WEBVTT - Surveillance: Purchasing Power with Meyer 0:00:05.120 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.320 with Jonathan Farrell and Lisa Abramowitz joined us each day 0:00:12.360 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.239 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.479 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.600 --> 0:00:30.440 the Bloomberg Terminal, and the Bloomberg Business app. This is 0:00:30.440 --> 0:00:34.200 a joy. Michelle Meyer I was discovered with her expertise 0:00:34.240 --> 0:00:37.560 on the consumer and housing a number of years ago. 0:00:37.880 --> 0:00:41.000 She had a sterling career with Global Wall Street and 0:00:41.040 --> 0:00:44.800 now gives us an information knowledge with their economics that 0:00:44.880 --> 0:00:49.480 you can only get at MasterCard. With the MasterCard Economics Institute. 0:00:49.760 --> 0:00:53.959 Chief US Consumer expert, Michelle Meyer joins us this morning. Michelle, 0:00:54.000 --> 0:00:57.000 you get the data like no other market economist in 0:00:57.040 --> 0:01:03.280 the game. What is the state of the American consumer? Um? Yeah, Tom, So, 0:01:03.400 --> 0:01:06.960 we are absolutely looking at the consumer with a high 0:01:07.080 --> 0:01:09.880 level of detail, and what we're seeing, and what we 0:01:10.040 --> 0:01:12.959 have been seeing for a while, is that the consumer 0:01:13.120 --> 0:01:16.320 is out there, able and willing to spend. And this 0:01:16.360 --> 0:01:19.119 speaks to the inflation data. It speaks to the labor 0:01:19.160 --> 0:01:22.880 market data that the consumer still has purchasing power. Right 0:01:23.040 --> 0:01:26.120 you have a labor market that's still expanding. Income growth 0:01:26.280 --> 0:01:29.920 is out there, aggregate income growth in particular, there's still 0:01:29.959 --> 0:01:33.399 some savings buffer and there's still access to expand um 0:01:33.440 --> 0:01:39.240 the balance sheet. So to underestimate consumer has been um 0:01:39.280 --> 0:01:43.080 you know, has been a problem without without getting into 0:01:43.120 --> 0:01:46.960 the Vatican secrets. Are you seeing massive credit card usage? 0:01:47.080 --> 0:01:50.840 And how do the higher interest rates of credit cards 0:01:51.200 --> 0:01:55.400 fold into your optimism on the consumer. Look, what we're 0:01:55.400 --> 0:01:57.960 saying about the consumer is that they are using all 0:01:58.000 --> 0:02:00.440 of their sources of purchasing power, and the news is 0:02:00.480 --> 0:02:02.680 that they still have a lot of purchasing power coming 0:02:02.760 --> 0:02:05.919 from the labor market from job creation. So at the moment, 0:02:06.040 --> 0:02:08.079 you still have a lot of income flowing in a 0:02:08.160 --> 0:02:11.760 disposable income which is supporting that spending in real time, 0:02:12.160 --> 0:02:15.400 so consumers don't necessarily have to rely as much on 0:02:15.440 --> 0:02:18.280 other sources. It's not as though the consumer is strained 0:02:18.400 --> 0:02:21.000 right now. They're doing a really good job being able 0:02:21.040 --> 0:02:23.480 to navigate what has been for the last year some 0:02:23.520 --> 0:02:27.079 pretty high prices um and that is what fuel the 0:02:27.120 --> 0:02:31.079 inflationary numbers that we have seen all throughout last year UM. 0:02:31.080 --> 0:02:33.640 But yes, the consumer of course is utilized savings. The 0:02:33.639 --> 0:02:37.639 consumer of course has um increased credit card used as well. 0:02:37.760 --> 0:02:40.080 You've seen, you know, from the Federal Reserve G nineteen 0:02:40.160 --> 0:02:43.440 data UM revolving credit outstanding has been on the rise 0:02:43.680 --> 0:02:48.000 after the post pandemic period where consumers paid down their debt. Michelle, 0:02:48.000 --> 0:02:49.880 I'm looking right now. We just got a number of 0:02:50.240 --> 0:02:53.240 data points from the United States government and the markets 0:02:53.240 --> 0:02:55.160 are slow to respond, but they are starting to respond 0:02:55.200 --> 0:02:58.000 a bit more. You see the naztack down now near 0:02:58.040 --> 0:03:01.240 session lows around down one per and ahead of the open. 0:03:01.840 --> 0:03:04.480 Do you get the sense that people have bought into 0:03:04.480 --> 0:03:07.680 the disinflation story too much that we could see even 0:03:07.760 --> 0:03:12.160 another bout of reinflation that sends cp I even higher. 