1 00:00:05,040 --> 00:00:08,639 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 2 00:00:08,680 --> 00:00:12,040 Speaker 1: with Paul Sweeney. Join us each day for insight from 3 00:00:12,039 --> 00:00:16,240 Speaker 1: the best in economics, finance, investment, and international relations. You 4 00:00:16,239 --> 00:00:19,599 Speaker 1: can also watch the show live on YouTube. Visit the 5 00:00:19,600 --> 00:00:24,360 Speaker 1: Bloomberg Podcast channel on YouTube to see the show weekday 6 00:00:24,360 --> 00:00:27,400 Speaker 1: mornings from seven to ten am Eastern from our global 7 00:00:27,440 --> 00:00:32,080 Speaker 1: headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 8 00:00:32,440 --> 00:00:36,000 Speaker 1: or anywhere else you listen, and always on Bloomberg Radio, 9 00:00:36,159 --> 00:00:39,680 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. This is 10 00:00:39,720 --> 00:00:41,680 Speaker 1: a joy with Futures up twenty because she has a 11 00:00:41,760 --> 00:00:45,479 Speaker 1: courage to be in the market. You're never going to 12 00:00:45,560 --> 00:00:48,360 Speaker 1: hear her say go to cash. Alicia Lavine joins us 13 00:00:48,440 --> 00:00:52,559 Speaker 1: bny mellon. Right now, I want you to talk to 14 00:00:52,640 --> 00:00:56,080 Speaker 1: the people. The boats left the dock. They're not on 15 00:00:56,120 --> 00:00:59,640 Speaker 1: the boat. How do you catch up into February? 16 00:01:00,360 --> 00:01:03,000 Speaker 2: So my line would be, never get out of the boat, 17 00:01:03,400 --> 00:01:05,800 Speaker 2: and it's never too late to get in the boat. 18 00:01:05,959 --> 00:01:08,800 Speaker 2: We had a sluggish start to the year, which is 19 00:01:08,840 --> 00:01:11,839 Speaker 2: great because we digested the move of the fourth quarter 20 00:01:12,240 --> 00:01:15,000 Speaker 2: of twenty twenty three, and I think the market's telling 21 00:01:15,040 --> 00:01:19,000 Speaker 2: you that we're normalizing or have a more normalized rate situation, 22 00:01:19,360 --> 00:01:22,440 Speaker 2: normalized growth situation. You got to be in. 23 00:01:22,720 --> 00:01:27,040 Speaker 1: There's quiet skew, there's a quiet within the internal dynamics. 24 00:01:27,560 --> 00:01:30,279 Speaker 1: But the bottom line is it's a wall of money 25 00:01:30,319 --> 00:01:32,000 Speaker 1: looking for a warm spot. 26 00:01:32,360 --> 00:01:35,319 Speaker 2: Is that six trillion in money market fund? Six trillion? 27 00:01:35,480 --> 00:01:37,920 Speaker 1: People are saying, oh, never go to equities. I'm like, 28 00:01:37,959 --> 00:01:41,040 Speaker 1: are you kidding me? Yeah? It is. In what way 29 00:01:41,319 --> 00:01:42,600 Speaker 1: will it go to equities? 30 00:01:42,840 --> 00:01:44,880 Speaker 2: It'll go to equities in several ways. The first is 31 00:01:44,920 --> 00:01:47,560 Speaker 2: that there was a rush to money market because of 32 00:01:47,600 --> 00:01:50,720 Speaker 2: the banking crisis in March, and you had folks who 33 00:01:50,760 --> 00:01:53,160 Speaker 2: stayed there because they could sleep at night and it 34 00:01:53,200 --> 00:01:55,800 Speaker 2: was the easiest place to be. We've been telling our 35 00:01:55,800 --> 00:01:58,360 Speaker 2: clients all last year, get out of cash. It's set 36 00:01:58,400 --> 00:02:01,240 Speaker 2: to underperform over the next twelve months. So we think 37 00:02:01,280 --> 00:02:04,120 Speaker 2: a lot of that angst that happens about a year 38 00:02:04,160 --> 00:02:06,880 Speaker 2: ago comes into equity markets, and it should be coming 39 00:02:06,920 --> 00:02:09,080 Speaker 2: to the bond market as well, because you're in a 40 00:02:09,120 --> 00:02:12,120 Speaker 2: world where the Fed's not hiking and it's either going 41 00:02:12,200 --> 00:02:15,280 Speaker 2: to be the same or lower going forward, and that's 42 00:02:15,440 --> 00:02:18,200 Speaker 2: very positive for risk assets, bonds and equities and you 43 00:02:18,280 --> 00:02:20,799 Speaker 2: got to get in. I can't tell you how much 44 00:02:20,880 --> 00:02:22,799 Speaker 2: of that six trillion is coming out, but a lot 45 00:02:22,800 --> 00:02:26,160 Speaker 2: of that six trillion is the expression of angst over 46 00:02:26,200 --> 00:02:27,720 Speaker 2: the last year of the raid environment. 47 00:02:28,000 --> 00:02:30,519 Speaker 3: So alsha, if I do want to stay in that boat, 48 00:02:30,560 --> 00:02:34,639 Speaker 3: if you will, do I try to chase those be 49 00:02:34,800 --> 00:02:37,160 Speaker 3: kept tech stocks that work so well in twenty twenty three, 50 00:02:37,280 --> 00:02:39,200 Speaker 3: or do I say miss that boat? Let me try 51 00:02:39,200 --> 00:02:41,600 Speaker 3: to find some value in other sectors. What are some 52 00:02:41,600 --> 00:02:42,560 Speaker 3: of the sectors you guys like? 53 00:02:42,840 --> 00:02:46,120 Speaker 2: So we have said for you know, I was here 54 00:02:46,440 --> 00:02:49,440 Speaker 2: a month ago talking about about our outlook and I 55 00:02:49,520 --> 00:02:52,360 Speaker 2: had this phrase, dance with the one that brought you, 56 00:02:52,840 --> 00:02:56,240 Speaker 2: meaning everybody wants to go to small cap or to 57 00:02:56,360 --> 00:02:59,000 Speaker 2: go or to go to international em And I say, 58 00:02:59,160 --> 00:03:01,760 Speaker 2: you know what, that's probably a great trade and it'll 59 00:03:01,800 --> 00:03:04,240 Speaker 2: work for three to six months, but ultimately, if you're 60 00:03:04,280 --> 00:03:07,040 Speaker 2: building wealth, I want to be were Capital's street the best, 61 00:03:07,040 --> 00:03:09,160 Speaker 2: and I want to be in the companies that throw 62 00:03:09,280 --> 00:03:11,600 Speaker 2: off cash and don't need to borrow. 63 00:03:11,400 --> 00:03:14,600 Speaker 1: All first grade Insight of the Week Alicia Levine b 64 00:03:14,760 --> 00:03:17,560 Speaker 1: n Y Melon. I'm going to talk my book, folks. 65 00:03:17,639 --> 00:03:22,480 Speaker 1: I can't say enough how the similarity to twenty three 66 00:03:23,040 --> 00:03:26,280 Speaker 1: is there. You gotta find cash flow quality, cash slow. 67 00:03:26,360 --> 00:03:29,200 Speaker 1: However you determine that. To me, it's a triple leverage 68 00:03:29,240 --> 00:03:31,880 Speaker 1: all cash flo something more optimistic for you. 69 00:03:31,960 --> 00:03:34,200 Speaker 3: So Alisha on the fixed income business, they actually are 70 00:03:34,240 --> 00:03:36,960 Speaker 3: friends to fixing them. Actually made some returns last year 71 00:03:37,000 --> 00:03:40,560 Speaker 3: after getting crushed, just crushed in twenty twenty two. What 72 00:03:40,600 --> 00:03:41,800 Speaker 3: do you think about this year? We're going to go 73 00:03:41,840 --> 00:03:44,119 Speaker 3: in the fix income space. I was shocked that last 74 00:03:44,200 --> 00:03:46,200 Speaker 3: year the best performance was high yield. 75 00:03:46,120 --> 00:03:48,040 Speaker 2: That's right, and we had no recession. 76 00:03:48,120 --> 00:03:52,080 Speaker 3: Yes, I guess that's the point, but no real recession. 77 00:03:52,400 --> 00:03:55,440 Speaker 2: So look, we like the belly of the curve. We're 78 00:03:55,480 --> 00:03:57,600 Speaker 2: not saying go out to tenure yet. We think that's 79 00:03:57,640 --> 00:03:59,640 Speaker 2: just too long in duration. We like the five to 80 00:03:59,680 --> 00:04:03,600 Speaker 2: seven year range for Gouviy's right here. We do like 81 00:04:03,680 --> 00:04:07,040 Speaker 2: investment grade here, that's sort of a sweet spot. We 82 00:04:07,120 --> 00:04:10,240 Speaker 2: don't expect a recession, and with that you're going to have, 83 00:04:11,320 --> 00:04:14,320 Speaker 2: you know, a more normalized year of returns in these 84 00:04:14,360 --> 00:04:15,240 Speaker 2: asset classes. 85 00:04:15,840 --> 00:04:19,080 Speaker 3: So, I mean, it's interesting. We've seen a lot of 86 00:04:19,120 --> 00:04:21,479 Speaker 3: issuance this year. I mean, companies are coming to the market. 