of a problem. You said that the one point
Speaker 1: eight percent year on target for the ten year note
Speaker 1: actually could be conservative because the FED is so behind
Speaker 1: the curve and may be forced to raise rates faster
Speaker 1: than expected. Play out what that would look like and
Speaker 1: when we would know that perhaps race should rise more
Speaker 1: and that would be later this year, right, it could
Speaker 1: be sooner than later this year. It could be next month,
Speaker 1: you know. I mean, let's see how the FED wants
Speaker 1: to communicate this path. I mean, maybe it starts at
Speaker 1: Jackson Hole, and maybe it starts in September, which is
Speaker 1: our bet that they start to communicate when they're gonna
Speaker 1: do this. And you know, but the other way to
Speaker 1: think about, at least is the bomb market. You know,
Speaker 1: it's not stagnant. The bomb market will start to challenge
Speaker 1: the FED in their timing of that communication if it
Speaker 1: believes they're falling too far behind the curve. Right, I mean,
Speaker 1: we're we're basically close to full employment now based on
Speaker 1: you know, the wage increases that we're seeing in the commentary.
Speaker 1: We're hearing from companies like we don't really know what
Speaker 1: neghru is. Maybe it's four percent, maybe it's four and
Speaker 1: a half, maybe it's five percent, we don't really know.
Speaker 1: What we do know is that labor supply has probably
Speaker 1: been impaired during the pandemic. Maybe permanently we'll find out,
Speaker 1: and you know, typically the FED is tightening policy long
Speaker 1: before we get the neighbor. They start the process. You know.
Speaker 1: Once again, I don't think anybody would disagree with this statement,
Speaker 1: which is, does it seem right that we have emergency
Speaker 1: monetary accommodation at a time when the economy is growing
Speaker 1: six and a half percent real eight and a half
Speaker 1: nine percent nominally. That doesn't seem like it. Jibs and
Speaker 1: I think the delta variant is the market is same. Okay,
Speaker 1: let's see how the delta varian plays out. But if
Speaker 1: we find that the delta barian is fading, schools are reopening,
Speaker 1: we are going to get back to work. You know.
Speaker 1: The BAB market can adjust quickly, very much like we
Speaker 1: saw in January and February, the last time that we
Speaker 1: were kind of out of consentus on the rate moves,
Speaker 1: you know, probably surprising at the upset. It's such a
Speaker 1: good final point, Mike, I'm gonna leave it that it's
Speaker 1: gonna catch up SA Michael Wilson, Morgan Stanley, Chief US
Speaker 1: Equity Strategists, and see a decade ago or even more,
Speaker 1: I should say I learned about field economics from Pascaline Dupart.
Speaker 1: Her colleague is Esther Duflo, who won the Nobel Prize
Speaker 1: with Energy Energy and the Flow become definitive on poverty economics.
Speaker 1: That new effort out is good Economics for hard Times
Speaker 1: out in paperback today and Esther, congratulations again, not only
Speaker 1: on the acclaim you've received, but the persistency that you've
Speaker 1: worked with in studying poverty. And part of that is
Speaker 1: in one of the chapters of your book, the End
Speaker 1: of Growth. Give us the optimism that growth is not ended. Oh,
Speaker 1: I don't know if I can give you the optimism.
Speaker 1: I think it depends if you have a left has
Speaker 1: food or left has empty type of person. Because the
Speaker 1: tooth is we don't know, We have no idea ghost
Speaker 1: does whatever it wants to do. Economies have found very
Speaker 1: difficult to predict how to do nurtur it. We know
Speaker 1: very went how to kill it. Venezuela is a good
Speaker 1: case study on how to kill ghoth. But once the
Speaker 1: basic conditions are there, we don't really know how to
Speaker 1: nurturing it. So that's the bad news. But the good
Speaker 1: news also means that it also comes and goes and
Speaker 1: and and policy makers and economies can do a lot
Speaker 1: of things to make sure that once it's there, everyone
Speaker 1: in the economy, including the poor, take maximum advantage of it.
