WEBVTT - A Closer Look At The Markets 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.520 with essential market moving news. Find the Bloomberg Markets podcast 0:00:15.560 --> 0:00:18.479 called Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.960 at Bloomberg dot com slash podcast. Yeah exactly. And of course, 0:00:22.960 --> 0:00:26.480 those higher oil prices just feeding into the inflationary narrative. 0:00:26.520 --> 0:00:29.080 So let's get more on that now with Jeffrey Cleveland. 0:00:29.160 --> 0:00:32.440 He's chief economist at Peyton and Regal. So, Jeff, I 0:00:32.600 --> 0:00:34.400 don't know how much of Lisa and Ice conversation you 0:00:34.520 --> 0:00:38.000 just heard there, but talking about the inflationary forces at 0:00:38.040 --> 0:00:40.720 work in this economy, do you think that central banks, 0:00:40.760 --> 0:00:45.400 like the FED or underestimating it? Still? I know, I 0:00:45.400 --> 0:00:48.800 don't think so. I think this is, you know, very 0:00:48.840 --> 0:00:54.279 difficult topic and popular talkic topic among investors. But um, 0:00:54.320 --> 0:00:56.840 and there's a lot of noise. So, but you have 0:00:56.920 --> 0:00:59.080 to go back to taking in and maybe a longer 0:00:59.200 --> 0:01:03.440 term perspective commodity prices. The price of oil, for example, 0:01:03.560 --> 0:01:07.039 doesn't tend to give forecasters such as ourselves a good 0:01:07.120 --> 0:01:10.080 lead on where inflation will be in you know, a 0:01:10.160 --> 0:01:13.000 year's time, and I think central banks know that, you know, 0:01:13.040 --> 0:01:17.360 and they're taking that into consideration. Although this is really 0:01:17.440 --> 0:01:19.920 dangerous to say, these are I think the four this 0:01:20.400 --> 0:01:25.040 time is different for most dangerous words in the economics profession. 0:01:25.319 --> 0:01:27.920 The idea here that we have oil prices that are 0:01:27.920 --> 0:01:31.560 climbing at a time when supplies might not naturally increase 0:01:32.000 --> 0:01:35.120 to compensate this. The business case has changed in an 0:01:35.120 --> 0:01:38.440 era that's trying to decarbonize. How much does that change 0:01:38.440 --> 0:01:42.000 the pack drop for you? You know, it does, It's 0:01:42.040 --> 0:01:43.840 a it's a factor. But I think I always come 0:01:43.880 --> 0:01:46.880 back to Okay, when you're talking about inflation, you're talking 0:01:46.920 --> 0:01:50.320 about a general increase in all prices, right, You're you're 0:01:50.360 --> 0:01:54.480 not just talking about particular sectors. And if you know, 0:01:54.520 --> 0:01:56.760 what we're seeing is driven more by the supply side, 0:01:56.760 --> 0:01:58.640 which is the case in a lot of areas. We 0:01:58.680 --> 0:02:00.680 did our our chart of the we for example, on 0:02:00.760 --> 0:02:03.240 natural gas prices on Friday, and you know, there are 0:02:03.320 --> 0:02:06.480 some very interesting supply side stories there that I think 0:02:07.000 --> 0:02:10.400 explain a big chunk of the move. If it's coming 0:02:10.400 --> 0:02:13.320 from the supply side, I don't think that's inflation. That's 0:02:13.360 --> 0:02:16.639 really the key. It's it's something you know, idiosyncratic, and 0:02:16.680 --> 0:02:18.280 it seems like, you know. The difficulty right now is 0:02:18.320 --> 0:02:20.560 we have a bunch of these types of stories piling 0:02:20.639 --> 0:02:22.680 up all at once, right, So you have you have 0:02:22.800 --> 0:02:26.400 the crude oil stories, you have natural gas, we have 0:02:26.480 --> 0:02:29.760 bottlenecks and all kinds of areas. I attribute that this 0:02:29.840 --> 0:02:33.200 is just a very unique macro environment. Um. But I 0:02:33.200 --> 0:02:35.760 still would caution investors from jumping to the conclusion that 0:02:35.800 --> 0:02:39.680 we're going to have a persistent inflation from here. Um. 0:02:39.720 --> 0:02:42.040 I think you can fall back on some pretty good 0:02:42.080 --> 0:02:44.720 reliable indicators. One we got on Friday, for example, in 0:02:44.760 --> 0:02:48.320 the US in that Personal Income and Spending Report, the 