0:03:13.600 --> 0:03:16.680 So to me that the useful way of looking at 0:03:16.760 --> 0:03:20.200 inflation is to understand the different drivers of inflation. So 0:03:20.240 --> 0:03:24.080 the good news on the disinflationary storyline is that the 0:03:24.120 --> 0:03:28.920 supply side has really um come back, right. You've seen this, 0:03:28.919 --> 0:03:32.720 this repair of supply chains. You've seen the restocking of retailers. 0:03:32.720 --> 0:03:36.560 So inventory levels are back to normal and retailers have 0:03:36.640 --> 0:03:39.080 been able to return to just in time. Inventories which 0:03:39.120 --> 0:03:43.000 makes UM pricing much easier, much more transparent, and during 0:03:43.040 --> 0:03:46.440 the holiday season we did see UM consumers enjoy a 0:03:46.440 --> 0:03:49.520 lot more promotions and discounts. So on the good side 0:03:49.600 --> 0:03:52.880 of the equation, I do think there is a disinflationary 0:03:52.960 --> 0:03:56.120 story UM for services, which is going to be more 0:03:56.160 --> 0:03:59.839 tied particularly the super core which takes out housing, UM 0:04:00.080 --> 0:04:01.880 is going to be more tied to the labor market, 0:04:02.000 --> 0:04:04.200 and there we know there's still some wage pressure, we 0:04:04.240 --> 0:04:07.080 know there's still a lot more stickiness. So that's just 0:04:07.120 --> 0:04:09.440 gonna take time. So I do think it's really important 0:04:09.480 --> 0:04:12.080 when you're looking at inflation is to be able to 0:04:12.440 --> 0:04:16.120 separate the different parts of the inflation narrative based off 0:04:16.160 --> 0:04:19.080 of those drivers of inflation. So I don't think the 0:04:19.120 --> 0:04:22.440 disinflationary story is over, but we have to be aware 0:04:22.640 --> 0:04:25.680 that it's going to take time. So what's your sense 0:04:25.800 --> 0:04:27.840 of where the market is wrong. I'm looking right now 0:04:28.000 --> 0:04:29.839 to your break even, So are close to two point 0:04:29.920 --> 0:04:31.960 nine percent that in two years from now you're going 0:04:32.000 --> 0:04:35.440 to get a three percent essentially inflation? Right? Is that rate? 0:04:35.520 --> 0:04:38.080 Is that bang in line with your expectations based on 0:04:38.120 --> 0:04:41.080 the consumer spending and the consumer spending power that you 0:04:41.120 --> 0:04:44.640 see in the granular data. I think over that time 0:04:44.640 --> 0:04:48.320 frame that does seem pretty reasonable because if again, if 0:04:48.360 --> 0:04:52.400 you think about the core goods components prior to the pandemic, 0:04:52.440 --> 0:04:56.640 those were deflationary components. They were seeing price reductions, and 0:04:56.680 --> 0:04:59.599 then you have this dramatic increase in the level of 0:04:59.640 --> 0:05:02.760 price this which does not seem sustainable. So a mean 0:05:02.880 --> 0:05:05.240 reversion back to more normal levels or more of a 0:05:05.400 --> 0:05:09.400 of a disinflationary tendency for those categories seems right. And 0:05:09.400 --> 0:05:11.359 the labor market, we know is not going to be 0:05:11.360 --> 0:05:13.880 able to continue at this rate forever. And the FED 0:05:14.200 --> 0:05:17.200 is committed to cooling down the labor market. So if 0:05:17.240 --> 0:05:19.760 you believe in the Fed's resolve, which I think we should, 0:05:19.839 --> 0:05:23.680 and they're communicating that we should, then yes, inflation should 0:05:23.760 --> 0:05:26.280 ultimately come down. It's just going to take time. This 0:05:26.360 --> 0:05:29.080 whole cycle is taking time, and that's what we have 0:05:29.160 --> 0:05:31.479 to remember. Mishelle Mayer has been too long. Thank you 0:05:31.520 --> 0:05:44.560 so much MasterCard Economics with us at this morning pit 0:05:44.640 --> 0:05:47.600 a cheer, good morning to you, get to see you. 0:05:47.800 --> 0:05:51.920 The head of Actress Strategy of Security. I said, thank you. 0:05:52.680 --> 0:06:00.800 I think obnoxious arts or something, and Bloomberg, I gotta 0:06:00.800 --> 0:06:02.760 admit that. Okay, let's get a light shot on the 0:06:02.760 --> 0:06:04.440 door when he came out mark a kind of a ship. 0:06:04.480 --> 0:06:06.640 JP Morgan made some headlines in the last twenty four hours. 