Speaker 1: I look at the idea of growth and poverty, and
Speaker 1: of course the foundation of this is Robert Solo at
Speaker 1: your M I T and the study of growth over
Speaker 1: the years. And the elephant in the room is technology
Speaker 1: and its advantages. Can we process technology over to relieve
Speaker 1: poverty or is the benefits of technology the benefits of
Speaker 1: the elite. Well, another thing Bobsulo told us he was
Speaker 1: really one of the gen field is that technology is
Speaker 1: really the measure of our ignorance. And what it called
Speaker 1: technology is basically what we're not very good at measuring.
Speaker 1: And for the certain reasons, we don't know whether it
Speaker 1: helps or hot. And but it depends a little bit
Speaker 1: on what we are doing. For example, if we have
Speaker 1: a new machines that replace workers, it happened during the
Speaker 1: Industrial Revolution, is happening again today with autovation with AI.
Speaker 1: There is no big law of economics that says that
Speaker 1: these workers will necessarily find another job, and there is
Speaker 1: no big law of economics that says that they want
Speaker 1: the tools. That it depends on whether their help, whether
Speaker 1: they are accompanied, whether they are trained in the new
Speaker 1: technology to find new jobs. So there is a massive
Speaker 1: rule for policy and for policymaking to accompany the process
Speaker 1: of the diffusion of technology too, to all out our
Speaker 1: economies and to make it a post for good as
Speaker 1: oppose as a post for destruction. And a perfect example, frankly,
Speaker 1: is the technology that we've seen deployed for the m
Speaker 1: R and A and arculations that have at least helped
Speaker 1: save off some of the progress of the COVID nineteen virus.
Speaker 1: One thing I find fascinating is that your book, which
Speaker 1: was first published in November two nine, focused intensely on
Speaker 1: the need to get vaccines across the world to prevent
Speaker 1: certain diseases. Why has there not been more money and
Speaker 1: more of a coordinated effort to create a network of
Speaker 1: vaccinations globally well before this pandemic. Well, what is really
Speaker 1: sad in a way is that to some extent this
Speaker 1: network does exist. There is a very successful international initiative
Speaker 1: gold Gaby, that has been quite effective at promoting the
Speaker 1: spread of ammunition around the world before the COVID nineteen pandemic.
Speaker 1: Childhood a munician, and there has been a lot of
Speaker 1: progress in the decade starting two thousand uh till put
Speaker 1: thousand nineteen in childhood ammunition. And we haven't found a
Speaker 1: more effective or coustictive where to save life than childhood musician.
Speaker 1: So when COVID nineteen pandemic came and thanks to technology
Speaker 1: and wonderful with that ingenuity and love effort and government funding,
Speaker 1: we had a vaccine so quickly this network was clear existing,
Speaker 1: but somehow to this date we haven't been able to
Speaker 1: mobilize it to uh with the code mine to immunize
Speaker 1: the entire world against COVID. And this is really sad
Speaker 1: because in a sense it was there. It really wasn't
Speaker 1: going to take much more than money and single minded
Speaker 1: focused on the entire award and not just on the
Speaker 1: US or Professor Thank you so much, greatly, greatly appreciate
Speaker 1: this morning and celebration of her new effort with Professor
Speaker 1: Banerji as well. Right now, Joy Maryland Watson joins US
Speaker 1: with black Rock, head of Global Fundamental Fixed Income Strategy.
Speaker 1: Her public service to the United Kingdom working at the
Speaker 1: Bank of England, noted Maryland, I look at the band
Speaker 1: market right now and it's a jumble. In fiscal stimulus
Speaker 1: in the United States, is the fiscal stimulus in the
Speaker 1: United States a global phenomenon or is it discreet to
Speaker 1: the United States. So I think that the fiscal stimulus
Speaker 1: that we saw before certainly was a global phenomenon, and
Speaker 1: it certainly did help to promote growth globally, even though
Speaker 1: we did see these issues obviously with the pandemic and
Speaker 1: supply chain issues, UM and and global mobility really being restricted.
