WEBVTT - Surveillance: Tech Downside with Wilson 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.280 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best and economics, geopolitics, financing, investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always I'm Bloomberg dot Com, 0:00:26.600 --> 0:00:30.200 the Bloomberg Terminal, and the Bloomberg Business App. There was 0:00:30.240 --> 0:00:32.040 just one quote yesterday that stood out for many of 0:00:32.040 --> 0:00:34.200 you at home. I know. It was from Mike Wilson 0:00:34.200 --> 0:00:37.280 and Morgan Stanley and it read as follows, Equity markets 0:00:37.280 --> 0:00:40.400 survived the crucial test of support last week. That suggests 0:00:40.440 --> 0:00:43.319 this band market Ronnie Tom is not ready to end 0:00:44.000 --> 0:00:46.319 just yet. How much of a change was that from 0:00:46.360 --> 0:00:48.680 Mike and a team. This is a pretty substantial change. 0:00:48.680 --> 0:00:51.040 We're going to dive into that right now with Mike Wilson. 0:00:51.240 --> 0:00:53.279 Mike John wants to dive into this. I'm gonna I'm 0:00:53.280 --> 0:00:55.120 gonna talk right now. I'm gonna make some news here, 0:00:55.200 --> 0:00:57.920 Mike Wilson, so help me out. The Great Ralph and 0:00:57.960 --> 0:01:00.960 Kompora was on a while back and he said, look, 0:01:01.000 --> 0:01:04.120 there was an October bottom. We've heard this from a 0:01:04.160 --> 0:01:08.000 few other select people with this more optimist to call 0:01:08.120 --> 0:01:11.800 by you can you call an October bottom? Can we 0:01:11.840 --> 0:01:16.600 call it the encompora? Wilson Bottom? Well, good morning guys, 0:01:16.840 --> 0:01:19.319 thanks for having me. As usual. What we did call 0:01:19.400 --> 0:01:23.319 that bottom in October, and we thought it would be 0:01:23.360 --> 0:01:26.679 a substantial rally fifteen twenty percent. We got that rally, 0:01:27.240 --> 0:01:29.679 and then we decided, well, the risk reward is no 0:01:29.800 --> 0:01:32.120 longer attractive, and so we backed off of that and 0:01:32.200 --> 0:01:34.000 we said we'd probably go down and we test those 0:01:34.080 --> 0:01:36.920 loads at a minimum and probably take it out, which 0:01:36.959 --> 0:01:39.600 is really based on our fundamental view that you know, 0:01:39.600 --> 0:01:43.319 the earnings recession is now in place. People acknowledge that, 0:01:43.480 --> 0:01:46.280 but I think there's a very wide range of how 0:01:46.360 --> 0:01:49.280 deep that earnings recession is going to be, with us 0:01:49.360 --> 0:01:51.960 kind of in the deeper end of that range. Now, 0:01:51.960 --> 0:01:54.080 this past weekend, we looked at the chart, but we 0:01:54.080 --> 0:01:56.320 have to be out, we have to be objective about 0:01:56.320 --> 0:01:59.840 what we see. We're technicians in addition to fundamental strategists. 0:02:00.040 --> 0:02:02.360 We looked at at the price action last week and 0:02:02.400 --> 0:02:04.840 we actually talked about it in the week the note 0:02:04.880 --> 0:02:06.440 the week before we said, like we're going to probably 0:02:06.480 --> 0:02:08.280 test this level. If it holds it, it'll be a 0:02:08.320 --> 0:02:11.560 constructive marker at least in the short term, and that's 0:02:11.560 --> 0:02:14.080 how we're viewing it now. Time it's a short term positive. 0:02:14.400 --> 0:02:16.920 I don't think it changes our intermediate term view that 0:02:17.040 --> 0:02:18.920 you know, the risk reward is still pretty blousy at 0:02:18.960 --> 0:02:21.880 forty one hundred because of that earnings recession view that 0:02:21.919 --> 0:02:24.160 we have on the fundamental side. So we remained in 0:02:24.200 --> 0:02:27.000 the trader's market, and part of our job is to 0:02:27.040 --> 0:02:29.320 help people navigate that. So it might just to be clear, 0:02:29.360 --> 0:02:31.600 how different is this call compared to the call for 0:02:31.639 --> 0:02:35.079 the tacticle running a mate back in October. Oh, it's 0:02:35.160 --> 0:02:37.280 very different, John, because you know, in October we were 0:02:37.280 --> 0:02:40.440 trading thirty five