87 00:04:21,520 --> 00:04:24,039 Speaker 3: So when you markets are open. Markets are open. So 88 00:04:24,080 --> 00:04:26,200 Speaker 3: when the one of the first calls is to you 89 00:04:26,200 --> 00:04:27,840 Speaker 3: guys at the Bank of a New York Mellon, I mean, 90 00:04:28,520 --> 00:04:30,200 Speaker 3: what are you looking for in some of the new 91 00:04:30,240 --> 00:04:32,320 Speaker 3: issue market here for your credit teams. 92 00:04:32,760 --> 00:04:35,600 Speaker 2: Look, we're looking for cash flow, We're looking for sustainability 93 00:04:35,640 --> 00:04:38,400 Speaker 2: of business. We'd like to see the debt that's been 94 00:04:38,839 --> 00:04:43,080 Speaker 2: termed out and not floating rate. I just think that's 95 00:04:43,120 --> 00:04:45,679 Speaker 2: just a better setup. But we like the quality businesses 96 00:04:45,720 --> 00:04:48,479 Speaker 2: and the fact that the market's open for issuance is 97 00:04:48,520 --> 00:04:50,960 Speaker 2: really important because it's telling you investors know that the 98 00:04:51,400 --> 00:04:52,880 Speaker 2: rate fear is over. Like it's done. 99 00:04:53,080 --> 00:04:54,960 Speaker 1: Let's go there. I mean, I mean, to me, the 100 00:04:55,040 --> 00:04:58,479 Speaker 1: ft article over the weekend of the huge issuance coming 101 00:04:58,480 --> 00:05:00,479 Speaker 1: into the market in the first two three weeks of 102 00:05:00,520 --> 00:05:03,440 Speaker 1: the year is valid? Does that sustain to me? I 103 00:05:03,480 --> 00:05:05,640 Speaker 1: look at these big tech companies and it's, you know, 104 00:05:05,680 --> 00:05:08,960 Speaker 1: on a z V body Boston University basis, they're like 105 00:05:09,320 --> 00:05:11,880 Speaker 1: breaking the rule book. I mean, they have to do 106 00:05:12,320 --> 00:05:13,560 Speaker 1: debt issuance. Am I wrong? 107 00:05:14,279 --> 00:05:17,360 Speaker 2: The large companies don't have to do debt issuance. They 108 00:05:17,440 --> 00:05:20,599 Speaker 2: could just you know, to keep themselves floating around. But 109 00:05:20,760 --> 00:05:22,800 Speaker 2: I don't think it's a necessity. I think it's just 110 00:05:22,839 --> 00:05:24,839 Speaker 2: an expression that nobody wants it an issue dead Last 111 00:05:24,880 --> 00:05:27,920 Speaker 2: year the markets were so tight and getting while you can, 112 00:05:27,960 --> 00:05:29,440 Speaker 2: and if you have the debt then of course you're 113 00:05:29,440 --> 00:05:31,479 Speaker 2: going to have M and A and they're also going 114 00:05:31,520 --> 00:05:34,440 Speaker 2: to have private equity deals finally getting monetized this year. 115 00:05:34,800 --> 00:05:38,080 Speaker 2: So overall it's a very good setup for markets in 116 00:05:38,120 --> 00:05:40,200 Speaker 2: all parts of the capital markets. I mean a lot 117 00:05:40,200 --> 00:05:42,880 Speaker 2: of things can go wrong. Yes, it's starting to smell 118 00:05:42,920 --> 00:05:45,600 Speaker 2: like nineteen ninety five, right, It just it has that 119 00:05:45,680 --> 00:05:49,800 Speaker 2: feel of, you know, if the Fed's cutting and QT 120 00:05:49,960 --> 00:05:54,120 Speaker 2: gets tapered, okay, you have the setup for liquidity in 121 00:05:54,160 --> 00:05:57,000 Speaker 2: the market, and you could have a nice bull run here. 122 00:05:57,400 --> 00:05:59,960 Speaker 2: And I'll say this. You know, the market's up seventy 123 00:06:00,040 --> 00:06:02,359 Speaker 2: five percent of the time since World War Two. In 124 00:06:02,360 --> 00:06:05,400 Speaker 2: the years where it's up double digits, the following year 125 00:06:05,680 --> 00:06:07,880 Speaker 2: seventy five percent of the time is also up double 126 00:06:07,920 --> 00:06:11,080 Speaker 2: digitsank you Yeah, So you know, just because we had 127 00:06:11,120 --> 00:06:13,480 Speaker 2: a great year last year doesn't mean we have aversion 128 00:06:13,480 --> 00:06:14,360 Speaker 2: to the meme this year. 129 00:06:14,640 --> 00:06:17,360 Speaker 3: So are you you know I'm looking at the earnings 130 00:06:17,360 --> 00:06:19,520 Speaker 3: for next year because I'm an old equity analyst, and 131 00:06:19,560 --> 00:06:21,760 Speaker 3: I do look at earnings. I think earnings matter. I 132 00:06:21,800 --> 00:06:24,920 Speaker 3: see twelve percent, eleven twelve percent earnings growth for twenty 133 00:06:24,920 --> 00:06:27,839 Speaker 3: twenty four over twenty three. Does that seem like a 134 00:06:27,880 --> 00:06:29,359 Speaker 3: reasonable number. Two, we're lower. 135 00:06:29,400 --> 00:06:32,279 Speaker 2: We're about eight to nine percent of earnings growth. And 136 00:06:32,320 --> 00:06:35,640 Speaker 2: we've done that from bottoms up analysis with our equity team. 137 00:06:36,040 --> 00:06:39,160 Speaker 2: We think that's a fair place to be. I'd rather 138 00:06:39,600 --> 00:06:42,359 Speaker 2: come in estimating that than come in at twelve percent, 139 00:06:42,400 --> 00:06:44,200 Speaker 2: which I think is a heavy lift. Right, it's a 140 00:06:44,200 --> 00:06:46,919 Speaker 2: heavy lift. But look in the end, you know, large 141 00:06:46,920 --> 00:06:48,839 Speaker 2: cab tech can pull it out. All I have to 142 00:06:48,880 --> 00:06:51,600 Speaker 2: do is cut, cut some headcount and all of a sudden, 143 00:06:51,720 --> 00:06:54,000 Speaker 2: earnings in the SMP is up ten to eleven percent. 144 00:06:54,120 --> 00:06:58,080 Speaker 2: So they can they can really affect the metrics on this. 145 00:06:58,440 --> 00:07:01,800 Speaker 2: The structure of the market and the power of the 146 00:07:01,800 --> 00:07:05,400 Speaker 2: top ten companies is really without precedent. And how they 147 00:07:05,600 --> 00:07:07,600 Speaker 2: they can affect the entire index. 148 00:07:08,080 --> 00:07:10,320 Speaker 1: Right, How the hedgephones do this year? I mean, I'm 149 00:07:10,360 --> 00:07:12,800 Speaker 1: seeing bar charts that they had their most profitable year 150 00:07:12,800 --> 00:07:15,040 Speaker 1: and all that. I don't buy a lot long short 151 00:07:15,320 --> 00:07:17,120 Speaker 1: shorting year is brutal. 152 00:07:17,280 --> 00:07:19,920 Speaker 2: It's brutal, It's brutal. It's brutal last year because even 153 00:07:20,120 --> 00:07:22,679 Speaker 2: like you probably had a great year on the short 154 00:07:22,720 --> 00:07:24,680 Speaker 2: side the first ten months of the year, and then 155 00:07:24,760 --> 00:07:26,520 Speaker 2: you got taken out the last two months, and that's 156 00:07:26,560 --> 00:07:29,320 Speaker 2: your year, and everybody's judged every twelve months and you've 157 00:07:29,320 --> 00:07:32,160 Speaker 2: got to repeat it January one. So I think it 158 00:07:32,200 --> 00:07:33,560 Speaker 2: was a tough year on the short side. 159 00:07:33,720 --> 00:07:36,400 Speaker 1: Yeah, I mean they're going, you know, like twenty companies 160 00:07:36,560 --> 00:07:39,200 Speaker 1: guests right on Macro or whatever. Great, but everybody else 161 00:07:39,240 --> 00:07:39,800 Speaker 1: got hammered. 162 00:07:39,840 --> 00:07:42,880 Speaker 3: So when you talk to them, your clients here twenty 163 00:07:42,920 --> 00:07:45,880 Speaker 3: twenty four, what did they say? Did they say, we 164 00:07:46,040 --> 00:07:50,080 Speaker 3: kind of took too much performance into fourth quarter last 165 00:07:50,120 --> 00:07:51,560 Speaker 3: year and so I need to be a little bit 166 00:07:51,600 --> 00:07:54,760 Speaker 3: cautious in twenty four? Are you're trying to talk them 167 00:07:54,800 --> 00:07:55,880 Speaker 3: off that sideline made? 168 00:07:55,880 --> 00:08:00,200 Speaker 2: So that's always a question, ok. And then we'll say 169 00:08:00,280 --> 00:08:05,280 Speaker 2: that does either market timing is impossible. If you're fundamentally positive, 170 00:08:05,680 --> 00:08:07,400 Speaker 2: you should get it. And that's the first question. The 171 00:08:07,440 --> 00:08:09,720 Speaker 2: second one really is always about what's going on with 172 00:08:09,760 --> 00:08:12,840 Speaker 2: our political situation and the election, and a lot of 173 00:08:12,920 --> 00:08:14,120 Speaker 2: our clients are angst about that. 174 00:08:14,280 --> 00:08:17,000 Speaker 1: Okay, the clients do, but are you just quickly here, 175 00:08:17,080 --> 00:08:19,640 Speaker 1: you really think politics plays into what I should be 176 00:08:19,680 --> 00:08:22,560 Speaker 1: doing on a three and five year investment. 