0:06:06.640 --> 0:06:08.400 He's had a difficult time calling this market over the 0:06:08.440 --> 0:06:11.840 last twelve eighteen months, the USA could market anyway, and 0:06:11.960 --> 0:06:14.919 yet this phrase volmer getting two point oh and in 0:06:15.000 --> 0:06:18.880 it was this acronym zero d T E zero days 0:06:18.920 --> 0:06:20.880 to expire. And I think a lot of our audience 0:06:20.880 --> 0:06:23.960 are hearing more and more about those options. Can we 0:06:24.000 --> 0:06:25.880 have a bit of a clinic here, can you define 0:06:26.040 --> 0:06:28.839 for all of us what is zero D T E 0:06:29.080 --> 0:06:31.360 and what is it doing to this market? So every 0:06:31.440 --> 0:06:33.720 day now they create options that expire either that day 0:06:33.800 --> 0:06:36.080 or the next day. So there's a huge volume in that, 0:06:36.360 --> 0:06:39.719 and there are weekly options as well, So single stocks 0:06:39.720 --> 0:06:41.960 tend to be more weakly. Ets tend to have the 0:06:42.040 --> 0:06:44.920 daily and volumes have just been driving through that, and 0:06:45.000 --> 0:06:46.680 I think it has a couple of repercussions. One is 0:06:46.680 --> 0:06:49.320 people are really literally gambling and you can sit there. 0:06:49.480 --> 0:06:51.880 There's a Bloomberg screen called m OsO, which is the 0:06:51.920 --> 0:06:54.360 most active traded. It's almost like watching a horse race. 0:06:54.400 --> 0:06:56.479 You'll see the spy four twelve calls and the Spy 0:06:56.560 --> 0:06:59.680 four thirteen calls Spy fourteen. It's almost this laddering. So 0:06:59.720 --> 0:07:01.960 I think people are treading a lot of this. Volumes 0:07:01.960 --> 0:07:05.240 have exploded heard as much as equity volumes can be 0:07:05.320 --> 0:07:07.279 related and tied back to the hedging of these single 0:07:07.360 --> 0:07:10.400 day options. So it's a very massive driver, and I 0:07:10.440 --> 0:07:13.880 think it's why we're seeing, you know, moves just that 0:07:13.960 --> 0:07:16.080 are amplified. So maybe something that would be a half 0:07:16.120 --> 0:07:18.640 percent move based on the news becomes a one and 0:07:18.680 --> 0:07:20.320 a half to two percent move, and it's going in 0:07:20.360 --> 0:07:23.040 both directions. You touched on it briefly. Can you explain 0:07:23.120 --> 0:07:25.920 how this becomes self fulfilling for the people that Let's 0:07:25.920 --> 0:07:28.160 say I am an institution and I sell you some 0:07:28.280 --> 0:07:30.720 of these very very short dated, cool options. What do 0:07:30.800 --> 0:07:32.760 I have to do on the other side which leads 0:07:32.800 --> 0:07:35.440 to this becoming somewhat self fulfilling. Yeah, So let's say 0:07:35.480 --> 0:07:38.560 the day starts spy at you know, four hundred, and 0:07:39.080 --> 0:07:41.000 someone buys a four or five call way out of 0:07:41.040 --> 0:07:42.720 the money right one and a quarter. All of a sudden, 0:07:42.760 --> 0:07:44.440 as it starts going to four or three, whoever sold 0:07:44.480 --> 0:07:47.160 that call has to start buying spy, which tends to 0:07:48.680 --> 0:07:51.000 exaggerate the price move. Then it starts getting to four 0:07:51.080 --> 0:07:52.720 or five. They've got to buy more. And then what 0:07:52.840 --> 0:07:54.640 we're seeing happen is someone starts buying the four oh 0:07:54.720 --> 0:07:57.280 eight calls and that starts putting pressure and you see 0:07:57.320 --> 0:08:00.440 almost the lattering type trade and it occurs over and over, 0:08:00.720 --> 0:08:02.480 and I think it reminds me a lot of what 0:08:02.600 --> 0:08:04.120 we are seeing about a year and a half two 