hundred. Of the evaluations were fifteen twenty 0:02:40.480 --> 0:02:44.119 percent lower interest rates you know, we're higher. We felt 0:02:44.120 --> 0:02:45.480 like they were going to come down, so we had 0:02:45.480 --> 0:02:48.000 a lot of canalysts trying to reopening. There are a 0:02:48.040 --> 0:02:50.519 lot of reasons to believe that that was a very 0:02:50.680 --> 0:02:53.919 tradeable load, not just for trader types however, people who 0:02:53.919 --> 0:02:56.040 were in a real capital and it turned out to 0:02:56.040 --> 0:02:58.000 be the case. So you know, we don't always get 0:02:58.000 --> 0:02:59.960 that stuff right. It's impossible to get it right every time. 0:03:00.840 --> 0:03:03.200 So this is much This is much more tactical. This 0:03:03.280 --> 0:03:06.480 is just Serve saying, look, we acknowledge that the tactical 0:03:06.560 --> 0:03:08.800 picture held. We didn't know that was going to be 0:03:08.840 --> 0:03:10.760 the case, and so you have to respect it. And hey, 0:03:10.760 --> 0:03:13.800 they could turn down this afternoon again for all I know, 0:03:13.919 --> 0:03:16.040 given what Jay Powell is going to say this testimony. 0:03:16.320 --> 0:03:18.680 You know, I have no idea. Maybe that triggers people 0:03:18.680 --> 0:03:21.320 to get negative. One thing I will say to you all, however, 0:03:21.480 --> 0:03:23.320 is that we're pretty confident that between now and the 0:03:23.320 --> 0:03:25.840 next eLearning season, which isn't that far away, that will 0:03:25.880 --> 0:03:28.760 be when we think the next you know, bear market 0:03:29.040 --> 0:03:32.360 kind of decline happens, maybe they a more meaningful decline 0:03:32.400 --> 0:03:34.760 ten percent plus. So Mike, we can get further down 0:03:34.800 --> 0:03:35.920 the right in just the moment. I just want to 0:03:35.960 --> 0:03:38.280 sit on the early part of this year. It's difficult 0:03:38.280 --> 0:03:39.920 to get everything you right. You put out a note 0:03:40.000 --> 0:03:41.880 early in the year and you said thirty nine hundred 0:03:42.040 --> 0:03:44.760 was an easy sell. What's more difficult about it now? 0:03:44.840 --> 0:03:49.600 Besides the technical point the of night, Well, I think 0:03:49.640 --> 0:03:51.240 there's a couple of things you have to acknowledge. I 0:03:51.240 --> 0:03:54.440 mean that the economic data has been better. You know, 0:03:54.520 --> 0:03:56.960 Chad's reopening is kind of just getting going, and they 0:03:57.120 --> 0:03:58.760 kind of held back. They could get they could gather 0:03:58.880 --> 0:04:01.600 some steam, you know. So those are things you have 0:04:01.640 --> 0:04:03.400 to say. Look, I mean, I think people came into 0:04:03.440 --> 0:04:06.400 this year feeling as if the recession was inevitable, and 0:04:06.480 --> 0:04:08.880 that no longer is the case. It's probably thirty percent 0:04:09.000 --> 0:04:11.880 chance and be forty percent chance at best, and that 0:04:11.920 --> 0:04:15.240 can keep animal spirits alive. The other thing that's happened, John, 0:04:15.400 --> 0:04:19.120 is we've talked about multiple times, is this liquidity picture 0:04:19.279 --> 0:04:21.599 from outside the US. So the Fed's doing their job 0:04:21.680 --> 0:04:25.120 trying to tighten financial conditions. The problem for them is 0:04:25.160 --> 0:04:26.800 that we have the Bank of Japan and we have 0:04:27.160 --> 0:04:29.840 the PBOC adding liquidity, and you have a dollar that's 0:04:29.880 --> 0:04:33.479 kind of softening up, which is kind of neutralizing you know, 0:04:33.480 --> 0:04:36.279 the Fed's goals of tightening financial conditions, and that's also 0:04:36.720 --> 0:04:39.680 kind of breede some life into risk assets. That's the 0:04:39.680 --> 0:04:43.800 only thing that's changed. Ultimately, we think, you know, evaluations 0:04:43.839 --> 0:04:47.200 and the fundamentals meaning earnings will determine where stock price 0:04:47.360 --> 0:04:50.080 is trade. That setup is now particularly great, particularly to 0:04:50.120 --> 0:04:52.160 move higher and rates this year given some of the 0:04:52.279 --> 0:04:54.480 changes that you talked about just now, Mike, how much 0:04:54.480 --> 0:04:56.760 does that change what floor you could see in your 0:04:57.640 --> 0:05:01.719 scenario for equities? Well, I mean, look, we have to 0:05:01.720 --> 0:05:04.320 be flexible when we're trying to you know, also service 0:05:04.360 --> 0:05:06.560 a lot of different types of clients, right, whether we're 0:05:06.560 --> 0:05:09.359 talking about trader types or we're talking about asset owners. 