177 00:08:22,160 --> 00:08:25,760 Speaker 2: Call, No, thank you, and that's my message, just don't 178 00:08:25,840 --> 00:08:27,800 Speaker 2: let your politics get in the way of investing. 179 00:08:28,640 --> 00:08:30,280 Speaker 1: Thank you so much with being Y Melton. I hope 180 00:08:30,280 --> 00:08:33,120 Speaker 1: to see a lot of her in two thousand trying four. 181 00:08:43,240 --> 00:08:45,280 Speaker 3: All right, let's check in with our good friend Scott Crohner. 182 00:08:45,320 --> 00:08:49,280 Speaker 3: He's over there at City formerly Smith Barney and I 183 00:08:49,280 --> 00:08:50,880 Speaker 3: don't know where else he was, but he's been around 184 00:08:51,000 --> 00:08:53,000 Speaker 3: doing this equity thing for a long time. He's out 185 00:08:53,000 --> 00:08:55,920 Speaker 3: in San Francisco. Hey, Scott, thanks so much for joining 186 00:08:56,000 --> 00:09:00,000 Speaker 3: us here. Boy, what a end to twenty twenty three, 187 00:09:00,280 --> 00:09:02,680 Speaker 3: And I kind of felt like boy, So we spoke 188 00:09:02,679 --> 00:09:05,680 Speaker 3: to a lot of investors that maybe that really rip 189 00:09:05,800 --> 00:09:08,000 Speaker 3: warring ending to twenty twenty three, maybe that took some 190 00:09:08,040 --> 00:09:11,000 Speaker 3: of the performance away from twenty twenty four. How are 191 00:09:11,000 --> 00:09:13,320 Speaker 3: you guys thinking about this early part of the year. 192 00:09:14,400 --> 00:09:15,480 Speaker 4: So that's been our view. 193 00:09:15,640 --> 00:09:18,000 Speaker 5: So you know, we thought that to your point, that 194 00:09:18,080 --> 00:09:20,760 Speaker 5: the rally into the end of the year was early 195 00:09:20,800 --> 00:09:23,040 Speaker 5: stages of what we think will be a bigger broadening 196 00:09:23,160 --> 00:09:26,839 Speaker 5: theme for twenty twenty four away from that megacap growth 197 00:09:26,920 --> 00:09:29,760 Speaker 5: leadership that looked to be unfolding, and our view had 198 00:09:29,760 --> 00:09:32,040 Speaker 5: been that the Q four earnings reporting period would be 199 00:09:32,080 --> 00:09:36,360 Speaker 5: your premise for that, whereby you get companies beating Q 200 00:09:36,440 --> 00:09:39,560 Speaker 5: four expectations but probably being a little bit more cautionary 201 00:09:39,880 --> 00:09:43,360 Speaker 5: on their full twenty three Q four expectations, but more 202 00:09:43,360 --> 00:09:47,559 Speaker 5: cautionary on twenty four outlooks are still early to judge that, 203 00:09:47,720 --> 00:09:50,360 Speaker 5: but what's happened in the meantime is that you've gotten 204 00:09:50,360 --> 00:09:53,920 Speaker 5: to think some more generative AI support for the tech spase, 205 00:09:54,000 --> 00:09:57,880 Speaker 5: which is kicked the NASDAQ one hundred into overdriving. 206 00:09:58,040 --> 00:10:01,000 Speaker 3: Yeah, yeah, exactly right. And I'm wondering, you know, Scott, 207 00:10:02,160 --> 00:10:04,520 Speaker 3: what are your tech guys saying over at City. I mean, 208 00:10:04,520 --> 00:10:07,679 Speaker 3: how bullish are they on this AI thing? Is this 209 00:10:07,880 --> 00:10:11,360 Speaker 3: really incremental? Can I really use this as an investment 210 00:10:11,360 --> 00:10:12,440 Speaker 3: theme in twenty twenty four? 211 00:10:13,160 --> 00:10:16,640 Speaker 4: Well, and to your point, it's a really good question. 212 00:10:16,800 --> 00:10:19,640 Speaker 5: The way we're arguing it, it's consistent with what our 213 00:10:19,640 --> 00:10:22,839 Speaker 5: analysts are saying is that it becomes more idiosyncratic. It's 214 00:10:22,880 --> 00:10:26,280 Speaker 5: not a big seven or a magnificent seven this year 215 00:10:26,320 --> 00:10:28,520 Speaker 5: as it was last year. I think you're going to 216 00:10:28,559 --> 00:10:32,600 Speaker 5: see different components of that megacap growth cohort that's going 217 00:10:32,679 --> 00:10:36,320 Speaker 5: to have a fundamental tail wind more directly or perhaps not. 218 00:10:36,600 --> 00:10:40,719 Speaker 5: We've been arguing that software should show that semiconductors are 219 00:10:40,760 --> 00:10:43,079 Speaker 5: beginning to show more signs of that, but that's not 220 00:10:43,120 --> 00:10:45,320 Speaker 5: true for others of the Big seven that might be 221 00:10:45,360 --> 00:10:48,160 Speaker 5: held up in let's say the auto is component of 222 00:10:48,240 --> 00:10:48,680 Speaker 5: the market. 223 00:10:48,760 --> 00:10:50,959 Speaker 4: So we think the point here is. 224 00:10:50,920 --> 00:10:55,320 Speaker 5: That that the twenty four setup for many of these 225 00:10:55,360 --> 00:10:57,640 Speaker 5: companies is one where you're. 226 00:10:57,480 --> 00:10:58,440 Speaker 4: Getting the news flow. 227 00:10:58,480 --> 00:11:00,600 Speaker 5: You're going to need to see it translate into fundamentals 228 00:11:00,640 --> 00:11:01,840 Speaker 5: to keep these stocks working. 229 00:11:02,480 --> 00:11:04,640 Speaker 1: What's interesting and Alicia Levine brought this up with bn 230 00:11:04,760 --> 00:11:07,839 Speaker 1: y melon of an analog back in nineteen ninety five. 231 00:11:08,520 --> 00:11:10,559 Speaker 1: It's got some of us of a certain vintage, I 232 00:11:10,600 --> 00:11:12,600 Speaker 1: mean an old guy like you've seen it. Pall's too 233 00:11:12,600 --> 00:11:16,000 Speaker 1: young to have seen it. But the answer is we 234 00:11:16,040 --> 00:11:22,320 Speaker 1: partition into quarters, we partition into annual returns. And the 235 00:11:22,400 --> 00:11:26,199 Speaker 1: reality is, you know, it's like longitude latitude on a map. 236 00:11:26,559 --> 00:11:30,320 Speaker 1: They're just lines, they're just calendar dates. And the answers 237 00:11:30,400 --> 00:11:33,280 Speaker 1: last year can extend into this year, can it? 238 00:11:34,480 --> 00:11:36,560 Speaker 4: Well? I mean yes to that point. 239 00:11:36,640 --> 00:11:39,040 Speaker 5: If you look at the two year return on the SMP, 240 00:11:39,880 --> 00:11:43,520 Speaker 5: it's not very meaningful. And that's true for the Nasdaq 241 00:11:43,559 --> 00:11:46,000 Speaker 5: as well. So when you go back and look at 242 00:11:46,000 --> 00:11:49,920 Speaker 5: the way we've come out of the pandemic lockdowns, you know, 243 00:11:49,960 --> 00:11:52,440 Speaker 5: we had the big risk on rally in twenty one 244 00:11:52,559 --> 00:11:56,240 Speaker 5: twenty two, big valuation reset as we were contending with 245 00:11:56,280 --> 00:11:58,800 Speaker 5: an hawkish FED, and then you know, twenty three was 246 00:11:58,840 --> 00:12:04,040 Speaker 5: a combination of general of AI promise kicking in as 247 00:12:04,040 --> 00:12:06,800 Speaker 5: well as more evidence that you're getting at a peaking FED. 248 00:12:07,280 --> 00:12:10,200 Speaker 5: Now we're about to shift at some point this year 249 00:12:10,320 --> 00:12:14,480 Speaker 5: into a more dubbish FED, and for many investors this 250 00:12:14,640 --> 00:12:16,320 Speaker 5: followed the FED mantra is an. 251 00:12:16,160 --> 00:12:17,719 Speaker 4: Important point, I mean. 252 00:12:18,000 --> 00:12:20,000 Speaker 5: And so so I think it all kind of sets 253 00:12:20,080 --> 00:12:23,160 Speaker 5: up pretty well constructively as we look into full year 254 00:12:23,240 --> 00:12:24,720 Speaker 5: twenty four, perhaps beyond. 255 00:12:24,880 --> 00:12:27,880 Speaker 1: I mean, Lisa, to me, it's just really really crucial 256 00:12:27,960 --> 00:12:30,880 Speaker 1: that people understand that we're not slaves to the calendar. 