Speaker 1: I think going forward, when we do see the new
Speaker 1: package coming through, it will be largely very pertinent to
Speaker 1: the US, particularly when you think when you look at
Speaker 1: the focus on infrastructure and on things that are very
Speaker 1: domestic to the US that wasstanding. I do think it
Speaker 1: was going to still have a significant impact globally as well,
Speaker 1: when you look at the demand that you might have
Speaker 1: for um, you know, for commodities from abroad, you look
Speaker 1: at the demand for various things that will feed into
Speaker 1: the different packages. I do think it will have some
Speaker 1: impact globally, but this time around, I think it will
Speaker 1: be more pertinent to the US. How big will the
Speaker 1: impact be on the bond market? Maryland tends right now
Speaker 1: at one thirty three, Yeah, so the market I think
Speaker 1: is already pricing it into you know, to do it
Speaker 1: to a large degree. I think at the moment, I mean,
Speaker 1: when you look at the bond market, it really is
Speaker 1: very difficult to really understand why yields are still down
Speaker 1: at this level. And I heard you know, your previous
Speaker 1: speakers and you saying that you know, we do think
Speaker 1: the tends will rise further throughout this year. I think
Speaker 1: at the moment, you know, the market is still digesting
Speaker 1: some negative news around covid um, and also it's still
Speaker 1: continuing to see this huge amount of suppression coming from
Speaker 1: the central banks. As you do start to get more
Speaker 1: from the FMC, as they do start to start to taper,
Speaker 1: start to withdraw this very very very comgeliative munship policy,
Speaker 1: I think that will help to shift yields higher. And
Speaker 1: then I also think that you know you are seeing
Speaker 1: in the equity mark kits, you're seeing in the bond
Speaker 1: market as well, already pricing in the stimulus that you're
Speaker 1: going to come through from the fiscal as well. And
Speaker 1: we started to discriminate within credit Marly, and given what's
Speaker 1: happened with the data arrant in this country, I'm thinking
Speaker 1: of the likes of Carnival and others in the credit market,
Speaker 1: we're starting to discriminate a little bit more. I think
Speaker 1: that's right. So obviously, at the beginning of the pandemic
Speaker 1: you did see quite a large amount of dispersion and
Speaker 1: discrimination between the different names. I think now again where
Speaker 1: you see that spreads are still incredibly tight, really across
Speaker 1: the board, across all sectors, when you look at the
Speaker 1: huge amount of crowding that we have in different asset
Speaker 1: classes and the sectors of the bond market, because again
Speaker 1: the Montro policy stimulus is really pushing investors down the
Speaker 1: risk spectrum. Now, I think is the time where you
Speaker 1: really are to see a lot more from a bottom
Speaker 1: up perspective, and I think it's important as you start
Speaker 1: to look where to invest in the bond market at
Speaker 1: these incredibly tight spreads um and they're pretty rich valuations
Speaker 1: in general, then I think, you know, it's really, really
Speaker 1: really important that you really understand from a boss up
Speaker 1: perspective exactly the dynamics behind that company, behind the sector,
Speaker 1: and you really have a very very high conviction in
Speaker 1: the bonds that you're buying. And I think we are
Speaker 1: starting to see that, and I think we'll see that
Speaker 1: further going forward, and it's incredibly important now Maryland. A
Speaker 1: lot of people have said that the credit cycle is dead.
Speaker 1: What you are saying is that it is not. And
Speaker 1: that is why it is so important to do bottom
Speaker 1: up research. What does this credit cycle look like? Given
Speaker 1: where we are with treasury yields and given where we
Speaker 1: are with the balance sheets of corporate America that are
Speaker 1: pretty good. Yeah, they do look pretty good. And you know,
Speaker 1: I think I think there are quite a few positives
Speaker 1: when you look at the as you say, the balance
Speaker 1: sheets some of these corporates. When you think that even
Speaker 1: when the FED does start to reduce, you know, it's
Speaker 1: a covert amount of policy, it's still going to be
Speaker 1: incredibly supportive for a very long time. And as the
Speaker 1: economy continues to do well, we're seeing this huge amount
Speaker 1: of demand. And you spake earlier about the demand supply um,
Speaker 1: you know imbalance that still will take some time to correct.
Speaker 1: I think we're going to continue to see a lot
Speaker 1: more demand going forward, and this is going to bode
Speaker 1: I think very well, particularly those companies that have already
Speaker 1: been investing that are going to be investing in you
Speaker 1: know there in technology communications, They're going to be improving
Speaker 1: their supply chains, and I think that those companies will
Speaker 1: do well as we see growth continue to you know,
Speaker 1: carry on at this very very robust pace that we're seeing.