0:08:04.160 --> 0:08:06.080 years ago, where you kind of had those gamma squeezes 0:08:06.280 --> 0:08:08.400 and that was very much individual stocks. It started on 0:08:08.480 --> 0:08:11.080 Monday with people buying the weekly options, and now it's 0:08:11.120 --> 0:08:13.120 moved down to this daily option. And so the other 0:08:13.200 --> 0:08:15.280 reason I think Vix is kind of irrelevant to me. 0:08:15.680 --> 0:08:18.520 So Vix only calculates options with twenty seven to thirty 0:08:18.600 --> 0:08:21.680 five days of expiration. As more and more people gravitate 0:08:21.760 --> 0:08:25.760 towards these daily options, yeah, and the volatility doesn't get 0:08:25.800 --> 0:08:27.160 picked up in that. So I think that's where the 0:08:27.200 --> 0:08:29.280 surprises are going to come. People are looking at Vicks 0:08:29.320 --> 0:08:32.120 for the hedging. It's all occurring this daily and weekly options. 0:08:32.160 --> 0:08:35.560 Let's do iron shoals. One is a rule of thumb 0:08:35.679 --> 0:08:39.600 options that drived out of four times leverage. Futures drive 0:08:39.679 --> 0:08:43.240 out at ten times leverage. With these short dated options, 0:08:43.640 --> 0:08:46.360 what is their leverage equivalent? It's got to be way higher, 0:08:46.520 --> 0:08:48.760 way higher. I think it's the hundreds to one. You know, 0:08:48.800 --> 0:08:53.440 people like fture, you do the regulator step in here. 0:08:53.520 --> 0:08:55.160 This is a train wreck waiting to happen. You and 0:08:55.240 --> 0:08:56.920 I know it. You know, I think people are going 0:08:56.960 --> 0:08:59.160 to start looking at this. It's really hard to figure 0:08:59.160 --> 0:09:01.520 out what just fis this. You're starting to see again 0:09:01.559 --> 0:09:03.880 all like the meme stock type things where my Twitter 0:09:03.960 --> 0:09:06.120 feeds filled with people who promised to make a thousand 0:09:06.160 --> 0:09:10.120 dollars into a hundred thousand dollars because it's truly gambling. Um, 0:09:10.840 --> 0:09:13.560 there's no binomial model or anything that's going to predict this, right, 0:09:13.600 --> 0:09:15.360 you buy something out of the money and you hope 0:09:15.400 --> 0:09:17.720 it triggers. And what we're also seeing, I think if 0:09:17.720 --> 0:09:19.959 you look in the background on the days calls are working, 0:09:20.360 --> 0:09:22.880 people really push hard on some of the most shorted 0:09:22.920 --> 0:09:26.120 stocks and vice versa. So stay away from the jargon. Gama, folks, 0:09:26.240 --> 0:09:29.679 is basically a form of acceleration. What is going to 0:09:29.800 --> 0:09:32.160 happen is we're gonna have a level change due to 0:09:32.280 --> 0:09:35.520 news whatever equities are going to go up or down. 0:09:35.800 --> 0:09:38.200 What will then happen to the people playing a one 0:09:38.280 --> 0:09:41.440 day duration in a leverage way out past ten to one. Well, 0:09:41.440 --> 0:09:43.040 the people who get it right are going to make 0:09:43.200 --> 0:09:44.800 a lot of money. They're going to keep pushing out 0:09:44.800 --> 0:09:47.360 the others. That's where you'll see liquidity start playing back. 0:09:47.400 --> 0:09:50.280 And I think that's what happens now is you've got 0:09:50.320 --> 0:09:52.680 all these algos kind of with this full level of liquidity, right, 0:09:52.679 --> 0:09:55.120 they're all trying to scalp a tiny bit, and as 0:09:55.160 --> 0:09:58.040 these moves start, they do you believe there's there's risk 0:09:58.120 --> 0:10:02.000 here on major Wall Street firm usks. I don't think 0:10:02.040 --> 0:10:04.640 it's there as much as individuals though. I think it's 0:10:04.679 --> 0:10:10.920 really has started gravitating more and more towards um you know, retail, 0:10:11.000 --> 0:10:13.800 not just retail traders, but institutional traders are gravitating this. 0:10:13.960 --> 0:10:15.760 You're not getting these types of volumes because it's mom 0:10:15.800 --> 0:10:17.640 and pop or you know, the kids playing. This is 0:10:17.679 --> 0:10:21.000 definitely at the big institutional desks as a trading strategy. 