Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Joining us now Yeoman's Duty Early Morning, California, and James
Speaker 2: Bianco joins his president and founder at Bianco Research, Jim
Speaker 2: the arch call. Here is your sticky inflation report. Let
Speaker 2: me digress from that to the theme of the morning.
Speaker 2: I've heard the word uncertainty forty seven and a half
Speaker 2: times this morning. Is uncertainty an opportunity or not?
Speaker 3: No? I think it's an opportunity. We've overdone the uncertainty thing.
Speaker 3: A bunch of academics from Stanford have put together an
Speaker 3: uncertainty index, and last week it hit an all time high.
Speaker 4: Now, let me restate that we.
Speaker 3: Have more uncertainty now than we did during the COVID
Speaker 3: shutdown during nine to eleven or during the financial crisis.
Speaker 3: Now is more than a certain period. It isn't we're
Speaker 3: overdoing it right now. Everybody's gotten to the point where
Speaker 3: we're talking about the end of US exceptionalism, which was
Speaker 3: a term invented two hundred years ago by Alex de Dopeville.
Speaker 3: So I don't understand why we're getting ourselves all worked
Speaker 3: up that this isn't just a ten percent correction in
Speaker 3: the stock market. But this is the end of the
Speaker 3: American experience right now. So this is the type of
Speaker 3: environment where bottoms are made in markets, and I think
Speaker 3: that's what we've done last week, and it's being confirmed
Speaker 3: also by interest rates to ten year yield also making
Speaker 3: a one month high today.
Speaker 2: The Stanford people doing this include Nicholas Bloom, who is
Speaker 2: definitive on work from home. This goes back eleven years
Speaker 2: to have foundational paper fluctuations in uncertainty. So when is
Speaker 2: the when Jim Bianco on a time basis, how do
Speaker 2: you know when to take the opportunity of uncertainty and invest.
Speaker 3: Yeah, you know that's a good point because usually you
Speaker 3: want to wait until you get to kind of the
Speaker 3: overdone pace. And fortunately this time we got this index
Speaker 3: that Baker, Bloom and Davis have put together that.
Speaker 4: Is added, like I said, a forty year high.
Speaker 3: We've also got you know, talk over the top talk
Speaker 3: I think about the end of US exceptionalism, not understanding
Speaker 3: what that word means. And now all of a sudden,
Speaker 3: two hundred years of you know, the American experience has
Speaker 3: been reduced to a bad quarter in the SMP and
Speaker 3: it's over. And so it's that kind of environment that
Speaker 3: you would look for a bottom in the markets, and
Speaker 3: that's what we've seen in the last couple of weeks
Speaker 3: while the stock market the SMP has rallied about five percent.
Speaker 3: And yes, you're right, it's rare that you get it
Speaker 3: that is extreme, as we've seen in the last ten
Speaker 3: days or so, but at least it's been a little
Speaker 3: easier to identify this time around.
Speaker 1: So, Jim, I'm assuming that the recession scenario is not
Speaker 1: in your forecast.
Speaker 4: No, I don't think it is.
Speaker 3: The You know, even when you hear economists talk about it,
Speaker 3: they'll say the soft data is very weak, but the
Speaker 3: hard data isn't, meaning the actual economic data is actually
Speaker 3: holding up in the opinion data is what's falling apart. Now,
Speaker 3: Typically the opinion data lags the soft data the hard data,
Speaker 3: excuse me, meaning that first the economy turns down. First,
Speaker 3: people lose their jobs. First, they stop spending. Then they
Speaker 3: turn pessimistic. But when they typically turn pessimistic first, when
Speaker 3: no one's losing their jobs and no one has stopped spending,
Speaker 3: they usually doesn't last. And that's why I don't think
Speaker 3: we're going to have a recession, at least at this.
Speaker 5: Point, jimmianco with a thrill that he could be with us.
Speaker 2: I can't say enough, folks about his call for sticky inflation.
Speaker 5: He was lonely a number of years ago when that occurred.
Speaker 2: Good Morning on your commute, ccrastination on the left coast,
Speaker 2: Jim beyond.