Speaker 1: All right, Marylyn, what's more important for an investor clipping
Speaker 1: coupons and a company that looks like it has a
Speaker 1: promising trajectory, even if that coupon is a lot lower,
Speaker 1: or searching for some sort of growth story at a
Speaker 1: time when the economy does seem to be expanding and
Speaker 1: when the consumer does have a lot of money to
Speaker 1: spend well. I actually think that you need a balance
Speaker 1: of both. It's very hard at the moment. You really
Speaker 1: have to do a lot of altimate research to find
Speaker 1: those companies where you are going to see the significant
Speaker 1: growth and you can really capture the price appreciation, so
Speaker 1: to speak. Um. I also think it's important to find,
Speaker 1: you know, in the bond market areas of carry where
Speaker 1: you can get that steady income that you need. It
Speaker 1: also depends on the investor. So we've seen, you know,
Speaker 1: the huge continuing amount of demand even for juries from
Speaker 1: patient funds that have very very good funding status, is
Speaker 1: from investors from abroad. You're continuing to see investors, corporate
Speaker 1: investors investing in um, you know, corporate bonds, even high
Speaker 1: yield where they're looking for a little bit more carry
Speaker 1: to match their liabilities. So I think both are important,
Speaker 1: but I think really understanding the liquidity of those positions,
Speaker 1: understanding the risk award dynamic, understanding the potential volatility of
Speaker 1: all very important. And actually think a very well constructed
Speaker 1: balanced portfolio is the most important thing. Now, thank you,
Speaker 1: It's going to catch up. As always Marin and Watson,
Speaker 1: their blackdog head of global fundamental fixed income strategy. The
Speaker 1: research report is so important for Doug has Paul Sweeney
Speaker 1: that we've got to get right to it. But have
Speaker 1: you noticed like Brett Gardner just endures. Every time I
Speaker 1: hear somebody say we need to trade in orcutto I'm
Speaker 1: like you crazy, if for no other reason, then he
Speaker 1: shows up every day. No oblique, there's no oblique tears,
Speaker 1: there's no I know everybody hit two. He's there every day.
Speaker 1: Doug Cass joins us to further the conversation now with
Speaker 1: Seabres Partners. Brett Gardner, would you trade him? Doug, so
Speaker 1: much to say about the markets in the red sox,
Speaker 1: but so little time. All I could say is the
Speaker 1: last time I appeared Paul with you and Tom, the
Speaker 1: odds makers I mentioned had the Yankees out of four
Speaker 1: percent odds of making the playoffs. As I said on
Speaker 1: the show, I made that bet. Now the odds opposed
Speaker 1: to Tampa Bay. Toronto and the Yankees have each one
Speaker 1: eight of the last ten ball game. The Red Sox
Speaker 1: have lost eight of the last ten. It's August for
Speaker 1: the Red Sox. You know Latin, I say, races loqual Tour. Yeah,
Speaker 1: it's the It's the August of my many childhoods as well. Doug.
Speaker 1: Let's move on to the markets. In an important research
Speaker 1: note from you yesterday, with a single sentence, well, I
Speaker 1: would distill my my current view by twisting around a
Speaker 1: quote from a student of Bob Farrell, Walt Eamer. Now,
Speaker 1: while he, like Bob, is a legendary technical analyst who
Speaker 1: worked at Putnam when I was there, And while he
Speaker 1: used to say, when the time comes to buy, you
Speaker 1: won't want to, so I say, now twisting around his quote,
Speaker 1: when the when the time comes to sell or short,
Speaker 1: you won't to you won't want to either. I think
Speaker 1: we're in a well defined tug of war. On one hand,
Speaker 1: we have a quickening federal debt spiral that is now
Speaker 1: out of control. The rate of domestic economic growth is decelerating.
Speaker 1: We have a mark slow down in China, which has
Speaker 1: been the engine of global growth over the last twenty years.