0:05:09.680 --> 0:05:11.520 You know, for the asset owner or crowd, we've been 0:05:11.560 --> 0:05:13.720 pretty adamant. You know. We felt like the fall was 0:05:13.760 --> 0:05:15.960 a really good entry point where people had a longer 0:05:15.960 --> 0:05:18.320 time horizon and if you added risk there, you probably 0:05:18.320 --> 0:05:21.559 just stay with it. You know. I do think people 0:05:21.560 --> 0:05:23.960 that are getting a bit carried away on what they've 0:05:23.960 --> 0:05:26.400 been buying, Okay, So I think they're you know, given 0:05:26.440 --> 0:05:28.400 the rally that we saw on the fall versus the 0:05:28.480 --> 0:05:30.839 rally we've seen this year, they have very different sort 0:05:30.880 --> 0:05:32.960 of complexions, right. The rally and the fall was based 0:05:32.960 --> 0:05:36.360 on we think fundamentals meaning rates coming down, economic data 0:05:36.400 --> 0:05:38.680 getting better because of China and globally at least that 0:05:38.720 --> 0:05:42.120 would help the kind of typical type areas of the market. 0:05:42.160 --> 0:05:45.560 Then we had this more speculative rally that started in January, 0:05:45.640 --> 0:05:47.840 kind of buying last year's losers, which was all the 0:05:47.920 --> 0:05:50.760 growth stocks and the meme stocks for everyone to call them, 0:05:51.160 --> 0:05:53.799 and those are just gotten out of control again, particularly 0:05:53.800 --> 0:05:55.280 in the count of types of higher rates. I think 0:05:55.279 --> 0:05:57.720 there's there's a lot going on right And I think 0:05:57.720 --> 0:05:59.560 there's two ways to think about. If you have kind 0:05:59.560 --> 0:06:01.640 of you know, names that you want to own through, 0:06:01.640 --> 0:06:04.040 you know, we want to underwrite through what we think 0:06:04.120 --> 0:06:06.000 is going to be a difficult time for earnings, and 0:06:06.040 --> 0:06:08.240 you say, look, I think there's value in this security 0:06:08.279 --> 0:06:10.039 for the next three years, Great, you should just own 0:06:10.080 --> 0:06:12.479 those through that period. However, there's a lot of stuff 0:06:12.480 --> 0:06:15.800 that's gotten dragged along here that is wildly speculative. Now 0:06:15.839 --> 0:06:18.360 in my viewing, it's it's it's actually somewhat reckulous. And 0:06:18.680 --> 0:06:20.159 that's the stuff that you got to be really careful 0:06:20.200 --> 0:06:22.920 it's in your portfolio, got to get out of because 0:06:23.160 --> 0:06:24.880 you know that stuff has gotten revalued in a way 0:06:24.880 --> 0:06:26.480 that doesn't make much sense to us. What kind of 0:06:26.480 --> 0:06:28.400 downside could you be talking about? And I assume you're 0:06:28.440 --> 0:06:30.200 talking big tech names as well as some of the 0:06:30.200 --> 0:06:33.440 other meme stocks. Well for some of this stuff, I mean, 0:06:33.520 --> 0:06:35.000 I mean, I think there's plenty of stocks that are 0:06:35.000 --> 0:06:37.120 probably gonna go bankrupt, you know, I mean, I don't 0:06:37.120 --> 0:06:39.760 think that's a crazy statement. But that's not the bulk 0:06:39.800 --> 0:06:42.040 of the stock market. Okay, So this is a is 0:06:42.040 --> 0:06:44.480 a pocket of the stock market. And then I would say, 0:06:44.480 --> 0:06:47.240 but overall, the growthier stuff and the thing that even 0:06:47.279 --> 0:06:49.640 the cychnicals names that have gone too far now could 0:06:49.760 --> 0:06:51.919 have as much as twenty percent downs had no problem. 