257 00:12:31,040 --> 00:12:33,960 Speaker 1: And you know, you know, I look, Lisa, at the 258 00:12:34,040 --> 00:12:37,120 Speaker 1: shock of November and December last year, Up up up, 259 00:12:37,160 --> 00:12:40,240 Speaker 1: We continue up, up up, and everybody's sitting on the 260 00:12:40,320 --> 00:12:43,320 Speaker 1: sidelines in cash. I mean, the Mateo families, they're they're 261 00:12:45,200 --> 00:12:47,600 Speaker 1: charter members. When are you going to move out of cash, Lisa, 262 00:12:48,160 --> 00:12:49,520 Speaker 1: never are you kidding me? 263 00:12:49,720 --> 00:12:49,880 Speaker 5: No? 264 00:12:50,040 --> 00:12:51,720 Speaker 3: Giving it on to the mattress. That's it. 265 00:12:51,800 --> 00:12:54,320 Speaker 1: I mean, the whole keep under the mattress thing. Paul's 266 00:12:54,360 --> 00:12:55,440 Speaker 1: a scar of all this. 267 00:12:55,679 --> 00:12:57,640 Speaker 3: I know, and I think pandemic. It's it's one of 268 00:12:57,679 --> 00:12:59,640 Speaker 3: the you know, the bullish calls out there for a 269 00:12:59,640 --> 00:13:02,400 Speaker 3: lot of so Scott, you know, I know you guys 270 00:13:02,600 --> 00:13:04,960 Speaker 3: you know speak of cash. I know you guys at 271 00:13:05,040 --> 00:13:07,160 Speaker 3: City have been on the forefront of kind of ETF 272 00:13:07,200 --> 00:13:09,600 Speaker 3: and ETF research here and just in the last few 273 00:13:09,640 --> 00:13:12,880 Speaker 3: weeks we've had that Bitcoin ETF. When you're talking to 274 00:13:12,880 --> 00:13:15,400 Speaker 3: your clients out there, well, where are we now and 275 00:13:15,520 --> 00:13:18,160 Speaker 3: just thinking about ETFs as a as a real option. 276 00:13:18,280 --> 00:13:20,000 Speaker 3: I mean I joke to Tom that we used to 277 00:13:20,080 --> 00:13:22,760 Speaker 3: spend half my life up in Boston visiting the mutual 278 00:13:22,800 --> 00:13:24,520 Speaker 3: funds up there. I'm not sure we do that anymore. 279 00:13:24,960 --> 00:13:26,240 Speaker 3: Where are you guys with ETFs? 280 00:13:27,040 --> 00:13:29,600 Speaker 5: Well, I mean, you know, we think there's a you know, 281 00:13:29,760 --> 00:13:33,520 Speaker 5: an ongoing, brave new world that keeps unfolding via ETFs, 282 00:13:33,559 --> 00:13:35,600 Speaker 5: and there's this sort of a new next big thing 283 00:13:35,640 --> 00:13:38,800 Speaker 5: that keeps kicking in. Gone in the days where you're 284 00:13:38,840 --> 00:13:43,080 Speaker 5: just simply passively, you know, replicating underlying indexes. And in 285 00:13:43,160 --> 00:13:45,880 Speaker 5: are the days where almost all the new launches now 286 00:13:45,920 --> 00:13:48,760 Speaker 5: have an active spind to them. So you're seeing many 287 00:13:48,760 --> 00:13:52,480 Speaker 5: of the major mutual fund complexes move into ETFs. So, 288 00:13:52,679 --> 00:13:55,880 Speaker 5: you know, we think that the ETF rapper continues to 289 00:13:55,960 --> 00:14:00,480 Speaker 5: expand continues to reflect the underlying entrepreneurial sphere set the 290 00:14:00,520 --> 00:14:03,520 Speaker 5: markets are about. And you know, we think that that's 291 00:14:03,720 --> 00:14:07,239 Speaker 5: kicking into gear. When you look at the flow dynamic. 292 00:14:07,960 --> 00:14:10,760 Speaker 5: It's been mostly out of mutual funds for the past 293 00:14:10,840 --> 00:14:13,720 Speaker 5: year and to mostly to the benefit of ETFs. 294 00:14:14,160 --> 00:14:16,000 Speaker 4: So you know, we think this is a big deal. 295 00:14:16,120 --> 00:14:17,920 Speaker 5: But we think also what you have to keep in 296 00:14:17,920 --> 00:14:21,560 Speaker 5: mind is that increasingly these are the tools that are 297 00:14:21,560 --> 00:14:24,520 Speaker 5: being used for the model portfolios that more and more 298 00:14:24,560 --> 00:14:27,280 Speaker 5: financial advisors are best in client assets. 299 00:14:27,440 --> 00:14:30,840 Speaker 1: Huge, too massive, right up. I'm going to give credit 300 00:14:30,880 --> 00:14:33,920 Speaker 1: to the ft you can't remember exactly Blackrock with a 301 00:14:34,040 --> 00:14:37,800 Speaker 1: massive restructuring going on there, mister Fink driving just what 302 00:14:37,880 --> 00:14:41,480 Speaker 1: you heard from mister cron and it just I wonder, Paul, 303 00:14:41,640 --> 00:14:43,640 Speaker 1: is a death of traditional mutual funds. 304 00:14:44,000 --> 00:14:44,520 Speaker 3: I tell you what. 305 00:14:45,040 --> 00:14:48,160 Speaker 1: Yeah, well, I just people want this people and Eric 306 00:14:48,200 --> 00:14:51,480 Speaker 1: Belchunas you know, we try to get Belchunas into seven 307 00:14:51,480 --> 00:14:52,120 Speaker 1: o'clock hour. 308 00:14:52,240 --> 00:14:54,120 Speaker 3: No, No, it's just too early. 309 00:14:54,720 --> 00:14:55,280 Speaker 1: He's coming up. 310 00:14:55,480 --> 00:14:57,520 Speaker 3: But I mean you even see mutual funds tom converting 311 00:14:57,520 --> 00:14:59,920 Speaker 3: into ETFs. It's just really an extraordinary change. I know, 312 00:15:00,080 --> 00:15:02,360 Speaker 3: the research folks at City have been all over this. 313 00:15:02,680 --> 00:15:06,280 Speaker 3: So Scott's we step back here kind of what are 314 00:15:06,320 --> 00:15:08,520 Speaker 3: some of the sectors that you guys and your team 315 00:15:09,000 --> 00:15:11,400 Speaker 3: are focusing on here for twenty twenty four. 316 00:15:12,240 --> 00:15:14,440 Speaker 4: Okay, so we're playing this broadening theme. 317 00:15:14,480 --> 00:15:16,760 Speaker 5: The argument has been, you know, most of last year's 318 00:15:16,760 --> 00:15:19,520 Speaker 5: returns was a function of this megacap growth cohort. 319 00:15:19,960 --> 00:15:23,360 Speaker 4: And the view is very simple. You can't continue to premise. 320 00:15:23,040 --> 00:15:25,560 Speaker 5: A broader higher market on just that you need a 321 00:15:25,560 --> 00:15:29,240 Speaker 5: broadening effect aligned with this gradual pivot in the FED 322 00:15:29,440 --> 00:15:32,320 Speaker 5: and what we think is happening with fundamentals from an 323 00:15:32,400 --> 00:15:35,760 Speaker 5: earning's growth perspective, our view pretty simply has been that 324 00:15:35,800 --> 00:15:38,080 Speaker 5: the broadening effect has to be a key driver of 325 00:15:38,160 --> 00:15:41,560 Speaker 5: future upside. We began to see that in November and December, 326 00:15:41,640 --> 00:15:43,560 Speaker 5: as you saw ten year nominals come off of that 327 00:15:43,640 --> 00:15:46,000 Speaker 5: five percent level. We're taking a little bit of a 328 00:15:46,000 --> 00:15:48,840 Speaker 5: step back to start this year, but we think that's 329 00:15:48,880 --> 00:15:53,080 Speaker 5: digesting that move. So from a sector perspective, we're saying 330 00:15:53,600 --> 00:15:58,320 Speaker 5: hold growth. We're overweight tech and comfortably there, but we're 331 00:15:58,360 --> 00:16:01,720 Speaker 5: suggesting other sectors such as industrials, which has been a 332 00:16:01,720 --> 00:16:05,520 Speaker 5: long standing favorite of ours, and recently we went overweight financials. 333 00:16:05,520 --> 00:16:06,760 Speaker 4: As ways of expressing this. 334 00:16:06,880 --> 00:16:10,000 Speaker 1: Goat thirty seconds. Scut Cronner, What do you do with healthcare? 335 00:16:10,040 --> 00:16:12,480 Speaker 1: It was supposed to be the darling last year. It 336 00:16:12,600 --> 00:16:15,400 Speaker 1: wasn't as an ugly beginning of the year of hospital 337 00:16:16,200 --> 00:16:18,800 Speaker 1: non earnings, non cash flows. What do you do with healthcare? 