Speaker 1: The federal reserve is like the dissume pivot. Inflation and
Speaker 1: inflationary expectations are climbing. Course pressures are intensifying. There's an
Speaker 1: acceleration in the spread of delta variant and the individual
Speaker 1: and corporate tax rates moving higher. Moreover, and this is
Speaker 1: really important. I touched on it last time. A lot
Speaker 1: of demand has to pull forward, as we learned in
Speaker 1: the quarterly releases at Apple, Amazon and terrorists, Facebook, Netflix
Speaker 1: and many others, and that pull forward is now ending
Speaker 1: as people begin to normalize the life their lies. I
Speaker 1: think to make matters worse. Historic valuations based upon all
Speaker 1: traditional metrics, mostly at all time highs. In fact, I
Speaker 1: have fifteen metrics on the SMPS valuation and three quarters
Speaker 1: of them are at the historic percentile. Now we have
Speaker 1: to be balanced, and on the other hand, the positives
Speaker 1: are also pretty clear. The offset to my concerns is
Speaker 1: obviously something you touched on in the last segment. The
Speaker 1: tailwind of liquidity. Last time I was with you and
Speaker 1: Paul I stated that if we grafted the Fed's balance
Speaker 1: sheet with the SMP index, it's a perfect fit. It's
Speaker 1: a high R squared or coefficient determination. And for the
Speaker 1: CFAs out there, I know you reference the failing rate
Speaker 1: of CFAs over the last twelve months. Our square is
Speaker 1: basically the proportion of the variation. Here we go in
Speaker 1: a dependent variable from an independent vable Bob Shill. Of course,
Speaker 1: so for some time it's been clear to end this
Speaker 1: modern and undisciplined physical and monetary policy, coupled with the
Speaker 1: market structure, have been the primary determinant of market support.
Speaker 1: And it could be argued today that investors are the
Speaker 1: least informed and least educated because the role Listen to you, Yeah,
Speaker 1: it's true. I mean just that was like a dis
Speaker 1: no no, no, no, no. Look look look I'm ripping
Speaker 1: up the street the script to use your phrase. Unlike
Speaker 1: a lot of very confident guests parading in the media,
Speaker 1: I don't have all the answers. I'm often wrong, I'm
Speaker 1: always in doubt, and I recognize that the market will
Speaker 1: do the best to twist around the consensus. I remember
Speaker 1: Grandma co Fax used to tell me always look over
Speaker 1: my shoulder because the Cossacks might be coming. So when
Speaker 1: I questioned my investment sanity, as I do today, I
Speaker 1: go to people like Leekoverman and Howard Marks and I
Speaker 1: give him a call. And arguably the best go to guy,
Speaker 1: the greatest investment hit or of all time to use
Speaker 1: a baseball metaphor are Ruth Garrig and Williams combined is
Speaker 1: stand the Man. And I don't mean stand usual, I
Speaker 1: mean stan Drucket Miller and And just to conclude, if you,
Speaker 1: if you, if your listeners, go to YouTube and search
Speaker 1: USC Marshall School of Business speech that Stanley just he
Speaker 1: allies the unusual state uh and highly recommend it. It
Speaker 1: runs only twenty five minutes. It's available for free. Discusses
Speaker 1: the uniqueness of this time in our economic monogue. Dog,
Speaker 1: I read your note, and you know a lot of
Speaker 1: the items that you just noted went through in terms
Speaker 1: of the challenges for this market, some of them have
Speaker 1: been there for a while. Do you have a catalyst
Speaker 1: in mind that you think will kind of bring these
Speaker 1: to the four for the marketplace? That's the best question ever,
Speaker 1: because every night it keeps me awake, you know what
Speaker 1: is going to make me. I really launched Sea Breeze
Speaker 1: Partners my hedge fund on July one. I was absent
Speaker 1: in the hedge fund business rate years after recovering from cancer,
Speaker 1: and I have been slightly net short since then for
Speaker 1: the last five weeks, and we're actually in the black,
Speaker 1: which is a good accomplishment. UM. To me, the single
Speaker 1: most important factor will be a sustained UM level of
Speaker 1: the ten year yield and excess at one point three,
Speaker 1: and I think we're moving in that direction. So the
Speaker 1: the issue here is I think the market probably Doug
Speaker 1: is saying, Okay, we understand tapering is coming. We understand
Speaker 1: that rates are likely going up certainly, you know it's
Speaker 1: called it perhaps um, But we have faith in this
Speaker 1: fed and that that seems to be what we hear.