0:06:52.040 --> 0:06:54.640 I mean that that. I mean that our valuation work 0:06:54.640 --> 0:06:56.960 would suggest that even without the earnings recession, right, the 0:06:57.000 --> 0:06:59.520 valuations are kind of out of bounds. Again. So it's 0:06:59.520 --> 0:07:01.640 a stock pickers market a lot that we're saying that. 0:07:01.800 --> 0:07:03.680 You know, that's usually what people say, by the way, 0:07:03.680 --> 0:07:05.640 when they're having a hard time calling the direction of 0:07:05.680 --> 0:07:09.840 the market. We do it too. And so you know, 0:07:09.880 --> 0:07:12.320 I pays a stock picking market. Well that's hard, okay, 0:07:12.360 --> 0:07:14.520 So you know that's not an easy game to play, 0:07:15.320 --> 0:07:17.720 But it is a stock picking market in the stock 0:07:18.320 --> 0:07:20.440 the stocks that are likely to go up versus down 0:07:20.600 --> 0:07:23.240 is probably less than fifty percent. It's a stock picking 0:07:23.280 --> 0:07:25.960 market with not a great you know, macro backdrop. So 0:07:26.000 --> 0:07:28.040 that's that's a challenge, Mike. I want to go to 0:07:28.120 --> 0:07:30.440 what I think is the great divide as Tullub says, 0:07:30.480 --> 0:07:33.040 the gravity is return of the system. You remember this 0:07:33.080 --> 0:07:35.680 when you were studying this in an armor years ago. 0:07:35.800 --> 0:07:39.280 The bottom line is when you get a normal interest 0:07:39.360 --> 0:07:42.440 rate structure, all of a sudden down the income statement 0:07:42.960 --> 0:07:47.000 matters divide for us. Now, how you look at those 0:07:47.080 --> 0:07:50.760 that profit from those that do not profit. That seems 0:07:50.800 --> 0:07:54.560 to be a new metric. Yeah, I mean I don't 0:07:54.560 --> 0:07:56.560 think this is a new metric. I think it's a 0:07:56.760 --> 0:08:01.320 forgotten metric, which is that you know, your costs sit 0:08:01.440 --> 0:08:03.320 on your balance sheet until they have to hit the 0:08:03.320 --> 0:08:06.400 income statement. And you know, this whole idea of a 0:08:06.480 --> 0:08:09.600 cruel versus cash accounting which we did learn, you know, 0:08:09.840 --> 0:08:13.000 seems like forty years probably was forty years ago. And 0:08:13.280 --> 0:08:16.320 you know, I have a history of studying accounting and 0:08:16.400 --> 0:08:19.440 it's a it's a great tool to kind of see 0:08:19.480 --> 0:08:22.400 through the noise. And this is why we know our 0:08:22.480 --> 0:08:25.120 note this past week we highlighted a great report done 0:08:25.160 --> 0:08:29.360 by our Goal Tax Valuation team and basically highlighting this 0:08:29.560 --> 0:08:32.959 you know, spread between cash flow and NETT income that's 0:08:33.000 --> 0:08:34.920 being reported that's all based on the rules and so 0:08:34.960 --> 0:08:36.880 it's you know, it ties into everything we've been talking 0:08:36.920 --> 0:08:38.480 about for the last year a year and a half, 0:08:38.480 --> 0:08:42.200 which is the pandemic. The lockdowns basically brought on this 0:08:42.240 --> 0:08:46.120 incredible period of over earning by corporations because their costs 0:08:46.120 --> 0:08:49.440 were slower to increase than the revenues came back. But 0:08:49.520 --> 0:08:51.680 now we have the exact opposite, which is the companies 0:08:51.679 --> 0:08:54.280 that you know basically accrued these costs on the balance 0:08:54.280 --> 0:08:56.520 sheet at a bad time when you know, inflation was 0:08:56.600 --> 0:08:58.640 running hot and they thought business is going to continue 0:08:58.640 --> 0:09:01.920 to be that strong, so they it does not actually 0:09:02.040 --> 0:09:05.240 happen now, and that has to flow through the income statement, 0:09:05.520 --> 0:09:07.680 and that will hurt margins. And that's the story. The 0:09:07.760 --> 0:09:11.560 question is will the markets look through that and suggest, well, 0:09:11.600 --> 0:09:13.920 we know this as temporary. Ultimately companies get the head 0:09:13.920 --> 0:09:16.920 around at which we agree with. But our experience is 0:09:16.960 --> 0:09:19.319 that markets will not look through it if the earnings 0:09:19.360 --> 0:09:22.160 degradation is as severe as we think it's going to be. Mike, 0:09:22.200 --> 0:09:24.560 I mentioned that that you see a difference between what 