338 00:16:19,560 --> 00:16:20,080 Speaker 4: You own it. 339 00:16:20,160 --> 00:16:23,640 Speaker 5: We upgraded from an underweight which we had all last year, 340 00:16:23,680 --> 00:16:26,680 Speaker 5: to market weight recently. So the fundamentals aren't perfectly there 341 00:16:26,760 --> 00:16:28,480 Speaker 5: yet to get us really excited. But I got to 342 00:16:28,520 --> 00:16:31,400 Speaker 5: tell you, when you look at the earnings growth setup 343 00:16:31,440 --> 00:16:35,160 Speaker 5: going into twenty four, healthcare is set up to have 344 00:16:35,480 --> 00:16:38,720 Speaker 5: one of the more aggressive mean reversions to the positive 345 00:16:38,800 --> 00:16:41,840 Speaker 5: this year, and so we want to have healthcare exposure, 346 00:16:41,960 --> 00:16:42,720 Speaker 5: no question about it. 347 00:16:42,720 --> 00:16:49,680 Speaker 1: Scutt Croner, Thank you so much. With City Group, Jennifer 348 00:16:50,120 --> 00:16:53,160 Speaker 1: Lee joins us. She's the beamon Capital Markets far more 349 00:16:53,160 --> 00:16:57,480 Speaker 1: doing a holistic view on economics as well, Jennifer, what 350 00:16:57,600 --> 00:17:01,360 Speaker 1: is your queue forour call? Mike McKee was fucking two wish? 351 00:17:01,880 --> 00:17:03,680 Speaker 1: Can we do better than two wish? 352 00:17:05,040 --> 00:17:06,960 Speaker 6: Ooh, I'm sorry. First of all, good morning and thanks 353 00:17:07,000 --> 00:17:09,000 Speaker 6: for having me on. Actually we're a little bit lower. 354 00:17:09,000 --> 00:17:12,399 Speaker 7: We're at one and a half ish for GP growth. 355 00:17:12,560 --> 00:17:15,000 Speaker 6: We're actually a little bit of an upgrade for we 356 00:17:15,040 --> 00:17:18,000 Speaker 6: had previously thanks to that starting of that expected retail 357 00:17:18,040 --> 00:17:20,280 Speaker 6: sales number. But overall we're still seeing growth, which is 358 00:17:20,280 --> 00:17:23,120 Speaker 6: pretty incredible given that we've had over five hundred basis 359 00:17:23,160 --> 00:17:25,840 Speaker 6: points of great tights over the past play years. So hey, 360 00:17:25,840 --> 00:17:27,240 Speaker 6: this is a good news story. 361 00:17:27,280 --> 00:17:28,040 Speaker 7: I think in the. 362 00:17:28,080 --> 00:17:31,119 Speaker 1: Formula, what's the distinction between say two point two two 363 00:17:31,160 --> 00:17:33,800 Speaker 1: point three percent and your one point five percent A 364 00:17:33,960 --> 00:17:37,040 Speaker 1: cause an investment? Is it a net export dynamic? What's 365 00:17:37,080 --> 00:17:40,000 Speaker 1: the variable that gets you to be more quiet? 366 00:17:41,400 --> 00:17:43,119 Speaker 6: I think it's going to be on the trade side 367 00:17:43,160 --> 00:17:45,000 Speaker 6: as well, just like a little bit of a of 368 00:17:45,080 --> 00:17:48,880 Speaker 6: a of a hit from net exports. Overall, Bucause investments 369 00:17:48,880 --> 00:17:51,080 Speaker 6: has been a little bit lower, But I mean it's 370 00:17:51,119 --> 00:17:53,360 Speaker 6: going to be all about the consumer, and that's obviously 371 00:17:53,400 --> 00:17:56,320 Speaker 6: the biggest part of the US economy. So the US 372 00:17:56,640 --> 00:17:59,560 Speaker 6: consumer has been driving all is momentum for now. How 373 00:17:59,640 --> 00:18:02,400 Speaker 6: much they can continue doing that remains to be seen. 374 00:18:02,440 --> 00:18:05,080 Speaker 6: But I mean, I feel like every quarter this year 375 00:18:05,160 --> 00:18:07,359 Speaker 6: we have been bumping up our forecast. You know, it's like, oh, 376 00:18:07,480 --> 00:18:10,399 Speaker 6: upgrade to grow to four to the growth pecast again 377 00:18:10,480 --> 00:18:13,520 Speaker 6: with again, it's not a bad thing to do at all. 378 00:18:13,640 --> 00:18:16,640 Speaker 1: And Paul, this is critical. Jennifer's nails in that it's 379 00:18:16,680 --> 00:18:20,280 Speaker 1: a net export mystery. That's obviously a China mystery. Yeah, 380 00:18:20,560 --> 00:18:22,919 Speaker 1: maybe a Germany flat in a back mystery. I'll let 381 00:18:22,920 --> 00:18:26,520 Speaker 1: you decide. If it's an EV vehicle disaster mystery. I 382 00:18:26,560 --> 00:18:30,000 Speaker 1: don't know, but she's dead on that we ignore NX 383 00:18:30,040 --> 00:18:31,200 Speaker 1: on the back end of the equals. 384 00:18:31,240 --> 00:18:33,439 Speaker 3: I think so. And I think Jennifer, one of the 385 00:18:33,440 --> 00:18:36,399 Speaker 3: things here that I think just kind of surprises a 386 00:18:36,440 --> 00:18:38,800 Speaker 3: lot of observers, including myself, is the strength of the 387 00:18:38,920 --> 00:18:42,439 Speaker 3: US consumer. Here. Give us your sense of kind of 388 00:18:42,480 --> 00:18:45,000 Speaker 3: where the consumer is these days and kind of what 389 00:18:45,040 --> 00:18:47,080 Speaker 3: are your expectations here for twenty twenty four. 390 00:18:48,400 --> 00:18:50,000 Speaker 6: So as long as the job market, i mean, Joe 391 00:18:50,040 --> 00:18:51,960 Speaker 6: market is actually that it's all going to be going 392 00:18:52,000 --> 00:18:54,159 Speaker 6: down with the job market and job in labor demand, 393 00:18:55,280 --> 00:18:57,919 Speaker 6: you know, job growth has certainly cooled from you know, 394 00:18:58,040 --> 00:18:59,720 Speaker 6: do you remember that one month which with over five 395 00:18:59,720 --> 00:19:02,480 Speaker 6: hundred thousand jobs, which is obviously not sustainable. So we're 396 00:19:02,520 --> 00:19:05,560 Speaker 6: going down to a slower pace of job growth, which 397 00:19:05,600 --> 00:19:07,640 Speaker 6: is okay. We've got the job list rate still picking 398 00:19:07,720 --> 00:19:09,520 Speaker 6: up at three point seven percent, I think is the 399 00:19:09,600 --> 00:19:12,520 Speaker 6: last figure that we've had. We do have an inching higher. 400 00:19:12,840 --> 00:19:16,600 Speaker 6: But overall, as long as you know, broader demand for labor, 401 00:19:16,600 --> 00:19:19,919 Speaker 6: it remains strong. Consumers or workers continue to receive a 402 00:19:20,000 --> 00:19:23,399 Speaker 6: decent wage, you know, to maintain their standards of living. 403 00:19:23,960 --> 00:19:26,040 Speaker 6: Putting some aside for a rainy day, as I always say, 404 00:19:26,119 --> 00:19:28,119 Speaker 6: is not a bad thing. That is what keeps the 405 00:19:28,160 --> 00:19:30,520 Speaker 6: consumer moving forward. Of course, whether or not they're going 406 00:19:30,560 --> 00:19:33,600 Speaker 6: to be resisting some of these price heights is. 407 00:19:33,520 --> 00:19:34,440 Speaker 7: Another story again. 408 00:19:34,480 --> 00:19:36,399 Speaker 6: But you know, as long as they have something in 409 00:19:36,440 --> 00:19:38,840 Speaker 6: the bank, something tucked away for a rainy day, I 410 00:19:38,880 --> 00:19:41,960 Speaker 6: think it keeps them in a very good position, all. 411 00:19:41,920 --> 00:19:44,879 Speaker 3: Right, given that, I mean a solid backdrop for the 412 00:19:45,080 --> 00:19:48,520 Speaker 3: US economy, not the same for China, and boy, if 413 00:19:48,520 --> 00:19:51,200 Speaker 3: we were just flash you know, rewind a year ago, 414 00:19:51,760 --> 00:19:54,400 Speaker 3: everybody's twenty twenty three outlook was kind of predicated upon 415 00:19:54,600 --> 00:19:57,480 Speaker 3: a strong rebound in China and that did not take place. 416 00:19:58,080 --> 00:20:01,240 Speaker 3: What's your read of what's going on there now and 417 00:20:01,720 --> 00:20:03,440 Speaker 3: kind of how we should think about China over the 418 00:20:03,480 --> 00:20:04,840 Speaker 3: next twelve eighteen months. 419 00:20:05,640 --> 00:20:07,400 Speaker 6: So a year ago, this is when they were first 420 00:20:07,440 --> 00:20:09,400 Speaker 6: coming out of that lockdown, so it looked like they're 421 00:20:09,440 --> 00:20:11,160 Speaker 6: like the savior to the world with that really strong 422 00:20:11,160 --> 00:20:12,920 Speaker 6: and I can't remember what the number was, key one 423 00:20:12,960 --> 00:20:15,560 Speaker 6: GDP growth figure, and of course everything fizzled even before 424 00:20:15,600 --> 00:20:17,120 Speaker 6: the first quarter came to an end. 425 00:20:17,640 --> 00:20:20,160 Speaker 7: But it all boils down to, you know, a very 426 00:20:20,560 --> 00:20:21,720 Speaker 7: weak property market. 