Speaker 1: Is that faith not enough? It's not enough, you know.
Speaker 1: Webster defines a Ponzi scheme as an investment swindle in
Speaker 1: which some early investors have paid off with money put
Speaker 1: up by ladder ones in order to encourage more and
Speaker 1: more risks, bigger risks, and our economic policy Paul is
Speaker 1: beginning to look that way. We have massive government spending
Speaker 1: it's benefiting current citizens and being financed by taking enormous
Speaker 1: amounts of debt which will um burden our future citizens
Speaker 1: um As a result, we live in a world where
Speaker 1: economic health is a bit of an artificially created illusion
Speaker 1: in both the market. The stock market and the bond
Speaker 1: market have stored as a result. The question is whether,
Speaker 1: as you put it, this is sustainable, and what are
Speaker 1: the consequences if it is not so? In a sense,
Speaker 1: I think Tom and Paul, and I'm not being hyperbolic,
Speaker 1: we could be witnessing the biggest Ponzi scheme in history.
Speaker 1: So the risk, especially at current valuations, is extraordinary, and
Speaker 1: it seems to me that with a substantial recovery underway,
Speaker 1: the Fed should immediately begin to reduce its artificial support
Speaker 1: which is so distorted the economy in our markets. Doug
Speaker 1: Cass quickly here on Amazon, you've got a short term view,
Speaker 1: You've got a bullish lung term view. Doug Cass on Amazon,
Speaker 1: I'm a buyer thirty fifty after having sold it uh
Speaker 1: right before the disappointing second quarter release. The stock immediately
Speaker 1: fell three thirty points dollars in the next day. Again,
Speaker 1: that was an example, as I referenced of pulling forward demand,
Speaker 1: I think the stock will trade in a pretty narrow range,
Speaker 1: and I would be a buyer at that level. We
Speaker 1: wanted to get a breath of fresh air always with
Speaker 1: a g F Investments. Greg Villier on our political system, Greg,
Speaker 1: I am so fed up with a cluelessness that also
Speaker 1: editors are the same. I consider the Senator from Vermont
Speaker 1: winning six of the vote in his last go around,
Speaker 1: and I look at Tina Smith in Minneapolis, who we
Speaker 1: featured earlier in Minnesota, who I think was winning with
Speaker 1: or something like that. I mean, there's a lot of
Speaker 1: people like the Senator from Minnesota right now that have
Speaker 1: to step very carefully in these two uh proposals. Absolutely
Speaker 1: taught this first one we'll get in a few hours.
Speaker 1: We all know that. But I am not euphoric that
Speaker 1: this somehow means we've got this done. The really heavy
Speaker 1: lifting now comes on the second bill, which would have
Speaker 1: three point five trillion dollars in spending in new taxes.
Speaker 1: That's crazy. It's never gonna happen, and people like Tina
Speaker 1: Smith know it, and at some point they're going to
Speaker 1: have to give this bill a very big haircut. Is
Speaker 1: is it a new deal? I mean, I get the
Speaker 1: politics and I get the symbol. Is Greg your expert
Speaker 1: on the breadth of history of our politics? Is it
Speaker 1: a Biden new deal? Yes? It is to a large extent.
Speaker 1: It's the biggest new deal type of spending sense f DR.
Speaker 1: If we got what they proposed yesterday, and I would
Speaker 1: argue that three point five trillion could quickly go down
Speaker 1: to two five, maybe the two maybe even below that,
Speaker 1: I think we'll get a bill. But there are some big,
Speaker 1: big obstacles, the death ceiling, the fact that a smaller
Speaker 1: price tag would infuriate the progressives like Alexanderocascio Cortez, who
Speaker 1: has votes that she could put into this fight. So
Speaker 1: the fall is going to be a ferocious fight. And
Speaker 1: just because we get a deal today does not portend
Speaker 1: that we're going to get a deal in two months. Greg,
Speaker 1: how far can the fifty billion dollar bar bipartisan infrastructure
Speaker 1: bill go without something more concrete on this other reconciliation package.