0:10:21.120 --> 0:10:23.760 What's the larger consequence of this? Is it a matter 0:10:23.960 --> 0:10:27.079 of just really muddied signals from a market that doesn't 0:10:27.120 --> 0:10:29.880 really cohere with any of the larger economic trends, or 0:10:30.160 --> 0:10:33.240 is this something that's a more significant whipsaw waiting to 0:10:33.320 --> 0:10:36.560 happen in a sort of unexpected downdraft that could happen suddenly. 0:10:37.240 --> 0:10:39.360 So I think the first thing is it's just much 0:10:39.400 --> 0:10:40.880 harder to get a good read on the market. Right 0:10:40.960 --> 0:10:43.360 These moves are amplified, so you can't see that. You've 0:10:43.400 --> 0:10:45.120 got to be watching these things or else you're gonna 0:10:45.120 --> 0:10:47.439 miss signals. I think the most obvious day was the 0:10:47.520 --> 0:10:50.079 Thursday after the f O m C when NASDAC was 0:10:50.120 --> 0:10:52.760 up five points. You could just see this really trading 0:10:53.080 --> 0:10:56.120 through these zero day expiration options, So you've got to 0:10:56.160 --> 0:10:58.920 be watching this. It dilutes information, and I think you 0:10:59.000 --> 0:11:00.640 just have to be prepared that whatever you think it 0:11:00.679 --> 0:11:02.640 can move. If you think it's a one to move, 0:11:02.800 --> 0:11:04.840 you could get five to ten percent, I think much easier. 0:11:05.000 --> 0:11:07.240 So is it just a matter of volatility or does 0:11:07.280 --> 0:11:10.400 it also affect the trajectory sort of the directionality and 0:11:10.520 --> 0:11:13.160 also the persistency of a rally because of the self 0:11:13.160 --> 0:11:15.840 fulfilling aspect. I think it can. It can make things 0:11:15.920 --> 0:11:17.959 extend a little bit, because you it just makes it 0:11:18.040 --> 0:11:19.480 if we live in a world where there's kind of 0:11:19.480 --> 0:11:21.520 almost windshield white browt goes. You're looking to who you 0:11:21.559 --> 0:11:25.080 can stop out, shorts or long. It makes the chances 0:11:25.120 --> 0:11:27.400 that they hit triggers higher, and then you keep pushing 0:11:27.440 --> 0:11:29.680 it higher and higher, right, and you get these much 0:11:29.760 --> 0:11:33.360 more exaggerated moves, which forces everyone who's short to close out. 0:11:33.679 --> 0:11:35.280 And now I think you switch back. And the other 0:11:35.360 --> 0:11:37.520 thing I think it was really done is as a contrarian, 0:11:37.559 --> 0:11:40.439 you're always trying to figure out, Okay, what's market positioning 0:11:40.480 --> 0:11:42.960 you want to bet against that. I think market position 0:11:43.040 --> 0:11:45.840 now turns on a dime, the ability to move huge 0:11:45.880 --> 0:11:48.760 amounts of risk through relatively short dated options. I think 0:11:48.800 --> 0:11:51.040 it's changed that risk position so it used to take 0:11:51.800 --> 0:11:53.640 weeks to a month for every and ago from over 0:11:53.720 --> 0:11:55.880 bought to over sold. I think these things happen in 0:11:56.200 --> 0:11:59.000 days or weeks now. So what's your projection of how 0:11:59.080 --> 0:12:01.480 this plays out? We've all these cute narratives trying to 0:12:01.600 --> 0:12:04.560 pin off the heels of certain market action. How does 0:12:04.600 --> 0:12:06.439 this play out as you see the boiling of the 0:12:06.520 --> 0:12:08.680 frog with respect to higher rates in the front end. 0:12:08.760 --> 0:12:10.400 If it's like everything else, I think what we'll see 0:12:10.480 --> 0:12:12.000 is one down day where we go through some of 0:12:12.040 --> 0:12:15.440 the triggers that you know, stop the exchanges, and then 0:12:15.480 --> 0:12:17.880 regulators will pay attention because no one ever pays that 0:12:18.000 --> 0:12:20.480 much attention when the bias tends to be higher. I 0:12:20.520 --> 0:12:22.560 think it's going to take a big down day where 0:12:22.600 --> 0:12:24.760 no one can explain why it says we start hitting 0:12:24.800 --> 0:12:28.280 all these triggers on the NASDAC and New York's doctors 0:12:28.360 --> 0:12:31.839 changes understand the Vulmageddon two points of the mark I 0:12:31.920 --> 0:12:35.280 was talking about it repeat a kind of repeat a yeah, 0:12:35.280 --> 0:12:36.680 and I read a bit of his I think it's 0:12:36.720 --> 0:12:38.360 a little bit off there because the one thing that 0:12:38.440 --> 0:12:40.760 we had in team is people trading the vix directly. 