0:02:48.440 --> 0:02:52.280 Dallas Fed tabulates the trimmed me um PC. It's an 0:02:52.320 --> 0:02:55.880 alternative core inflation measure, and it's hanging in there right 0:02:55.919 --> 0:02:58.399 around two percent year over year. And I think that's 0:02:58.440 --> 0:03:01.360 where when the dust settles on all of this, we 0:03:01.400 --> 0:03:04.079 will we will see consumer prices right around that two 0:03:04.120 --> 0:03:07.840 to three range. Well. And a huge question within this, Jeffrey, 0:03:08.040 --> 0:03:12.720 is how much wages are rising to meet higher prices 0:03:12.760 --> 0:03:14.440 on pretty much everything you can think of at the 0:03:14.440 --> 0:03:16.920 pump at the grocery store on your holiday gifts. We 0:03:17.000 --> 0:03:19.519 obviously have the jobs report coming up on Friday. I 0:03:19.520 --> 0:03:21.200 would argue it's going to be a pretty big one, 0:03:21.280 --> 0:03:24.480 given September is supposed to be the month where kids 0:03:24.480 --> 0:03:27.600 are back at school, those additional unemployment benefits have rolled off. 0:03:27.600 --> 0:03:30.640 It's supposed to be the great return to the labor market. 0:03:30.720 --> 0:03:35.160 Do you think that actually materialized. I'm a little skeptical. 0:03:35.360 --> 0:03:38.480 I think, you know, we saw a very weak August 0:03:38.480 --> 0:03:41.360 report that was driven in large part the slowdown and 0:03:41.440 --> 0:03:44.920 leisure in hospitality. I don't know, you know, just anecdotally 0:03:45.000 --> 0:03:47.760 walking around Los Angeles, for example, if we saw a 0:03:47.760 --> 0:03:50.360 big surgeon hiring in the month of September, I think 0:03:50.440 --> 0:03:54.120 we're still under the you know, the weight of the 0:03:54.160 --> 0:03:56.800 pandemic of the variant, at least of the September data. 0:03:56.840 --> 0:03:58.960 So maybe that story will have to wait for in 0:03:59.000 --> 0:04:01.640 the fall. I hope full that uh, I'm wrong and 0:04:01.880 --> 0:04:04.400 in the labor marks at back bounce back much more quickly. 0:04:04.960 --> 0:04:06.920 On the wage question, though, that that you brought up, 0:04:06.920 --> 0:04:08.720 I think it's a really essential one and the only 0:04:08.720 --> 0:04:12.080 thing I could say I would urge investors um again 0:04:12.120 --> 0:04:15.000 to look at the Atlanta fed wage tracker, and you 0:04:15.000 --> 0:04:19.480 can break down the different categories by you know, income level, 0:04:19.680 --> 0:04:22.880 by hourly versus non hourly workers, and I think what 0:04:22.960 --> 0:04:25.479 you'll find is we are seeing wage pressure, no doubt, 0:04:25.680 --> 0:04:29.800 but it is confined mostly to UM you know, the 0:04:29.839 --> 0:04:34.000 lower wage tiers of the spectrum. So definitely seen a 0:04:34.000 --> 0:04:36.520 lot of upside pressure there on wages that is UM 0:04:36.520 --> 0:04:39.320 that is you know that affects businesses, that affects small 0:04:39.320 --> 0:04:41.760 and medium sized businesses. Yes, But if you look at 0:04:41.760 --> 0:04:44.400 the broader wage trends UM. You can look at a 0:04:44.480 --> 0:04:48.520 median you know, wage growth, it's still running three to 0:04:48.560 --> 0:04:52.039 four for an um UM. Nothing worrisome in terms of 0:04:52.080 --> 0:04:54.840 wage price spirals. So I think investors again that we're 0:04:54.880 --> 0:04:57.720 we're trying to look out a year from now and 0:04:57.720 --> 0:05:02.000 and understand where inflation might be. The wage data is 0:05:02.080 --> 0:05:04.800 not telling us a worrisome longer term story. If you 0:05:04.800 --> 0:05:07.279 recall the nineties, I'm sure you do write we had 0:05:07.640 --> 0:05:10.719 five or six percent medium wage growth and we still 0:05:10.760 --> 0:05:14.400 had moderate inflation right around two to three. So you 0:05:14.440 --> 0:05:17.000 can even see wage growth take up from here, which 0:05:17.000 --> 0:05:19.159 I hope it does, and and still not have a 0:05:19.320 --> 0:05:22.359 runaway inflation story, which really raises the issue Jeffrey, of 0:05:22.400 --> 0:05:25.680 how much is being priced in that is that