0:09:24.559 --> 0:09:26.959 could develop in the real economy and what could happen 0:09:27.400 --> 0:09:29.600 with earnings. How well received is that with clients at 0:09:29.600 --> 0:09:33.559 the moment? Mike, well, what investors understand that concept that 0:09:33.800 --> 0:09:35.920 I didn't invent that so I mean, I think they 0:09:36.360 --> 0:09:40.120 very much appreciate that kindcept. The problem is that is noisy, 0:09:40.920 --> 0:09:43.400 and there is this you know, we live in this 0:09:43.440 --> 0:09:46.160 world now where there's sort of almost like hand a 0:09:46.240 --> 0:09:49.880 mouth guidance, you know, the Fed, you know, doing it 0:09:49.920 --> 0:09:51.800 for the bond market and companies doing it for the 0:09:51.840 --> 0:09:55.360 stock market, and so it's a process that takes longer 0:09:55.360 --> 0:09:59.719 than it probably should. And that's what's frustrating, I think 0:09:59.720 --> 0:10:01.640 for some investors who are in the weeds on this 0:10:01.800 --> 0:10:05.120 where we are, it's like, well, my goodness, it's pretty 0:10:05.160 --> 0:10:07.319 obvious what's about to happen? You know. Why is a 0:10:07.400 --> 0:10:10.160 marketing solong to kind of prices? That's just the way 0:10:10.160 --> 0:10:12.360 it is, and that's that's not a new phenomena. That's 0:10:12.440 --> 0:10:14.000 kind of way it always is at this stage. When 0:10:14.000 --> 0:10:16.959 you get a significant earnings recession, it just takes longer 0:10:17.000 --> 0:10:18.959 than than you would think to get it priced. Do 0:10:19.000 --> 0:10:22.120 you get more questions about single names now, Mike, and 0:10:22.240 --> 0:10:25.800 what single stock contents do you offer them? We do? 0:10:25.960 --> 0:10:28.400 But you know, I think most of our clients are 0:10:28.400 --> 0:10:30.040 pretty good at that job. I mean, they do a 0:10:30.040 --> 0:10:33.760 good job. That's that's their job. Essentially, We absolutely help them. 0:10:33.800 --> 0:10:35.719 We We do run amud of portfolio as you know, 0:10:35.720 --> 0:10:38.080 we've had great success with that. But it's you know, 0:10:38.080 --> 0:10:39.800 it's it's a it's a helpful tool. And then we 0:10:39.840 --> 0:10:42.000 run a lot of screens for people based on our 0:10:42.480 --> 0:10:44.400 view of the work from a macro standpoint, say, okay, 0:10:44.480 --> 0:10:47.760 these factor variables should be uh in effect and this 0:10:47.840 --> 0:10:49.240 is what you want to you know, kind of put 0:10:49.280 --> 0:10:51.280 in your portfolio. We run those screens, and that's kind 0:10:51.280 --> 0:10:52.920 of how we go at it. We don't we don't 0:10:53.000 --> 0:10:57.640 you know, talk specifics necessarily with clients around uh, you know, 0:10:57.720 --> 0:11:00.000 individual companies as much as you know, say, our analysts 0:11:00.040 --> 0:11:02.640 team does, which is really their job. But let's talk 0:11:02.640 --> 0:11:06.560 about sectors in particular with margin compression. If the service sector, 0:11:06.920 --> 0:11:11.439 if sector is possibly seeing more perhaps wage pressure, need 0:11:11.520 --> 0:11:14.040 to pay more to people to bring them in the 0:11:14.080 --> 0:11:17.439 door than say tech stocks. How do you look at 0:11:17.440 --> 0:11:19.800 where margin compression is going to be the greatest and 0:11:19.840 --> 0:11:22.840 what could potentially get hit as people trickle through and 0:11:22.880 --> 0:11:27.480 realize this new kind of reality. Well that's exactly right. Now. 0:11:27.559 --> 0:11:29.280 One of the other features we've just touch on for 0:11:29.320 --> 0:11:31.760 a second is that the recovery and selfless sort of 0:11:31.760 --> 0:11:34.640 two stage, right, It was goods first, then services. Normally, 0:11:34.679 --> 0:11:38.079 in a normal recovery, everything comes back at the same time, 0:11:38.120 --> 0:11:40.719 so you have the sort of rolling recovery, and now 0:11:40.840 --> 0:11:43.559 rolling recession. Tech is intercession right now, I think that's 0:11:43.600 --> 0:11:46.800 obvious right there, losing uh you know there there, there's 0:11:46.840 --> 0:11:49.959 there're