0:12:40.800 --> 0:12:42.559 There were all those vix E t n s and 0:12:42.640 --> 0:12:45.000 they had that ability to actually trade the vixed futures 0:12:45.280 --> 0:12:47.599 and there were really interesting trigger points at four to 0:12:47.679 --> 0:12:50.240 four fifteen PM that let people push that. Yeah, I 0:12:50.320 --> 0:12:51.960 think we'll see this, and I think you're gonna see 0:12:52.600 --> 0:12:54.240 how I look at liquidy, whether it's in the bond 0:12:54.320 --> 0:12:56.400 market or equities. Again, it's all these little out goes 0:12:56.440 --> 0:12:58.160 fighting around and as soon as they start losing money, 0:12:58.320 --> 0:13:00.400 they start shutting off and bid off off for goes 0:13:00.520 --> 0:13:03.160 wider and that's why you're going to see these exaggerated moves. 0:13:03.320 --> 0:13:12.360 I hear now annoyed to cheering. Cheer better to be cheerful. 0:13:17.240 --> 0:13:19.600 Have you watched Top Gun before? Of course they haven't. 0:13:20.080 --> 0:13:21.520 I don't know if you saw. But ahead of it, 0:13:21.679 --> 0:13:24.520 one of our generals and animals I work with, um 0:13:25.000 --> 0:13:27.199 General Wallace was actually a Top Gun instructor. So that 0:13:27.280 --> 0:13:31.360 was pretty stories about that. What did he say watch 0:13:31.440 --> 0:13:34.200 the movie? He said that the movie was fairly realistic. 0:13:34.280 --> 0:13:36.200 There were all sorts of people at this and there 0:13:36.240 --> 0:13:38.920 were some people who are just phenomenal pilots, not necessarily 0:13:38.960 --> 0:13:41.280 great people, but phenomenal pilots, and there were others. There 0:13:41.280 --> 0:13:43.720 were great people. And it really was because I think 0:13:43.760 --> 0:13:45.960 it was in the Vietnam War our kill rate had 0:13:46.000 --> 0:13:49.199 gone down so much they felt the need to train better. Pay. 0:13:49.320 --> 0:13:51.800 This was awesome. Thanks Abamitous, you come back in three 0:13:51.880 --> 0:13:54.640 days when we look at Cheer. What we've got to 0:13:54.679 --> 0:13:56.600 talk about with pay is the object's been shot at 0:13:56.640 --> 0:13:59.079 the sky. I mean, Academy security is perfectly placed to 0:13:59.120 --> 0:14:01.640 have this conversation. Probably we have a lot of time 0:14:01.840 --> 0:14:04.480 that I know you have. Peter, thank you as always 0:14:04.520 --> 0:14:12.240 pitter cheer of Academy Security, John Nan Russ Coastrick Global 0:14:12.280 --> 0:14:15.720 Allocation Fund portfolio manager over a black Rock Russ, let's 0:14:15.720 --> 0:14:18.040 start there. The closing low on the two year I 0:14:18.080 --> 0:14:21.360 think was January just north of four four point zero 0:14:21.440 --> 0:14:23.960 eight percent. We're higher by about fifty basis points since then. 0:14:24.320 --> 0:14:28.760 Over that same period, we've seen the nastag absolutely ripped. Russ. 0:14:29.320 --> 0:14:33.760 What gives good more and Joathan you it's it's interesting 0:14:33.800 --> 0:14:37.080 because when you think about last year, last year was 0:14:37.200 --> 0:14:40.400 very driven by rate beta, in other words, the sensitivity 0:14:40.440 --> 0:14:43.840 of the stock market, particularly growth stocks and even more 0:14:43.880 --> 0:14:47.440 than nay early growth names to both nominal and real rates. 0:14:47.840 --> 0:14:49.920 And exactly as you point out, you know, we've seen 0:14:50.000 --> 0:14:53.560 this move higher rates and the nastack is ripping. My 0:14:53.720 --> 0:14:57.440 guess is the simple answers You've had a reversal from 0:14:57.560 --> 0:15:00.560 really extreme positioning in the end of twenty two, and 0:15:00.640 --> 0:15:04.880 that hasn't clearly ended yet. You had massive tax laws 0:15:04.960 --> 0:15:07.560 selling in the end of twenty two, you had massive 0:15:07.680 --> 0:15:10.080 shorts in a lot of these names. As people have 0:15:10.200 --> 0:15:13.120 come into the new year, that that pressure is abated, 0:15:13.680 --> 0:15:15.680 I don't think that can carry us throughout the year. 0:15:16.000 --> 0:15:18.360 I don't think you know, meme stocks and early growth 0:15:18.400 --> 0:15:21.240 of what leads us in twenty two parting in twenty three. 