I 0:05:25.800 --> 0:05:27.800 dread using this word because I will get hate males 0:05:27.800 --> 0:05:30.159 tag inflation and how much this is just sort of 0:05:30.240 --> 0:05:33.080 a new reflationary trade that basically have gone past the 0:05:33.080 --> 0:05:37.599 peak reflation and we're now heading into a normalization. And frankly, 0:05:37.640 --> 0:05:41.479 it is choppy with higher prices. It sometimes uh than growth, 0:05:41.520 --> 0:05:44.400 and and sort of this mismatch in how things come 0:05:44.400 --> 0:05:49.160 back online. How you distinguish between those two scenarios which 0:05:49.200 --> 0:05:52.359 are very different, with one not leading to an expansion, 0:05:52.440 --> 0:05:54.400 the other one leading to an expansion that's just more 0:05:54.440 --> 0:05:57.360 tempered when you speak with your fellow with your your 0:05:57.400 --> 0:06:02.039 fellow members of paid and regal. Yeah, I think you're right. 0:06:02.279 --> 0:06:06.839 We did see growth peak in the second quarter. We 0:06:06.880 --> 0:06:09.400 definitely saw slower growth in the US in the third quarter. 0:06:09.400 --> 0:06:12.000 We've shaved our our GDP estimant for the full year 0:06:12.080 --> 0:06:16.040 now too. We started at seven point four for we're 0:06:16.080 --> 0:06:18.720 down to five point five, so we've shaved growth. So 0:06:18.760 --> 0:06:21.920 growth has sload. Is it stagflation though? I don't think so. 0:06:21.960 --> 0:06:24.920 I think it's really tough to do this, But there's 0:06:25.000 --> 0:06:28.000 so much noise right now. Growth slowing to you know, 0:06:28.040 --> 0:06:29.599 for the year five and a half percent. To me, 0:06:29.680 --> 0:06:32.720 that's not stagflation. The reason you have to go back, 0:06:32.760 --> 0:06:36.200 I think to answer your questions directly, why, what's what's 0:06:36.360 --> 0:06:39.640 causing this? You know, we think it is pandemic related. 0:06:39.680 --> 0:06:42.359 We think it is bottlenecks on the supply side that 0:06:42.400 --> 0:06:45.440 have knocked down our growth estimates, and some of that 0:06:45.520 --> 0:06:48.560 we will we will get payback on in two we think. 0:06:48.680 --> 0:06:51.719 So it's it's not a more you know, worried. Where 0:06:51.760 --> 0:06:53.320 we would get more worried, I guess on the growth 0:06:53.320 --> 0:06:55.840 front is if it was demand had swumped off, and 0:06:56.080 --> 0:06:58.279 that's not really what you know, we think we're seeing here. 0:06:58.520 --> 0:07:01.280 Demands you know, particularly from sumers and households will remain 0:07:01.440 --> 0:07:04.360 very very strong, we think um throughout this rest of 0:07:04.360 --> 0:07:07.359 the year and into two UM. So it's it's not 0:07:07.480 --> 0:07:10.160 a demand flump type story. It's you know, it sees 0:07:10.200 --> 0:07:14.120 idiosyncratic supply side things that are holding back growth. So 0:07:14.200 --> 0:07:16.200 that that's one part of it. Just discerning okay, what 0:07:16.400 --> 0:07:19.320 is driving the slowdown that we're seeing. And then the inflation, 0:07:19.440 --> 0:07:23.400 you know, is inflation and remain elevated um, you know, 0:07:23.400 --> 0:07:26.160 on a sustain basis more than a couple of quarters. 0:07:26.240 --> 0:07:29.360 And we think the answer, again, as as I labored already, 0:07:29.480 --> 0:07:32.760 is no, So we don't. I can't put myself in 0:07:32.760 --> 0:07:36.760 the stagflation camp quite yet. All right, Jeffrey, I want 0:07:36.760 --> 0:07:38.800 to ask you you were talking about all the noise 0:07:38.880 --> 0:07:40.600 that's out there. There certainly has been a lot of 0:07:40.640 --> 0:07:43.200 noise down in Washington, d C. I know that's pretty 0:07:43.280 --> 0:07:44.880 much always the case, but it seems like it's gotten 0:07:44.880 --> 0:07:47.040 a lot louder as of late. You have the ongoing 0:07:47.400 --> 0:07:50.120 question mark around the dead ceiling, you have discussions around 0:07:50.120 --> 0:07:53.040 the infrastructure package really at a stalemate now in October 0:07:53.120 --> 0:07:55.720 thirty one deadline. How would it change your view on 