427 00:20:21,760 --> 00:20:23,600 Speaker 6: You know, it's no longer we're not seeing that scene 428 00:20:23,680 --> 00:20:27,800 Speaker 6: kind of housing demands. Everything was overbuilt, so that the 429 00:20:27,800 --> 00:20:31,280 Speaker 6: property market itself accounts for the biggest part of the 430 00:20:31,359 --> 00:20:34,399 Speaker 6: China's for Chinese consumers or households wealth. 431 00:20:34,480 --> 00:20:36,760 Speaker 7: So when you see your property. 432 00:20:36,440 --> 00:20:40,200 Speaker 6: Losing value quickly, you know it's it hits confidence, it 433 00:20:40,280 --> 00:20:43,720 Speaker 6: hits Chinese consumer spending, and that of course will hit 434 00:20:43,800 --> 00:20:47,160 Speaker 6: business's ability to raise prices. So you're seeing that deflation there. 435 00:20:47,320 --> 00:20:49,480 Speaker 6: So that's what the hardest part, that's what they're trying 436 00:20:49,480 --> 00:20:52,439 Speaker 6: to overcome. They're also have major labor issues. You know, 437 00:20:52,520 --> 00:20:56,520 Speaker 6: it's they're not only losing in numbers, but in age 438 00:20:56,560 --> 00:21:00,640 Speaker 6: as well, rising age. The everyone's getting older. We saw 439 00:21:00,720 --> 00:21:02,440 Speaker 6: last week about how it was at The birth rate 440 00:21:03,200 --> 00:21:05,720 Speaker 6: was at the lowest ever. You know, the death rate 441 00:21:05,800 --> 00:21:08,800 Speaker 6: rose to its highest since nineteen seventy four. Those aren't 442 00:21:08,800 --> 00:21:10,960 Speaker 6: good stats and that's actually the population. 443 00:21:10,600 --> 00:21:14,160 Speaker 1: Show is very disturbing, and this is really good analysis. 444 00:21:14,240 --> 00:21:17,960 Speaker 1: Jennifer Lee. Then what is your run rate? Almost like 445 00:21:18,080 --> 00:21:22,679 Speaker 1: potential GDP of China? Totally unfair question. Nobody has a clue, 446 00:21:23,160 --> 00:21:25,600 Speaker 1: But are you going to frame out potential GDP that 447 00:21:25,760 --> 00:21:28,879 Speaker 1: used to be seven eight nine percent is now below 448 00:21:29,000 --> 00:21:29,840 Speaker 1: five percent? 449 00:21:31,000 --> 00:21:32,720 Speaker 7: So we've got the right question. 450 00:21:32,960 --> 00:21:34,399 Speaker 6: What we have the next couple of years, like this 451 00:21:34,480 --> 00:21:36,280 Speaker 6: year and next year at about roughly four and a 452 00:21:36,320 --> 00:21:38,920 Speaker 6: half percent. You know, whatever their growth target is, you 453 00:21:38,960 --> 00:21:41,480 Speaker 6: know right now it's around five percent. You know that 454 00:21:41,520 --> 00:21:43,000 Speaker 6: they met it last year. But you know, it looks 455 00:21:43,040 --> 00:21:44,760 Speaker 6: like whatever the target is going to be, if they're 456 00:21:44,800 --> 00:21:46,840 Speaker 6: going to have a target this year, is probably going 457 00:21:46,880 --> 00:21:48,800 Speaker 6: to be below that, like I said, around four and 458 00:21:48,840 --> 00:21:50,760 Speaker 6: a half percent. So this is why they're trying to, 459 00:21:51,400 --> 00:21:53,199 Speaker 6: you know, work on their their up and coming I 460 00:21:53,200 --> 00:21:54,520 Speaker 6: think they're calling it the New three. 461 00:21:54,800 --> 00:21:55,600 Speaker 7: I read that somewhere. 462 00:21:55,760 --> 00:22:00,479 Speaker 6: You've got evs of course AI as well, and of 463 00:22:01,080 --> 00:22:04,680 Speaker 6: the renewal of energies, energy sources. That that's what they're 464 00:22:04,680 --> 00:22:07,160 Speaker 6: trying to build up. Small part of the overall Chinese economy, 465 00:22:07,359 --> 00:22:09,600 Speaker 6: but that's what they're trying to you know, create and 466 00:22:09,640 --> 00:22:11,480 Speaker 6: to and to rely more on. And plus is it's 467 00:22:11,520 --> 00:22:15,560 Speaker 6: all also very much less labor intensive than what there's 468 00:22:15,600 --> 00:22:17,960 Speaker 6: there their strong sectors were in the past. 469 00:22:18,119 --> 00:22:19,760 Speaker 7: So this is what they're trying to work on. 470 00:22:19,840 --> 00:22:21,680 Speaker 6: And then you know, at some point, you know there 471 00:22:21,720 --> 00:22:23,080 Speaker 6: it's going to be you know, a big a bigger 472 00:22:23,160 --> 00:22:25,000 Speaker 6: driver I think of the overall Chinese economy. 473 00:22:25,240 --> 00:22:27,840 Speaker 3: All right, So if China is sub five percent growth 474 00:22:27,840 --> 00:22:31,639 Speaker 3: and we've got economic weakness in Europe, particularly in Germany, 475 00:22:31,640 --> 00:22:35,160 Speaker 3: as Tom's mentioning here, it just makes the US look 476 00:22:35,200 --> 00:22:38,040 Speaker 3: that much more, I don't know, unusually strong. I guess, 477 00:22:38,080 --> 00:22:41,360 Speaker 3: how do you think about the US relative to other 478 00:22:41,440 --> 00:22:43,520 Speaker 3: parts of the world. How unusual is that for the 479 00:22:44,240 --> 00:22:46,080 Speaker 3: US to be such an I guess, an outlier if 480 00:22:46,080 --> 00:22:46,360 Speaker 3: you will. 481 00:22:47,960 --> 00:22:50,720 Speaker 6: I don't know they'd bee hundred fully hundred percent unusual, 482 00:22:50,760 --> 00:22:53,040 Speaker 6: But I mean, right now, it's it's certainly looking like 483 00:22:53,359 --> 00:22:55,760 Speaker 6: it is the you know, the uh, the one big 484 00:22:55,840 --> 00:22:59,159 Speaker 6: driver and the one big bright light in this whole 485 00:22:59,200 --> 00:23:01,439 Speaker 6: in the world. I mean, everyone else is still growing, 486 00:23:01,480 --> 00:23:04,400 Speaker 6: but it's just not as strong as the US dollar. 487 00:23:04,400 --> 00:23:05,760 Speaker 6: And this is why I'm just going to switch this 488 00:23:05,800 --> 00:23:07,600 Speaker 6: a little bit to on the currency front. This is 489 00:23:07,600 --> 00:23:09,000 Speaker 6: you know, when we're trying to look at our currencies. 490 00:23:09,000 --> 00:23:10,240 Speaker 6: You know, we're all we've been calling for a week 491 00:23:10,320 --> 00:23:12,680 Speaker 6: or US dollar for some time now, just as the 492 00:23:12,720 --> 00:23:14,919 Speaker 6: FED starts to cut rates. But I think that, you know, 493 00:23:15,640 --> 00:23:17,840 Speaker 6: as long as it's all about perception, the global perception 494 00:23:17,920 --> 00:23:18,840 Speaker 6: of the US economy. 495 00:23:18,960 --> 00:23:19,480 Speaker 7: If the US. 496 00:23:19,440 --> 00:23:22,040 Speaker 6: Economy is slowing but still perceived to be a lot 497 00:23:22,080 --> 00:23:24,159 Speaker 6: stronger than what we're seeing in Germany, for example, and 498 00:23:24,240 --> 00:23:26,840 Speaker 6: in China, it's going to still keep them, you know, 499 00:23:26,960 --> 00:23:29,159 Speaker 6: some strength behind the US dollar. It won't weaken as 500 00:23:29,240 --> 00:23:31,760 Speaker 6: much as you know, as one would assume in a 501 00:23:31,800 --> 00:23:33,919 Speaker 6: period of FED rate cuts, which we're looking forward to 502 00:23:33,920 --> 00:23:35,600 Speaker 6: start in the second half of this year. 503 00:23:35,880 --> 00:23:38,840 Speaker 1: Jennifer Lee, thank you so much. In your free time 504 00:23:38,880 --> 00:23:41,280 Speaker 1: at the Bank of Montreal, would you think some Montreal 505 00:23:41,320 --> 00:23:54,919 Speaker 1: Canadians this is an important interview because there's a lot 506 00:23:55,000 --> 00:23:57,560 Speaker 1: of people out there saying move away from the Magnificent seven, 507 00:23:58,160 --> 00:24:00,280 Speaker 1: and one of the places to diversify into is mid 508 00:24:00,320 --> 00:24:04,000 Speaker 1: caps and small caps. She's truly expertise on this with 509 00:24:04,160 --> 00:24:08,280 Speaker 1: RBC Marcus Lori Calvacina owns a high ground as well. 510 00:24:08,880 --> 00:24:11,560 Speaker 1: It's been a pretty good couple months from mid caps 511 00:24:11,600 --> 00:24:14,240 Speaker 1: and small caps, Lorii, hasn't it? 512 00:24:14,240 --> 00:24:16,560 Speaker 8: It has? You know, we've gone from when I go 513 00:24:16,600 --> 00:24:20,120 Speaker 8: into meetings, my salespeople sort of whispering, Hey, Lourie, this 514 00:24:20,160 --> 00:24:22,240 Speaker 8: is a large cap person. Don't talk about small caps 515 00:24:22,280 --> 00:24:25,200 Speaker 8: to literally every meeting in the first you know, five 516 00:24:25,280 --> 00:24:27,840 Speaker 8: ten minutes doesn't matter if your large caps, small cap, 517 00:24:27,880 --> 00:24:30,720 Speaker 8: growth value, hedge, fun long only everyone wants to talk 518 00:24:30,720 --> 00:24:32,080 Speaker 8: about them. I got a little crowded. 