0:15:21.680 --> 0:15:23.760 But a lot of us has been a reversal of 0:15:23.880 --> 0:15:26.280 that very tough year you had, particularly at the end 0:15:26.680 --> 0:15:30.840 in two RUSS beneath the radar. Really not even reported 0:15:30.880 --> 0:15:34.000 in the western press was Japan g DP. The nominal 0:15:34.120 --> 0:15:38.480 GDP of Japan was sub two percent. Is that the 0:15:38.600 --> 0:15:42.080 great miscall in the markets now is we don't understand 0:15:42.160 --> 0:15:46.920 the impact of an elevated and more persistent nominal GDP 0:15:47.320 --> 0:15:50.480 in the United States, and as John Farrell mentions as well, 0:15:50.720 --> 0:15:54.320 in war torn Europe. Well, I think this is actually 0:15:54.360 --> 0:15:56.840 really important point. Tom. You ask why is the stock 0:15:56.920 --> 0:15:59.400 market up? And let's leave the meme stocks out for 0:15:59.440 --> 0:16:02.760 a moment. You know, the glass is half full argument 0:16:02.960 --> 0:16:05.720 is exactly what you're alluding to. So you had a 0:16:05.880 --> 0:16:08.600 view three or four months ago about a hard landing, 0:16:08.920 --> 0:16:11.280 you know, let's call that, you know, the economy contracting 0:16:11.640 --> 0:16:14.280 one or two percent, and now you've got a better 0:16:14.360 --> 0:16:17.320 and better likelihood off either soft or new landing. So 0:16:17.440 --> 0:16:20.600 if you have one percent growth in twenty three, which 0:16:20.640 --> 0:16:23.520 doesn't seem outlandish right now, in three or four percent 0:16:23.600 --> 0:16:26.320 inflation on top of that, that's four or five percent 0:16:26.400 --> 0:16:31.040 nominal GDP. That is a much bigger tailwind for earning 0:16:31.120 --> 0:16:33.680 his growth in the US, probably to some extent in 0:16:33.720 --> 0:16:37.240 Europe as well, that investors are expecting six months ago. 0:16:37.280 --> 0:16:39.520 And that's one of the reasons, probably the right reason 0:16:39.600 --> 0:16:41.960 them or the stock market has been as resilient as 0:16:42.000 --> 0:16:44.240 it's been, you know, at Lisa, this is really important. 0:16:44.320 --> 0:16:48.120 Nominal GDP across the pandemic from a high seventeen percent, 0:16:49.000 --> 0:16:52.920 that's a boom economy, you know, fear missing out down 0:16:52.960 --> 0:16:56.480 to ten percent, down to nine percent. Phenomenal GDP in 0:16:56.520 --> 0:16:59.720 America seven point three percent versus under two percent. And 0:16:59.800 --> 0:17:02.200 you pen and we're wondering why stocks are going up, Well, 0:17:02.320 --> 0:17:04.200 there's a spirit out there in the U. S. It's 0:17:04.240 --> 0:17:06.640 it's irrefutable. And this really goes to the question rus 0:17:06.720 --> 0:17:08.960 and I'd love your take on this. How much of 0:17:09.040 --> 0:17:11.760 the rally that we've seen, the sort of rethink of 0:17:11.800 --> 0:17:15.160 what we saw last year is justified based on better 0:17:15.240 --> 0:17:19.679 than expected economic data. Well, I think it is justified. 0:17:19.760 --> 0:17:21.280 You know, again, I think the stocks can have a 0:17:21.440 --> 0:17:24.320 decent year, you know, but the mystery is less wire 0:17:24.440 --> 0:17:27.840 stocks up up versus why are parts of the market 0:17:28.000 --> 0:17:31.040 leading that really shouldn't be leading in environmental races are 0:17:31.080 --> 0:17:33.480 still climbing. But I do think we have an environment 0:17:33.520 --> 0:17:35.919 we're look, we're getting to the clot We're getting closer 0:17:36.040 --> 0:17:37.920 to the end of that FED cycle, and maybe it 0:17:38.000 --> 0:17:40.800 goes a quarter point more than the market thanks right now, 0:17:41.240 --> 0:17:43.840 but we're still