0:07:55.760 --> 0:07:58.720 the U. S. Economy if we don't see that trillions 0:07:58.720 --> 0:08:04.160 of dollars in longer term economic expending materializing. Well, I 0:08:04.200 --> 0:08:06.400 think we will get something done. I can't tell you 0:08:06.400 --> 0:08:10.480 when it's impossible to figure that out, but I don't 0:08:10.480 --> 0:08:11.800 think it's going to be the three and a half 0:08:11.840 --> 0:08:14.520 trillion so to the extent it And it does seem, 0:08:14.640 --> 0:08:16.880 you know, when you look at the headlines and market movements, 0:08:17.280 --> 0:08:19.040 market is sort of fixated on that three and a 0:08:19.040 --> 0:08:21.960 half trillion dollar number, and that could disappoint UM some 0:08:22.080 --> 0:08:24.760 investors if we don't get it, um, you know, I don't. 0:08:24.760 --> 0:08:26.440 I don't think we're going to get that that number 0:08:26.560 --> 0:08:30.440 for us though, the big fiscal pulse already happened. You know, 0:08:30.480 --> 0:08:32.439 we're already on the other side of it. You look 0:08:32.480 --> 0:08:35.000 at transfers to households, you can look at you know, 0:08:35.120 --> 0:08:38.560 quarter over quarter UM those were actually down in the 0:08:38.600 --> 0:08:41.520 second quarter relative to a year ago because we saw 0:08:41.559 --> 0:08:44.800 this huge surgeon in spending. Our transfer as the household 0:08:44.800 --> 0:08:48.000 that's done and for us that that's really the more 0:08:48.000 --> 0:08:51.920 critical question. UM. Households. Fortunately, you know, they're they're being 0:08:52.240 --> 0:08:55.000 you know, they're going back into employment. They still have 0:08:55.080 --> 0:08:57.079 pretty ample savings, so that will be good. But the 0:08:57.480 --> 0:08:59.520 big party in terms of the fiscal side, I think 0:08:59.520 --> 0:09:02.120 it's done. So that's I think something to keep in 0:09:02.200 --> 0:09:07.200 mind for investors to you know, the death ceiling is important. Well, 0:09:07.320 --> 0:09:10.040 you know, I guess we're playing, um a game of 0:09:10.080 --> 0:09:13.680 brinksmanship here and it probably lasts you know, into mid 0:09:13.760 --> 0:09:16.800 October membe later. Ultimately, we think that does get resolved, 0:09:16.840 --> 0:09:20.160 perhaps something similar to what we saw in I think 0:09:20.200 --> 0:09:24.560 the other Washington story though, is the FED, the FED board, 0:09:24.640 --> 0:09:27.320 the possible departure of Jerome Powell, and then two other 0:09:27.440 --> 0:09:30.080 spots that look like they're going to open up, and 0:09:30.160 --> 0:09:32.880 that could change, that could change. I think what that 0:09:33.080 --> 0:09:36.760 gives you is a little a more dubbish FED um 0:09:36.800 --> 0:09:39.199 And if that's right, that is more important I think 0:09:39.240 --> 0:09:43.600 for for markets for risk assets than you know, the 0:09:43.679 --> 0:09:46.040 death ceiling or you know, I hate to say it 0:09:46.080 --> 0:09:48.880 to my political strategist, but I think that will the 0:09:48.920 --> 0:09:51.400 FED will ultimately be more important than the size of 0:09:51.440 --> 0:09:55.160 the fiscal UH build the budget that ultimately ultimately they 0:09:55.200 --> 0:09:58.280 get decided on monetary policy for the win. Thank you 0:09:58.320 --> 0:10:00.920 so much, Jeffrey Cleveland, he's chief a anonymists at Payton 0:10:01.040 --> 0:10:06.559 and Regal. There is, of course the big elephant in 0:10:06.600 --> 0:10:09.360 the room for anyone who covers markets right now. It 0:10:09.440 --> 0:10:12.200 is inflation. What your viewpoint on it will determine much 0:10:12.240 --> 0:10:14.840 of how you position for it. However, which way is 0:10:14.920 --> 0:10:16.520 up in the air in terms of depending on who 0:10:16.600 --> 0:10:18.080 you speak with. We're going to speak right now with 0:10:18.160 --> 0:10:21.760 Efan Devit, chief investment officer at Monida with twenty seven 0:10:21.760 --> 0:10:25.360 point four billion dollars of assets under management. Even before 0:10:25.360 --> 0:10:28.520 we get into your inflation call, how do you use 0:10:28.600 --> 0:10:33.080 this to shape what you want to buy. Inflation is 0:10:33.120 --> 0:10:36.320 something we look at always as a part of the 0:10:36.360 --> 0:10:39.680 factors that drive where our portfolio should be positioned. Our 0:10:39.720 --> 0:10:42.959 goal is that our client portfolios should be resilient too 0:10:43.000 --> 0:10:45.959 many risks, in particular inflation. So we look at the 0:10:46.000 --> 0:10:49.760 different components of that portfolios, such as equities and real assets, 0:10:50.080 --> 0:10:53.320 and want to ensure that we have enough diversification into them, 0:10:53.360 --> 0:10:56.400 because some have explicit linkage to inflation, such as real 0:10:56.440 --> 0:10:59.920 assets and real estate, and then some have de fact 0:11:00.520 --> 0:11:04.040 um positive correlation to inflation, such as equities. Well, let's 0:11:04.080 --> 0:11:06.200 talk about some of those equities. The NASAC one hundred 0:11:06.200 --> 0:11:08.559 is now down two percent on the day. We can 0:11:08.559 --> 0:11:11.720 maybe attribute some of that too higher yields. How do 0:11:11.800 --> 0:11:13.760 you think about technology in the place it does or 0:11:13.760 --> 0:11:16.880 does not have in your portfolio right now? Technology will 0:11:16.880 --> 0:11:19.720 always be a huge components for our portfolio, particularly because 0:11:19.800 --> 0:11:22.640 many clients will have exposure to large cap stocks, and 0:11:23.000 --> 0:11:26.160 quite frankly, the Fangs have really comprised such a large 0:11:26.160 --> 0:11:30.240 percentage and increasingly large percentage of those large cap portfolios. 0:11:30.280 --> 0:11:32.400 So it is a lynch pin, and we actually saw 0:11:32.480 --> 0:11:35.160 that they performed very well. Obviously, we spoke your earlier 0:11:35.160 --> 0:11:37.360 guests about to stay at home stocks and how they 0:11:38.000 --> 0:11:41.200 really were quite resilient throughout the COVID crisis, and any 0:11:41.240 --> 0:11:43.960 time there's a crisis of confidence, they do seem to rebound. 0:11:44.320 --> 0:11:47.000 So technology will always have a huge component there. We 0:11:47.040 --> 0:11:49.640 do let look to have balanced portfolios across the course, 0:11:49.760 --> 0:11:53.000 across growth and value. But the fact that with technology 0:11:53.000 --> 0:11:56.359 and interest rates, if anybody does use a DCS valuation, 0:11:56.679 --> 0:11:58.960 as interest rates rise, well that will make the future 0:11:58.960 --> 0:12:01.640 earnings looked up at st and technology. So that seems 0:12:01.679 --> 0:12:03.600 to be part of the correlation that we're seeing. What 0:12:03.640 --> 0:12:05.920 do you how do you view the sort of decline 0:12:05.920 --> 0:12:08.320 that we saw last week that's carrying over to today. 0:12:08.520 --> 0:12:10.920 Is this the beginning of something bigger or is this 0:12:10.960 --> 0:12:13.040 a blip that you want to dig in and kind 0:12:13.040 --> 0:12:16.360 of start buying. I do think it is not the 0:12:16.360 --> 0:12:18.840 beginning of something bigger, because what we're seeing is a 0:12:18.840 --> 0:12:21.720 tremendous amount of assets on the sidelines. They've been sitting 0:12:21.760 --> 0:12:24.280 there waiting to get exposure to equities. And what we 0:12:24.320 --> 0:12:26.760 see is at every time there is a correction and 0:12:26.840 --> 0:12:29.720 equity markets or even just just a blip, as you say, 0:12:29.760 --> 0:12:32.640 or just crisis of confidence. It doesn't last very long. 0:12:32.720 --> 0:12:35.000 And that's the real phenomenon of the current cycle, is 0:12:35.000 --> 0:12:37.800 that none of these adjustments last for very long. Because 0:12:37.840 --> 0:12:40.800 there's such a large amount of money on the sidelines 0:12:40.840 --> 0:12:44.160 looking to go in. Why where do the sentiments dip 0:12:44.240 --> 0:12:46.920 come from? Certainly there's a lot of backdrop now in 0:12:47.000 --> 0:12:50.240 terms of both geopolitical concerns we're looking globally, we've seen 0:12:50.520 --> 0:12:54.880 the specter of a large scale default. There's a political gridlock. Again. 