Speaker 1: That's a great question, Lisa, and I think that if
Speaker 1: if we don't get the second part saying we're gonna
Speaker 1: do use reconciliation, that's the big Schumer goal where you
Speaker 1: won't have to have a big veto fight. Yeah, that'll
Speaker 1: get us into the fall. But once we do get
Speaker 1: into the fall, the price tags are going to be huge.
Speaker 1: And there looks like, at least for now, a very
Speaker 1: intractable battle over raising the death ceiling that's going to
Speaker 1: complicate everything. Well, the reason why I ask is because
Speaker 1: a lot of people are treating the bipartisan plan as
Speaker 1: a sure thing. It basically has a lot of support
Speaker 1: on all sides, and yet it does seem to be
Speaker 1: linked in sort of an unknowable way to this other
Speaker 1: proposal that seems like pie in the sky according to
Speaker 1: almost all accounts. So there is a question of what
Speaker 1: is the willingness of Democrats torpedo the bipartisan effort in
Speaker 1: order to push forward something on the other side, Well,
Speaker 1: there is a willingness if you talk to people like
Speaker 1: Joe Manchin or Kristen Cinema of Arizona, that they would
Speaker 1: never read attacks increases of this magnitude, if I'm not mistaken.
Speaker 1: We have an election coming up next year, and the
Speaker 1: idea that we're going to raise taxes this dramatically, I
Speaker 1: think would be suicidal on the part of the Democrats. Meanwhile,
Speaker 1: inflation very much in the forefront of people's minds. We
Speaker 1: got a survey yesterday out of the Federal Reserve showing
Speaker 1: that consumers expectations for inflation over the next couple of
Speaker 1: years arising to the highest levels since at least two
Speaker 1: thousand and thirteen. How does that play in some of
Speaker 1: these spending debates. Well, it's a factor, and the Republicans
Speaker 1: are arguing, I think somewhat disingenuously that the spending will
Speaker 1: cause inflation. A lot of commodities, as you guys know,
Speaker 1: have dropped in the last few weeks, oil, copper, lumber.
Speaker 1: You know, we do have a wage problem. I think
Speaker 1: that's more intractable obviously, But the Republicans will will play
Speaker 1: this up. They've got some big issues immigration, inflation, and
Speaker 1: in my opinion, especially crime. Who are you watching on
Speaker 1: the Republican Party, I mean, away from former President Trump,
Speaker 1: does Grege value watch in Washington? Well, for weeks and
Speaker 1: weeks and weeks everyone said to Santis and his his
Speaker 1: halo has slipped in Florida, no question. So the new
Speaker 1: hot name right now is an African American Republican from
Speaker 1: South Carolina, Tim Scott, very well spoken, not not way
Speaker 1: way out on the right, A likable guy. He may
Speaker 1: run for president, and he's raising a lot of money. Right. No,
Speaker 1: I just I'm sorry. My brain was just going there
Speaker 1: and raising money. We can talk. I'm sorry, John. Now
Speaker 1: you can get a fun one in Can I get one?
Speaker 1: Raising money is a huge deal, explained to our audience, Greg.
Speaker 1: Why raising money is the heart of the matter. Oh,
Speaker 1: you gotta have ads on TV. And if you want
Speaker 1: to have ads on TV, you've got to raise a
Speaker 1: ton of money. We're already seeing saturation ads here in
Speaker 1: d C for the Virginia gubernatorial race. You're just still
Speaker 1: it's still two and a half months away, John, Is
Speaker 1: it like that in the United Kingdom? Does Boris Johnson
Speaker 1: have to raise a lot of money? No? Thanks are
Speaker 1: a little bit more straightforward in the UK. Tom, we
Speaker 1: talk about this every cycle dime. No, but I just
Speaker 1: wish we'd get I know which one you'd prefer. We
Speaker 1: get it done in a shorter time frame. Greg, thank you,
Speaker 1: We can go. JF Investment's Chief US policy strategistic. This
Speaker 1: is the Bloomberg Surveillance Podcast. Thanks for listening. Join us
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