seeing the end of that process. We 0:17:44.000 --> 0:17:48.359 do have a better economic outlook with better nominal GDP. Uh. 0:17:48.480 --> 0:17:50.200 None of this means we're going straight up and you 0:17:50.359 --> 0:17:53.440 chase every momentum stock out there. But I think the 0:17:53.520 --> 0:17:56.480 reality is in an environment where you avoid a recession, 0:17:56.840 --> 0:17:59.520 where nominal GDP is let's call it four or five percent, 0:18:00.160 --> 0:18:02.840 and rate volatility is probably going to be lower by 0:18:02.840 --> 0:18:05.560 the end of the year, that's not a bad environment 0:18:05.880 --> 0:18:07.720 and it probably leads stocks higher by the end of 0:18:07.760 --> 0:18:10.359 the year. Okay, So based on that, how would you 0:18:10.440 --> 0:18:13.119 play this? Would you basically sell tech stocks by the 0:18:13.240 --> 0:18:16.239 rest and perhaps not have as much in cash as 0:18:16.280 --> 0:18:19.360 people expect because this is an opportunity in other assets 0:18:19.440 --> 0:18:22.480 that people are discounting it too much. Well, you know, 0:18:22.560 --> 0:18:25.280 and it's probably right now, you know, cash actually doesn't 0:18:25.320 --> 0:18:27.439 look so bad right now, at least compared to UH, 0:18:27.920 --> 0:18:30.120 some of the other parts of the curve, just given 0:18:30.160 --> 0:18:31.920 the fact that you are getting a lot to sit out. 0:18:32.240 --> 0:18:34.000 But yes, I do think you want to go back 0:18:34.080 --> 0:18:37.760 to something that is, you know, judiciously embracing risks. Now, 0:18:37.840 --> 0:18:40.640 I don't think it's all about growth first value. Matter 0:18:40.640 --> 0:18:43.080 of fact, in our portfolio, what we've been doing is 0:18:43.080 --> 0:18:45.680 we've been emphasizing two things. We're still going for quality 0:18:46.200 --> 0:18:48.720 UH and that's because we're in an environment where again 0:18:48.800 --> 0:18:51.200 the economy, we don't think it's going into recession, but 0:18:51.359 --> 0:18:54.440 there will be some deceleration, and we're splitting the difference 0:18:54.520 --> 0:18:57.480 on the growth value debate. We're going for garth. GARP 0:18:57.640 --> 0:19:00.520 is a style growth at a reasonable price that tends 0:19:00.560 --> 0:19:04.360 to do really well when you have an economic deceleration, 0:19:04.840 --> 0:19:07.280 but not a contraction. So yeah, I think it's more 0:19:07.280 --> 0:19:10.960 about picking your spots, having companies with strong cash flow 0:19:11.680 --> 0:19:13.760 rather than making these big bets on tech or not 0:19:13.920 --> 0:19:17.600 tech catch up and Bryce Semitistan with the rust strict 0:19:17.640 --> 0:19:30.480 that of blan Croft just because of time and it's 0:19:30.680 --> 0:19:34.119 huge popularity, people lean forward on Global Wall Street. For 0:19:34.200 --> 0:19:36.119 the gentleman from Penn State, they threw him out of 0:19:36.119 --> 0:19:39.439 State college years ago. Yes, too many curious questions. Dan 0:19:39.560 --> 0:19:43.119 Ives joins US now equity analysts at Wedbush. Dan I 0:19:43.200 --> 0:19:45.760 was talking about Scott Galloway and the four earlier. Let's 0:19:45.800 --> 0:19:49.960 call it the ives for the four big companies a 0:19:50.080 --> 0:19:56.480 year from now, Bloomberg models three billion dollars free cash flow. 0:19:57.040 --> 0:20:01.040 What's the quality of the predictability that persist stancy of 0:20:01.160 --> 0:20:05.560 the Big four's free cash flow? Oh, I think right 0:20:05.600 --> 0:20:09.520 now we're looking visibility and more. I think that's the 0:20:09.680 --> 0:20:12.399 big difference to what even when you go back a 0:20:12.480 --> 0:20:14.439 few years ago, and that's what you've seen coming out 0:20:14.520 --> 0:20:18.440 of Coupertino. It's what's happening in Redmond and well as 0:20:18.520 --> 0:20:21.160 big tech, and I think that's been a big sort 0:20:21.200 --> 0:20:24.159 of headline during earnings. You know, better than feared, and 0:20:24.280 --> 0:20:27.600 I think investors as under investment in tech going into 0:20:27.640 --> 0:20:29.920