seeing negative growth, They're they're laying people off, more 0:11:49.960 --> 0:11:52.600 aggresive in other sectors, and I think the big question 0:11:52.600 --> 0:11:54.480 for the economy is does that spill over into the 0:11:54.480 --> 0:11:57.000 services sector, which is where the employment really lives, right, 0:11:57.000 --> 0:11:59.280 I mean, that's that's you know, small medium businesses and 0:11:59.360 --> 0:12:03.920 services come to employ a lot more people as you suggested. Look, 0:12:03.920 --> 0:12:06.800 we think ultimately this will roll through kind of the 0:12:06.920 --> 0:12:10.400 entire economy. Services will probably get hit later in the 0:12:10.480 --> 0:12:13.440 year when other businesses are showing weakness and then we're 0:12:13.480 --> 0:12:15.520 seeing layoffs there, which and people spend less money. So 0:12:15.559 --> 0:12:18.800 it's sort of a circular argument. But clearly this idea 0:12:18.800 --> 0:12:21.160 of operational efficiency is what the market is paying for. 0:12:21.280 --> 0:12:24.880 So companies that are showing good inventory controls labor costs 0:12:24.880 --> 0:12:27.959 as a percentage of costcuts so are smaller, and then 0:12:28.040 --> 0:12:31.440 capex appreciation is lower. And this word efficiency has been 0:12:31.480 --> 0:12:34.120 popping up. I find it very interesting. You know, we're 0:12:34.160 --> 0:12:36.000 hearing it from all different companies. We've been talking about 0:12:36.040 --> 0:12:38.199 that for twelve months, so you know, people are catching on, 0:12:38.600 --> 0:12:41.000 and but we think that it's not over. We think 0:12:41.000 --> 0:12:43.319 the market will continue to pay for companies that are 0:12:43.400 --> 0:12:46.520 very efficient with their expenses and can get the revenue 0:12:46.520 --> 0:12:48.720 to the bottom line. This is fascinating, Mike. Are you 0:12:48.760 --> 0:12:51.959 saying that in the months to come, the good sectors 0:12:52.040 --> 0:12:55.680 that perhaps have already seen the downturn will outperform as 0:12:55.760 --> 0:12:58.079 margin pressures and some of the downturns start to hit 0:12:58.280 --> 0:13:03.719 the later recovering sectors, namely services, leisure, hospitality. We think 0:13:03.760 --> 0:13:05.440 that could be the case. I wouldn't say that it's 0:13:05.480 --> 0:13:08.120 like a high conviction view, but we do think that 0:13:08.200 --> 0:13:10.920 a lot of the good sector stocks in particular, and 0:13:11.000 --> 0:13:13.760 even the earnings forecasts have come down because it's obvious, 0:13:13.800 --> 0:13:15.559 right they you know, we had to pull forward of 0:13:15.600 --> 0:13:17.720 demand and so those numbers are written reset the questions 0:13:17.720 --> 0:13:19.839 when does the demand profile look like for some of 0:13:19.880 --> 0:13:22.240 those businesses that we're basically COVID winners? Are they are 0:13:22.240 --> 0:13:24.440 they winners in the long term that's to be determined. 0:13:24.960 --> 0:13:26.720 And then services, we do think it's kind a bit 0:13:26.720 --> 0:13:28.400 for our thing. It's kind of you there's there'll be 0:13:28.440 --> 0:13:30.800 demand destruction as prices are a bit out of control there, 0:13:31.400 --> 0:13:33.400 so it's just messy, you know, And that's why I 0:13:33.400 --> 0:13:35.440 think this our view. We do a lot of work 0:13:35.480 --> 0:13:38.000 on top down earnings, which we have high conviction, and 0:13:38.200 --> 0:13:39.840 that way, you know, we don't have to focus so 0:13:39.880 --> 0:13:41.800 much on trying to call the economy moves everything, which 0:13:41.800 --> 0:13:43.960 I think is a much trickier, uh you know thing 0:13:43.960 --> 0:13:46.840 to do. Calling recession is is very hard because you 0:13:46.920 --> 0:13:48.440 never know when that light switch is going to go 0:13:48.440 --> 0:13:51.520 off unemployment, but when it does, it's you know, it's immediate, 0:13:51.559 --> 0:13:53.520 and it's just there's no lead time. It's just all 0:13:53.559 --> 0:13:55.400 sud to hit you with the earnings picture, we can 0:13:55.480 --> 0:13:57.959 see out twelve months