0:12:55.320 --> 0:12:57.640 The news on the virus seems to be moderating, and 0:12:57.720 --> 0:13:00.280 that probably is has not really factored into to send months, 0:13:00.559 --> 0:13:03.840 but certainly that the tech news you mentioned earlier around Facebook, 0:13:04.160 --> 0:13:06.760 that is just a reminder of the ability for regulatory 0:13:07.000 --> 0:13:10.679 twip flash to occur, not just in China, but also here. Well, 0:13:10.720 --> 0:13:12.880 I'm so glad you brought up China because we continue 0:13:12.920 --> 0:13:16.760 to watch the evergrand saga unfold day by day by day, 0:13:16.760 --> 0:13:19.240 and it's that's sprinkling not the only issue you have 0:13:19.320 --> 0:13:21.640 to worry about there. You have the ongoing regulatory crackdown, 0:13:21.679 --> 0:13:25.240 you have a broader slow down and economic growth. How 0:13:25.240 --> 0:13:27.800 do you think about China right now and the risk 0:13:27.840 --> 0:13:31.800 that it poses. Certainly we've had to completely rethink how 0:13:31.800 --> 0:13:34.240 we think about China as a source of risk. There 0:13:34.360 --> 0:13:36.880 is even a suggestion among some commentators that China has 0:13:36.880 --> 0:13:40.319 become uninvestable. Such has been the frequency of these negative 0:13:40.360 --> 0:13:42.760 surprises that we've seen time and time again. It seems 0:13:42.800 --> 0:13:45.480 every week there is a negative surprise. What I would 0:13:45.480 --> 0:13:46.960 say is that China is only going to be a 0:13:47.000 --> 0:13:50.280 portion of an emerging markets allocation, and even emerging markets 0:13:50.400 --> 0:13:52.760 is only a portion of a non US allocation. So 0:13:52.800 --> 0:13:56.000 it really is quite risk controlled within a portfolio. And 0:13:56.040 --> 0:13:58.640 as for whether that is sustained as that portion, well 0:13:58.640 --> 0:14:01.040 that really remains to be seen. Certainly, the risk reward 0:14:01.080 --> 0:14:03.920 has changed dramatically, and what we can see for China 0:14:04.040 --> 0:14:06.320 is just as it was first in and first as 0:14:06.400 --> 0:14:09.480 of the pandemic. It can certainly be a harbinger for 0:14:09.720 --> 0:14:12.839 the concerns that would perhaps be more global and the 0:14:13.320 --> 0:14:15.920 ever ground is a great example. And then some traders 0:14:15.920 --> 0:14:18.960 in this market have never seen at any kind of 0:14:19.000 --> 0:14:21.560 a large scale default of that nature. The last time 0:14:21.560 --> 0:14:23.480 we saw it was an O eight, and many people's 0:14:23.520 --> 0:14:26.000 whole careers have been built in so eight. So that 0:14:26.120 --> 0:14:28.320 simply is a reminder of just the specter of a 0:14:28.400 --> 0:14:31.240 large scale default, what it can look like, and how 0:14:31.280 --> 0:14:33.400 it can it can ripple through the system, not just 0:14:33.480 --> 0:14:36.880 for other real estate developers, but for banks financial institutions 0:14:36.880 --> 0:14:39.880 as well. It is a salutary reminder, I believe, of 0:14:39.960 --> 0:14:41.680 some of the risks that can actually be there bubbling 0:14:41.720 --> 0:14:43.960 onto the surface. Are you more concerned about the financial 0:14:44.040 --> 0:14:46.600 risk here or the economic risk of a slowdown in 0:14:46.680 --> 0:14:50.640 China percolating through the entire ecosystem, through the supply chain 0:14:50.680 --> 0:14:54.479 disruptions and other sort of transmissions that are more insidious 0:14:54.480 --> 0:14:58.480 and slow moving. Certainly, I would say that the impact 0:14:58.600 --> 0:15:01.160 of a slowdown a it's going to be less felt 0:15:01.200 --> 0:15:03.400 over here. The US has been the engine of developed 0:15:03.400 --> 0:15:05.960 market markets for some time, and I don't see a 0:15:06.000 --> 0:15:09.000 slow down in China as really having tremendous round applications. Here, 0:15:09.360 --> 0:15:13.040 We've already had a significant change in the trade conditions, 0:15:13.080 --> 0:15:15.120 and that is it's likely to persist. So I don't 0:15:15.120 --> 0:15:17.800 see that the US is particularly dependent on China. But 0:15:17.880 --> 0:15:21.280 certainly China does affect the fortunes of the surrounding emerging markets, 0:15:21.640 --> 0:15:24.360 and for that reason, any slow down there would just 0:15:24.400 --> 0:15:28.080 be poor for global growth alright. Efan devit Cio of 0:15:28.160 --> 0:15:30.920 Monetta giving us her market outlook and her take on 0:15:31.040 --> 0:15:33.600 inflation at least of the China story. Getting a little 0:15:33.600 --> 0:15:36.200 bit more interested today when you talk about the trade 0:15:36.320 --> 0:15:39.280 narrative that even just brought up. We obviously got some 0:15:39.360 --> 0:15:41.760 harsher words out of the Biden administration. We're waiting for 0:15:41.840 --> 0:15:45.520 the US trade representative to speak, uh later on today, 0:15:45.520 --> 0:15:47.520 but basically saying they're not holding up their end of 0:15:47.520 --> 0:15:48.960 the bargain when it comes to be as one deal. 0:15:49.640 --> 0:15:53.280 And right now we are looking at markets that are 0:15:53.320 --> 0:15:55.600 going deeper into the red. And just now, Gayley is 0:15:55.640 --> 0:15:58.320 you just pointed out a headline crossing the New York 0:15:58.360 --> 0:16:02.720 City says that end of school staff is vaccinated following 0:16:02.880 --> 0:16:06.280 the mandate that went to effect today. The teachers had 0:16:06.320 --> 0:16:09.640 to be at least have gotten their first shot, otherwise 0:16:09.680 --> 0:16:12.240 they could be put on leave, and they're saying that 0:16:12.280 --> 0:16:18.200 they've got in compliance. Interesting to see, really, you know, 0:16:18.280 --> 0:16:22.480 being sort of on the precipice of this debate of mandates. Yeah, absolutely, 0:16:22.520 --> 0:16:24.840 and you're seeing it play out so differently in different 0:16:24.880 --> 0:16:27.400 states and different sectors where there have been more legal 0:16:27.480 --> 0:16:30.320 challenges to this. But it's pretty remarkable the jump we 0:16:30.360 --> 0:16:32.800 have seen in vaccination rates as soon as a mandate 0:16:32.880 --> 0:16:35.480 goes into place. Some of the hospital systems had vaccination 0:16:35.560 --> 0:16:39.400 rates around and now they're also in the nineties as well, 0:16:39.480 --> 0:16:41.280 now that you've put people's jobs on the line. So 0:16:41.320 --> 0:16:43.440 it is something that is working, even for all of 0:16:43.440 --> 0:16:46.160 the debate that's around it. And this really translates into 0:16:46.240 --> 0:16:49.040 just where we are and coming out of the pandemic 0:16:49.080 --> 0:16:51.640 and how this translates to a market call as we 0:16:51.680 --> 0:16:53.760 do seem to be on the downward swing in the 0:16:53.840 --> 0:16:58.040 number of cases and hospitalizations. Ryan Jacob has to evaluate 0:16:58.120 --> 0:17:00.960 this along with the FED, along with debt ceiling debate, 0:17:01.000 --> 0:17:03.840 along with all of the mess uh in Washington, d C. 0:17:04.119 --> 0:17:06.919 And beyond all the way to China, a c i 0:17:07.080 --> 0:17:10.760 O of the Jacob Internet Fund talking here with us. 0:17:10.800 --> 0:17:13.680 And the reason Ryan why I say that is because 0:17:13.960 --> 0:17:16.520 you kind of have to dovetail a rates call a 0:17:16.720 --> 0:17:22.280 global macroeconomic picture with your view on tech. More than ever, 0:17:22.480 --> 0:17:25.680 how do you sort of gauge this connection between rates 0:17:25.880 --> 0:17:29.080 and the tech sector. Well, I do think we're a 0:17:29.080 --> 0:17:31.480 bit in the minority and that we're not that concerned 0:17:31.520 --> 0:17:34.800 about higher rates for our particular portfolios. Whether it's the 0:17:34.800 --> 0:17:37.439 et F of the mutual funds because we tend to 0:17:37.480 --> 0:17:41.800 focus on smaller MidCap tech companies. UH. In terms of 0:17:41.840 --> 0:17:44.080 the large higher interest rates, we're really seeing more of 0:17:44.119 --> 0:17:48.400 an impact on the large and mega cab technology companies 0:17:48.640 --> 0:17:53.560 that quite frankly, we'll have more difficult time overcoming the 0:17:53.600 --> 0:17:56.080 headwind of higher rates in terms of revenue and earnings 0:17:56.119 --> 0:17:59.040 growth more of the companies We focus on our higher 0:17:59.080 --> 0:18:02.880 growth companies and should be about to overcome it. Basically, Well, 0:18:02.920 --> 0:18:06.159 there's the rates headwind. There's also a China headwind for technology. 