519 00:24:32,119 --> 00:24:34,760 Speaker 1: Yeah, Are there a Magnificent seven in mid caps or 520 00:24:34,840 --> 00:24:37,600 Speaker 1: dare I say small caps as well? Are there is 521 00:24:37,680 --> 00:24:39,320 Speaker 1: like a focused overweight? 522 00:24:40,960 --> 00:24:43,760 Speaker 8: It's a great question. I would say quality is the 523 00:24:43,800 --> 00:24:46,880 Speaker 8: thing that you always hear day in day out, year 524 00:24:46,920 --> 00:24:49,720 Speaker 8: in year out, that small cap pms are never going 525 00:24:49,760 --> 00:24:52,800 Speaker 8: to really gravitate away from, and so you do tend 526 00:24:52,840 --> 00:24:54,840 Speaker 8: to see certain names at the top of the Russell 527 00:24:54,880 --> 00:24:57,920 Speaker 8: two thousand get concentrated. That's something though, I mean, we've 528 00:24:57,960 --> 00:25:00,520 Speaker 8: been seeing that for a decade or at least, and 529 00:25:01,040 --> 00:25:03,440 Speaker 8: you know, we don't see it nearly to the same extent. 530 00:25:03,560 --> 00:25:06,679 Speaker 8: Even the crowded stocks in small calf there's still you know, 531 00:25:06,720 --> 00:25:09,240 Speaker 8: a lot of diversification among what manager's own relative to 532 00:25:09,280 --> 00:25:10,560 Speaker 8: what you see in the big cap space. 533 00:25:11,160 --> 00:25:14,120 Speaker 3: See but Laurie, I just don't buy the small cap thing. 534 00:25:14,119 --> 00:25:16,480 Speaker 3: I've just been burned so many times. Investors have been 535 00:25:16,480 --> 00:25:19,640 Speaker 3: burned so many times over the last twenty years. Here, 536 00:25:20,000 --> 00:25:21,720 Speaker 3: how do you think about the small to mid cap 537 00:25:22,440 --> 00:25:24,000 Speaker 3: universe these days? 538 00:25:25,080 --> 00:25:27,200 Speaker 8: So it is getting jerked around a lot more by 539 00:25:27,200 --> 00:25:29,639 Speaker 8: ETFs and passive money than it has in the past. 540 00:25:29,720 --> 00:25:31,720 Speaker 8: And so that's why I think that we are seeing 541 00:25:32,119 --> 00:25:34,439 Speaker 8: very wild swings. And you know, we do see the 542 00:25:34,440 --> 00:25:38,359 Speaker 8: hedge fund community in particular try to make trades. You 543 00:25:38,400 --> 00:25:40,240 Speaker 8: often will see it when there's you know, sort of 544 00:25:40,240 --> 00:25:43,600 Speaker 8: a domestic focus focus trade that they want to do. 545 00:25:43,720 --> 00:25:46,479 Speaker 8: Trump's tax cuts back in twenty sixteen caught a lot 546 00:25:46,520 --> 00:25:49,399 Speaker 8: of you know, small cap eyeballs. But I think what 547 00:25:49,520 --> 00:25:52,399 Speaker 8: really did it this last time around was FED cuts. 548 00:25:52,680 --> 00:25:55,480 Speaker 8: And we've been telling people all last year. When people 549 00:25:55,520 --> 00:25:58,000 Speaker 8: got ready to put on their FED rate cut playbooks, 550 00:25:58,040 --> 00:25:59,720 Speaker 8: small caps were one of the first places they were 551 00:25:59,760 --> 00:26:02,880 Speaker 8: going to. They were cheap, they were under owned, and 552 00:26:03,040 --> 00:26:06,440 Speaker 8: they typically outperform when the FED starts to ease. And 553 00:26:06,520 --> 00:26:09,080 Speaker 8: so sure enough, when ten year treasury yields peaked back 554 00:26:09,119 --> 00:26:13,359 Speaker 8: in October, we saw really sentiment change. People were less, 555 00:26:13,480 --> 00:26:15,080 Speaker 8: you know, had less of a desire to sort of 556 00:26:15,080 --> 00:26:18,000 Speaker 8: cling to the pristine balance sheets and move back into 557 00:26:18,000 --> 00:26:19,480 Speaker 8: small caps. And by the way, a lot of small 558 00:26:19,480 --> 00:26:21,879 Speaker 8: cap companies have been out telling investors, hey, our balance 559 00:26:21,880 --> 00:26:23,959 Speaker 8: sheets are not nearly as bad as feared. So it 560 00:26:23,960 --> 00:26:26,520 Speaker 8: really just set up for a really awesome trade. Unfortunately, 561 00:26:26,560 --> 00:26:28,239 Speaker 8: it just got consensus at the end of the year. 562 00:26:28,280 --> 00:26:30,639 Speaker 8: That doesn't mean there's not still opportunity there, but I 563 00:26:30,680 --> 00:26:33,200 Speaker 8: think you need something more than an interest rate trade 564 00:26:33,200 --> 00:26:33,879 Speaker 8: to keep it going. 565 00:26:34,520 --> 00:26:37,720 Speaker 3: So how about earnings. I'm an old equity analyst. Earnings 566 00:26:37,760 --> 00:26:38,560 Speaker 3: still matter to me. 567 00:26:39,680 --> 00:26:39,879 Speaker 4: You know. 568 00:26:39,920 --> 00:26:42,439 Speaker 3: We still have SMP looking about I don't know, eleven 569 00:26:42,440 --> 00:26:44,600 Speaker 3: twelve percent earnings growth in twenty twenty four. How do 570 00:26:44,640 --> 00:26:46,400 Speaker 3: you feel about that? What's your comfort level? 571 00:26:47,560 --> 00:26:50,119 Speaker 8: So with when we're looking at the large caps space, specifically, 572 00:26:50,200 --> 00:26:52,240 Speaker 8: we're looking for something more like four to five percent 573 00:26:52,280 --> 00:26:55,359 Speaker 8: earnings growth this year, and that's not to say that 574 00:26:55,400 --> 00:26:56,879 Speaker 8: I think the year is going to be a disaster. 575 00:26:56,960 --> 00:26:58,960 Speaker 8: We still have fifty one to fifty target on the SMP. 576 00:26:59,160 --> 00:27:01,199 Speaker 8: We think multiples and expand a little bit more. That's 577 00:27:01,240 --> 00:27:03,679 Speaker 8: a whole separate discussion, but I do think when you 578 00:27:03,680 --> 00:27:06,080 Speaker 8: look at that eleven percent that's embedded in the market 579 00:27:06,080 --> 00:27:08,199 Speaker 8: for earnings growth in the S and P. You look 580 00:27:08,240 --> 00:27:11,040 Speaker 8: across every sector pretty much, you know, every single one, 581 00:27:11,080 --> 00:27:14,760 Speaker 8: you see pretty robust margin expansion baked into consensus worcasts. 582 00:27:15,119 --> 00:27:17,639 Speaker 8: And as I was talking to non US investors in 583 00:27:17,680 --> 00:27:19,880 Speaker 8: particular coming into the new year, there was a lot 584 00:27:19,920 --> 00:27:24,040 Speaker 8: of skepticism that those lofty profit margin expansion expectations were 585 00:27:24,080 --> 00:27:25,679 Speaker 8: going to come to fruition. And I tell you I 586 00:27:25,760 --> 00:27:28,920 Speaker 8: share that concern. I'm modeling basically flat margins versus twenty 587 00:27:28,920 --> 00:27:30,880 Speaker 8: twenty two. In our model, what do. 588 00:27:30,840 --> 00:27:34,040 Speaker 1: They do on a nominal GDP basis? Do they outperform 589 00:27:34,160 --> 00:27:37,480 Speaker 1: or is the big companies so growthy they actually get 590 00:27:37,480 --> 00:27:38,639 Speaker 1: a better revenue pup. 591 00:27:40,040 --> 00:27:41,800 Speaker 8: So, you know, it's interesting. I haven't looked at the 592 00:27:41,840 --> 00:27:45,480 Speaker 8: revenues too closely. I do think that large those you know, 593 00:27:45,520 --> 00:27:49,199 Speaker 8: kind of bigger cap companies, they have much bigger cash piles, 594 00:27:49,200 --> 00:27:51,160 Speaker 8: so I'm guessing that there's you know, sort of more 595 00:27:51,160 --> 00:27:54,520 Speaker 8: buffer from that in terms of interest income. They've also 596 00:27:54,600 --> 00:27:56,680 