pretty good, and that's why we've 0:13:57.960 --> 0:14:01.160 had conviction there. Well said, is always fantastic to catch 0:14:01.240 --> 0:14:03.600 up with you, said Mike Wilson, that of Mokan Stanley, 0:14:03.720 --> 0:14:16.040 Thank you. Dana Peterson doesn't call it Humphrey Hawk, and 0:14:16.120 --> 0:14:18.920 she calls it muscle Listen. She listens to every single 0:14:18.960 --> 0:14:22.280 word two days at running. She's chief economist at the 0:14:22.320 --> 0:14:25.440 Conference Board. Dana, what I love about your work is 0:14:25.480 --> 0:14:28.640 its consumer foundation at the conference board, maybe a little 0:14:28.640 --> 0:14:33.240 business investment as well. You are heated that measured is 0:14:33.320 --> 0:14:36.800 not fifty basis points, and that we've got a measured 0:14:36.840 --> 0:14:40.360 FED that will stay measured and stay at twenty five beeps, 0:14:40.440 --> 0:14:44.160 whatever that path is. Discuss a nuance of a measured 0:14:44.200 --> 0:14:49.720 FED versus the jump condition that some are calling for. Sure, 0:14:49.760 --> 0:14:52.320 I think that a fifty basis point hike is actually 0:14:52.400 --> 0:14:56.360 inflammatory or would raise a lot of concerns among markets 0:14:56.400 --> 0:14:59.840 and also consumers and businesses that the FED is losing 0:15:00.000 --> 0:15:03.400 control over inflation, at least the fight over inflation. So 0:15:03.440 --> 0:15:05.880 I think the Fed's probably going to opt for more 0:15:06.000 --> 0:15:09.960 twenty five bases point hikes, probably three more, maybe even 0:15:10.000 --> 0:15:13.320 more greater than that. Maybe we'll get to something close 0:15:13.320 --> 0:15:15.560 to six percent. It's not really clear, but it's really 0:15:15.560 --> 0:15:18.600 going to depend upon inflation and also the labor market 0:15:18.640 --> 0:15:21.280 and whether wages are starting to cool at all. And 0:15:21.320 --> 0:15:24.120 so I think that you know, certainly the FED does 0:15:24.160 --> 0:15:26.920 not want to cause alarm and will probably go with 0:15:27.000 --> 0:15:29.560 twenty five basis points in terms of interest rate hikes 0:15:29.600 --> 0:15:33.680 going forward. Dana, you've got unique visibility into consumer confidence 0:15:33.840 --> 0:15:36.880 and frankly, consumer spending which is the engine of this economy. 0:15:36.880 --> 0:15:41.000 Are you seeing signs of softening materially or not really, 0:15:41.080 --> 0:15:44.040 Because we are seeing that kind of wage increase, then 0:15:44.080 --> 0:15:47.240 a lot of people have been waiting for It's interesting 0:15:47.280 --> 0:15:50.720 consumers are divided in terms of the present situation. They're saying, 0:15:50.880 --> 0:15:53.680 we are fine. Most of us are working, many of 0:15:53.760 --> 0:15:57.040 us who switch jobs are seeing wage increases. We may 0:15:57.040 --> 0:15:59.520 still have a little bit of spending, a little bit 0:15:59.520 --> 0:16:01.920 of saving that we can spend. We have credit cards 0:16:02.640 --> 0:16:05.960 and we're continuing to spend. However, looking at the future, 0:16:06.000 --> 0:16:09.240 they still say, hey, we do expect a recession at 0:16:09.280 --> 0:16:12.480 some point. We're concerned about job prospects, we're concerned about 0:16:12.880 --> 0:16:15.840 the business environment, and we're concerned about our own income. 0:16:15.960 --> 0:16:18.120 So it's really a mixed picture in terms of how 0:16:18.160 --> 0:16:21.520 consumers are feeling. How divided is it in terms of 0:16:21.720 --> 0:16:24.200 the high income and the lower income sectors? And I 0:16:24.240 --> 0:16:27.320 ask this as you start to see companies increasingly cater 0:16:27.440 --> 0:16:29.880 to wealthy individuals who still have more than a trillion 0:16:29.880 --> 0:16:34.600 dollars of discretionary savings in their checking accounts, that's according 0:16:34.640 --> 0:16:37.040 to some metrics, and then you have the others who 0:16:37.040 --> 0:16:40.920 are looking at shrinking spending capabilities. How much do you 0:16:40.960 --> 0:16:45.280 see that reflected in sentiment? Sure, it's interesting in the 0:16:45.360 --> 0:16:49.080 last reading, folks making thirty five between thirty five thousand 0:16:49.120 --> 0:16:54.320 and seventy five thousand, we're the most concerned about the outlook. 