0:18:06.200 --> 0:18:08.040 Ryan and I was looking through some of the holdings 0:18:08.080 --> 0:18:10.880 of your fun and saw that Ali Baba Intencent are 0:18:10.960 --> 0:18:13.480 in there. How worried are you about that crackdown that's 0:18:13.520 --> 0:18:15.560 happening in China. Does that make you want to rethink 0:18:15.600 --> 0:18:18.879 some of those holdings. Well, we have been shareholders in 0:18:18.960 --> 0:18:21.560 Chinese companies for over fifteen years now, so we've seen 0:18:21.600 --> 0:18:23.960 a lot of highs and lows. Admittedly, this is probably 0:18:24.000 --> 0:18:26.240 one of the low points that we've seen in terms 0:18:26.320 --> 0:18:29.600 of um, you know, what's happening in China and the 0:18:29.680 --> 0:18:33.440 ramifications for these companies. H And admittedly we had cut 0:18:33.480 --> 0:18:36.280 back our positions considerably. They're probably two of our smallest 0:18:36.280 --> 0:18:40.080 positions at this point, um, and quite frankly, until conditions 0:18:40.119 --> 0:18:43.040 improve or we see it, uh, you know, I doubt 0:18:43.040 --> 0:18:47.360 will increase our allocations. What type of technology companies are 0:18:47.400 --> 0:18:50.080 you seeing as the greatest opportunity at a time when 0:18:50.119 --> 0:18:52.119 we already have priced in some of the shift to 0:18:52.200 --> 0:18:54.760 working from home, where we already have priced in some 0:18:54.880 --> 0:18:57.679 of the Internet prowess of the likes of Google and 0:18:57.720 --> 0:19:00.119 Facebook and sort of the dominance that they have, are 0:19:00.400 --> 0:19:04.600 what types of tech should we be looking for? Well, 0:19:04.680 --> 0:19:07.400 that is the biggest challenge this year. Which companies can 0:19:07.480 --> 0:19:10.520 build on the success of last year, uh, and which 0:19:10.520 --> 0:19:13.719 companies will have a fall offer kind of come off 0:19:13.720 --> 0:19:15.560 a bit of a sugar high in terms of the 0:19:15.560 --> 0:19:18.840 impact of their business. And so the companies we're focusing 0:19:18.840 --> 0:19:21.880 on are the ones where broader adoption has been accomplished 0:19:22.119 --> 0:19:24.240 and now we've see an acceleration and that's that's what 0:19:24.240 --> 0:19:27.760 we've seen across our portfolio. So, um, you know, there's 0:19:27.760 --> 0:19:30.200 a host of names that really fall in that category, 0:19:30.240 --> 0:19:32.840 but it's a very very tricky environment. Well, give us 0:19:32.840 --> 0:19:35.040 some of those names, Ryan, Can you get specific which 0:19:35.160 --> 0:19:38.960 companies in particular, are most fascinating to you right now? Well, 0:19:39.040 --> 0:19:40.800 you know one of the companies, it's one of our 0:19:40.880 --> 0:19:45.840 larger positions. Optimized r X basically has electronic health record, 0:19:46.040 --> 0:19:49.760 advertising and communication services. So this is something that the 0:19:49.800 --> 0:19:53.320 drug companies were very interested in pre COVID. Once COVID 0:19:53.400 --> 0:19:55.960 hit and sales reps could no longer go out no 0:19:56.040 --> 0:19:59.560 more industry conferences or events, they allocated more money to 0:19:59.600 --> 0:20:04.040 digital and across different platforms. Optimized benefited from that, and 0:20:04.080 --> 0:20:05.719 then I think when a lot of the drug companies 0:20:05.760 --> 0:20:09.760 realized the returns they were getting from these investments. Uh, 0:20:09.840 --> 0:20:13.879 they've been basically accelerating ever since, even even with the 0:20:13.960 --> 0:20:18.000 prospect of going back to more traditional methods to advertise 0:20:18.080 --> 0:20:22.400 their products. UM and optimizes seeing that the bump last 0:20:22.480 --> 0:20:25.640 year and now an acceleration in their pipeline this year, Ryan, 0:20:25.800 --> 0:20:27.720