Speaker 5: Good morning, an Apple.
Speaker 2: Car play and or a auto and serious ex Sam
Speaker 2: Channel one twenty one, Paul.
Speaker 1: Hey, Jim Thomas, just mentioning that, you know, he and
Speaker 1: I and Lisa Mitay, we hear a lot from our
Speaker 1: guests about uncertainty in the marketplace, and the market doesn't
Speaker 1: like uncertainty. How do you let me talk to your
Speaker 1: clients and they're trying to figure out what this tweet means,
Speaker 1: what that tweet means, what this pol pronouncement means. How
Speaker 1: do you suggest they navigate all that?
Speaker 3: You know, I think what they have to start with
Speaker 3: is is the premise that when Trump was elected president
Speaker 3: and his cabinet and his eighty odd million voters, that
Speaker 3: they voted for change, and that's what we're going to get.
Speaker 3: And whenever I hear people tell me, well, they're very
Speaker 3: worried about the tariffs, They're very worried, you know, about
Speaker 3: the payment for security that we're demanding out of Europe,
Speaker 3: or maybe the Sovereign Wealth Fund or all three. I
Speaker 3: kind of go back to them and say, what do
Speaker 3: you what do you think we should do?
Speaker 4: If we don't do that, going back.
Speaker 3: To the status quo of two trillion dollar deficits and
Speaker 3: massive treasury borrowing, that's what they're trying to move away from.
Speaker 3: So I've argued that we have to give this policy
Speaker 3: a chance to see if it works. Now if it
Speaker 3: doesn't work, then we'll have to try a different type
Speaker 3: of policy. But I don't think we're going back to
Speaker 3: the status quo. And that's really where I think most
Speaker 3: people have struggling is is this is not what we're
Speaker 3: used to, and so we're a little bit unsure of
Speaker 3: where we're going.
Speaker 4: Because it's new territory.
Speaker 3: But I don't think we're going back, and that's probably
Speaker 3: the most important message.
Speaker 5: Do you see percent three to one?
Speaker 4: Jim Banco?
Speaker 2: Do you perceive continued use of cash by companies? Kim
Speaker 2: Dawnston was in and we're arguing about you know, selected
Speaker 2: mag seven is a is a utility holding because of
Speaker 2: free cash flow and quality of free cashlow.
Speaker 5: Do you agree with that.
Speaker 3: Yeah, I mean cash is taking out a very important
Speaker 3: role in this this market. Yeah, and largely because it's
Speaker 3: got such an attractive yield. Right now, a typical money
Speaker 3: market fund will yield four percent, and that is more
Speaker 3: than the inflation rate. I'm still in the sticky inflation
Speaker 3: rate camp, Tom, but I'm in the three percent inflation
Speaker 3: rate camp. So a money market fund is going to
Speaker 3: give you a real yield, a yield above the inflation rate.
Speaker 3: So any company that can throw off cash, cash is
Speaker 3: a valuable thing right now.
Speaker 4: It's not trash like it was, you know, five years ago.
Speaker 4: It's not Tina.
Speaker 3: There is no alternative to cash like it was pre COVID.
Speaker 3: Right now, cash is a competitive investment to performing the
Speaker 3: stock market this year then we've seen in recent years.
Speaker 3: So anything that can give you cash is going to
Speaker 3: be a positive.
Speaker 5: This is the math of that, Paul.
Speaker 2: You do triple leverage four percent as twelve percent grows,
Speaker 2: I take up my two hundred and ten basis points,
Speaker 2: and everybody's happy.
Speaker 1: Everybody's happy.
Speaker 4: The way it works, that's Jim.
Speaker 1: That ten percent pullback we had in that peak to
Speaker 1: trough s and P five hundred was SETI. I guess
Speaker 1: what some would suggest is a kind of a healthy
Speaker 1: pullback in an otherwise longer term bull market. Was it
Speaker 1: something different?
Speaker 4: I think it was a typical pullback.
Speaker 3: You know, you'll get one about every eighteen months or so.
Speaker 3: The last one before this month was October of twenty three,
Speaker 3: so that.
Speaker 4: Was fifteen months ago.