Speaker 8: just had much cleaner balance sheees in general, so there's 597 00:27:56,760 --> 00:28:00,159 Speaker 8: less interest expense as well. But I do think, you know, 598 00:28:00,400 --> 00:28:03,080 Speaker 8: the concept of motes is something that we always hear 599 00:28:03,160 --> 00:28:04,760 Speaker 8: quite a lot about, and I think that is a 600 00:28:04,840 --> 00:28:07,320 Speaker 8: very real consideration. But I'll tell you our chart of 601 00:28:07,320 --> 00:28:09,240 Speaker 8: the week this week, and our weekly was actually looking 602 00:28:09,280 --> 00:28:12,000 Speaker 8: at the forecasts for earnings growth in the top seven 603 00:28:12,480 --> 00:28:13,879 Speaker 8: versus the rest of the S and P, and we 604 00:28:13,920 --> 00:28:16,159 Speaker 8: pulled this data from Bloomberg. It's on the terminal was 605 00:28:16,280 --> 00:28:20,560 Speaker 8: this were not my numbers, and it was remarkable to 606 00:28:20,600 --> 00:28:23,159 Speaker 8: me that that gap between the top seven and the 607 00:28:23,200 --> 00:28:25,639 Speaker 8: rest of the S and P it's still there, but 608 00:28:25,680 --> 00:28:27,560 Speaker 8: it's shrinking over the next few years. And I'm really 609 00:28:27,600 --> 00:28:29,480 Speaker 8: excited to take this chart out on the road and 610 00:28:29,560 --> 00:28:31,920 Speaker 8: really understand how investors are going to react to that, 611 00:28:31,920 --> 00:28:35,840 Speaker 8: that kind of shrinking earnings buffer. I'm not quite sure 612 00:28:35,840 --> 00:28:36,919 Speaker 8: what people are going to make of it, and it's 613 00:28:36,920 --> 00:28:38,880 Speaker 8: gonna be interesting to see if people view it as hey, 614 00:28:38,960 --> 00:28:42,560 Speaker 8: you know, it's a tailwind that's dissipating, or it's still stronger. 615 00:28:42,600 --> 00:28:43,240 Speaker 8: We just don't care. 616 00:28:43,600 --> 00:28:45,120 Speaker 3: So when you do go out on the road, lord 617 00:28:45,360 --> 00:28:47,800 Speaker 3: and you talk to institutional investor clients, here, are you 618 00:28:47,840 --> 00:28:50,440 Speaker 3: getting the sense that maybe they felt like they missed 619 00:28:50,440 --> 00:28:51,880 Speaker 3: out on that big move at the end of the 620 00:28:51,960 --> 00:28:53,960 Speaker 3: year and so they're playing ketchup here or are they 621 00:28:54,320 --> 00:28:57,480 Speaker 3: trying to find some value where we are they looking 622 00:28:57,520 --> 00:28:58,160 Speaker 3: these days? 623 00:28:59,040 --> 00:29:01,320 Speaker 8: So you know, I think that if you look at 624 00:29:01,320 --> 00:29:03,280 Speaker 8: the top seven versus the rest of the market, I 625 00:29:03,280 --> 00:29:05,520 Speaker 8: think there were two camps last year really around mid year. 626 00:29:05,560 --> 00:29:07,880 Speaker 8: There were people who were big believers in AI, big 627 00:29:07,920 --> 00:29:11,240 Speaker 8: believers in these companies, and nothing you could say was 628 00:29:11,280 --> 00:29:12,840 Speaker 8: going to change their minds. And then there was sort 629 00:29:12,840 --> 00:29:14,800 Speaker 8: of the rest of the market who hadn't gone as 630 00:29:14,840 --> 00:29:18,680 Speaker 8: all in and they were skeptics, and that skepticism hasn't 631 00:29:18,720 --> 00:29:21,040 Speaker 8: really changed. So I think that ladder camp has really 632 00:29:21,040 --> 00:29:24,600 Speaker 8: been waiting in the wings for the market rotation to happen, 633 00:29:24,680 --> 00:29:27,000 Speaker 8: and so I think they've actually been pretty excited. I mean, 634 00:29:27,000 --> 00:29:28,760 Speaker 8: they're sort of in my camp. A lot of people 635 00:29:28,800 --> 00:29:30,760 Speaker 8: that maybe we ran a little too far in four 636 00:29:30,880 --> 00:29:32,240 Speaker 8: Q and we've got to give some of it back 637 00:29:32,280 --> 00:29:34,320 Speaker 8: before we can move forward. That doesn't seem to instill 638 00:29:34,360 --> 00:29:37,160 Speaker 8: panic in this camp. They just think that it may 639 00:29:37,200 --> 00:29:39,000 Speaker 8: take a little bit more time. And one of the 640 00:29:39,000 --> 00:29:41,840 Speaker 8: things I've told them is, if you look when GDP 641 00:29:42,000 --> 00:29:45,120 Speaker 8: is above or below average. When it's below average, large 642 00:29:45,120 --> 00:29:47,200 Speaker 8: cap and growth tend to outperform. And that's been the 643 00:29:47,320 --> 00:29:49,640 Speaker 8: environment people have thought we were in for a long time. 644 00:29:49,920 --> 00:29:52,440 Speaker 8: But GDP forecasts are moving up. So if we start 645 00:29:52,440 --> 00:29:55,440 Speaker 8: to see GDP move above average and averages about two 646 00:29:55,440 --> 00:29:58,200 Speaker 8: and a half percent, that could really unleash a second 647 00:29:58,280 --> 00:30:01,000 Speaker 8: act of small cap and value out for pformans or broadening, 648 00:30:01,040 --> 00:30:02,880 Speaker 8: you know, was probably the catch all between the two. 649 00:30:03,040 --> 00:30:05,160 Speaker 3: Laurie, can you explain to our audience what it means 650 00:30:05,240 --> 00:30:08,520 Speaker 3: to live on the lawn at the University of Virginia. 651 00:30:09,440 --> 00:30:12,240 Speaker 8: It means that you It means that your classmates see 652 00:30:12,280 --> 00:30:15,160 Speaker 8: you at your bathrobe and random times of day. It's 653 00:30:15,200 --> 00:30:17,080 Speaker 8: basically when I was there, it was it was the 654 00:30:17,200 --> 00:30:19,360 Speaker 8: university's highest honor. I want to say there were maybe 655 00:30:19,480 --> 00:30:22,080 Speaker 8: fifty some out of us you who got chosen every 656 00:30:22,160 --> 00:30:25,800 Speaker 8: year because of extracurriculars, service to the university and academics 657 00:30:26,080 --> 00:30:27,760 Speaker 8: to live there. And it was a committee of peers 658 00:30:27,760 --> 00:30:30,440 Speaker 8: that would select you and it was really just your 659 00:30:30,440 --> 00:30:33,320 Speaker 8: overall contribution to the university that you got recognized for. 660 00:30:33,400 --> 00:30:35,000 Speaker 8: And I was privileged enough to live there in my 661 00:30:35,040 --> 00:30:37,040 Speaker 8: fourth year. One of the best experiences of my life. 662 00:30:37,080 --> 00:30:38,600 Speaker 8: I met some amazing people. 663 00:30:38,480 --> 00:30:41,640 Speaker 1: Absolutely amazing, Absolutely thanks for asking them if Paul, it's 664 00:30:41,640 --> 00:30:43,520 Speaker 1: great as I was given a speech at Darden and 665 00:30:43,680 --> 00:30:45,040 Speaker 1: you know, you gotta walk over there. It's like a 666 00:30:45,080 --> 00:30:45,640 Speaker 1: movie set. 667 00:30:45,680 --> 00:30:46,080 Speaker 3: Yeah, I know. 668 00:30:46,280 --> 00:30:49,120 Speaker 1: And I walked by Glorie's dorm, you know, her halts 669 00:30:49,160 --> 00:30:51,800 Speaker 1: these little idioty doors right in the grass. There's two 670 00:30:51,800 --> 00:30:56,200 Speaker 1: cases of corus light. Yeah, Laurie was killing it. Lauren 671 00:30:56,240 --> 00:31:01,280 Speaker 1: Kelvisina the University of Virginia. Also with the acquaintance with RBC. 672 00:31:01,960 --> 00:31:05,200 Speaker 1: This is the Bloomberg Surveillance podcast, bringing you the best 673 00:31:05,200 --> 00:31:09,960 Speaker 1: in economics, finance, investment, and international relations. You can also 674 00:31:10,040 --> 00:31:14,080 Speaker 1: watch the show live on YouTube. Visit the Bloomberg Podcast 675 00:31:14,200 --> 00:31:18,200 Speaker 1: channel on YouTube to see the show weekday mornings from 676 00:31:18,280 --> 00:31:21,520 Speaker 1: seven to ten am Eastern from our global headquarters in 677 00:31:21,640 --> 00:31:25,320 Speaker 1: New York City. Subscribe to the podcast on Apple, Spotify, 678 00:31:25,680 --> 00:31:29,240 Speaker 1: or anywhere else you listen, and always on Bloomberg Radio, 679 00:31:29,400 --> 00:31:32,600 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app.