0:16:54.600 --> 0:16:56.680 And indeed, when we look at what consumers are saying 0:16:56.720 --> 0:16:59.640 they're going to do regarding spending, they're saying they're not 0:16:59.680 --> 0:17:02.600 going to by cars or homes, and they're even pulling 0:17:02.640 --> 0:17:05.520 back on and expect expectations for going on vacation. And 0:17:05.560 --> 0:17:09.080 that's really important because that's a harborer of what's going 0:17:09.080 --> 0:17:13.560 to happen in the services sector, Dana, with all of 0:17:13.600 --> 0:17:16.399 the uncertainties that are out there. To me, the great 0:17:16.440 --> 0:17:20.560 divide is the domestic economy versus foreign dynamics. And of 0:17:20.600 --> 0:17:23.800 course we look at that subdivided into this strange thing 0:17:23.800 --> 0:17:29.000 called domestic final sales. Does domestic final sales indicate we 0:17:29.080 --> 0:17:34.960 are near recession? Well, it's a mix again. Consumers certainly 0:17:34.960 --> 0:17:37.680 did spend a lot of money in January. They were 0:17:37.680 --> 0:17:40.680 pulling back on consumption late last year, but then there 0:17:40.760 --> 0:17:42.760 was a big spurt. But certainly when we look at 0:17:42.760 --> 0:17:46.320 business investment, that's already starting to roll over and certainly 0:17:46.359 --> 0:17:51.800 investment in capex structures and the residential investment environment are 0:17:51.840 --> 0:17:55.119 all weakening. And really the last you to fall is 0:17:55.160 --> 0:17:58.120 going to be the consumer, especially with respect of purchasing. 0:17:58.160 --> 0:18:00.679 So well, this is the Conference Board x Bertise. Do 0:18:00.760 --> 0:18:04.000 you see the tea leaves there of a consumer that 0:18:04.080 --> 0:18:09.679 could fail. Well, I think that's the tough part. Our 0:18:09.760 --> 0:18:13.560 leading indicators continue to signal a recession. Indeed, they say 0:18:13.600 --> 0:18:17.159 that recessions should be happening right about now, but consumers 0:18:17.160 --> 0:18:20.600 are defying all expectations. So I think we really need 0:18:20.640 --> 0:18:23.560 to see the data that's going to come out for February. Certainly, 0:18:23.680 --> 0:18:26.040 January was a pretty good month in terms of weather. 0:18:26.440 --> 0:18:29.959 February was horrible, March was worse, and we'll see if 0:18:29.960 --> 0:18:32.480 that's born out in the data. Dana Peterson, I love 0:18:32.520 --> 0:18:34.159 that we're going to codify that. It's going to be 0:18:34.200 --> 0:18:37.520 in all of our ads going forward. Data February was horrible, 0:18:37.720 --> 0:18:41.480 March's worst. Stata Peterson of the Conference Board. Thank you. 0:18:45.520 --> 0:18:47.679 It's interesting to see how the doves have become hawks. 0:18:47.680 --> 0:18:50.000 This idea that people who had aired on the side 0:18:50.000 --> 0:18:52.439 of not doing as much are now saying this is 0:18:52.480 --> 0:18:55.879 a different scenario. Given the inflation. What's important here is 0:18:55.920 --> 0:19:00.680 to understand that if you do equities, buns, currencies, commodides, 0:19:00.920 --> 0:19:04.080 all sorts of good things can happen. And what's great 0:19:04.280 --> 0:19:07.600 is it any given firm, the guy who's the quote 0:19:07.720 --> 0:19:13.040 unquote fixed strategist, it's always their fault. Well, you know, 0:19:13.240 --> 0:19:16.720 if it's equities, okay, you can Mike Wilson, just equities 0:19:16.800 --> 0:19:20.680 partition that. But if you're a fixed strategist every day, 0:19:20.720 --> 0:19:22.960 it can be here fault. Yeah. Even worse, you're supposed 0:19:23.000 --> 0:19:24.359 to know what's going on at a time where it's 0:19:24.440 --> 0:19:27.119 very difficult to do so. Ian Steely understands the angst 0:19:27.119 --> 0:19:30.840 of that very clearly. He is an international CIO four 0:19:30.840 --> 0:19:32.720 fixed income at JP who work and asset management and 0:19:32.760 --> 0:19:35.040