Speaker 3: You know, that's about what the calendar would expect us
Speaker 3: to do, and we should do about two five percent
Speaker 3: pullbacks a year in the market.
Speaker 4: That's the typical type of action.
Speaker 3: So for the moment right now, this looks like, you know,
Speaker 3: a typical pullback.
Speaker 5: We're right.
Speaker 3: We had a catalyst with it, just like in October
Speaker 3: of twenty three. The catalyst was a five percent ten
Speaker 3: year yield, and that's all we wound up doing, was
Speaker 3: the was the ten percent pullback, and then the market
Speaker 3: kind of stabilized and it started to lift off from there.
Speaker 3: And I think this is what we're seeing right now.
Speaker 1: Giving that backdrop, Jim, where are you suggesting that people
Speaker 1: look for opportunity over the next six and twelve months,
Speaker 1: given kind of what we know about some of the
Speaker 1: uncertainty that's going to be I guess surrounding a lot
Speaker 1: of these markets going forward.
Speaker 3: So while I've been very optimistic, look we've bottomed, the
Speaker 3: market's going to recover and the like, I don't think
Speaker 3: it's going to necessarily blast through to all time highs.
Speaker 3: It may, it may technically make an all time high,
Speaker 3: but you're not gone.
Speaker 4: I think are the years where the S and p's
Speaker 4: gonn give you twenty percent.
Speaker 3: So I think the aforementioned cache and the bond market
Speaker 3: at five percent, yields in the bond market, I think
Speaker 3: are going to provide you a competitive investment to this
Speaker 3: stock market right now. And that's because as the market
Speaker 3: makes it back to the all time high, I wouldn't
Speaker 3: be surprised if we start to see yields push well
Speaker 3: above four fifty towards four to seventy five, And that'll
Speaker 3: be the newer concern for investors, should we have to
Speaker 3: bring stocks not go up.
Speaker 2: What do you see on the labor economy? Your purview
Speaker 2: from Chicago, La Diane Swank is different. You're not within
Speaker 2: three idiots zip codes in Manhattan. The FED models out
Speaker 2: to that singular headline four point four percent. Do you
Speaker 2: model out to a higher unemployment rate?
Speaker 4: Slightly higher unemployment rate?
Speaker 3: I think the biggest thing that we're going to struggle
Speaker 3: with is going to be the impact of the slow
Speaker 3: down of migration into the country and what that means
Speaker 3: for change of population and everything. And I understand the
Speaker 3: argument that we might see higher unemployment rates as we
Speaker 3: move forward, but ps fact that it's going to be
Speaker 3: overstated the amount of labor weakness that we're going to
Speaker 3: see from the labor market, and that it's probably going
Speaker 3: to hold up much better.
Speaker 5: It's a huge deal.
Speaker 2: I mean, Jim Tarzan Slack published, i believe yesterday or
Speaker 2: the day before his new run rate on non farm
Speaker 2: payrolls is sub one hundred thousand. Is your new run
Speaker 2: rate because of a diminished immigration sub one hundred thousand.
Speaker 3: I don't think it's going to be that low because
Speaker 3: typically if you're looking at, you know, the migrant workforce,
Speaker 3: the migrant workforce is usually not a workforce that gets
Speaker 3: a W two, that has withholding taxes.
Speaker 4: That's who gets measured in the payroll report.
Speaker 3: So I suspect that that will stay a little bit
Speaker 3: stronger now in the household report. They can get picked
Speaker 3: up in that and that might show up as a
Speaker 3: higher unemployment rate. So I'm with them at least that
Speaker 3: there'll be some weakness because of it, but I think
Speaker 3: it's going to show up in the other report, the
Speaker 3: houshole report and unemployment as opposed to lower payrolls.
Speaker 1: Jim, given all this backdrop here, what do you think
Speaker 1: our federal Reserve? How do you think they're going to
Speaker 1: proceed for the remainder of this year?
Speaker 3: You know, I think the May meeting is the most
Speaker 3: important meeting of the year, because if they can't find
Speaker 3: a reason to cut rates in May, there is no
Speaker 3: reason to cut rates in May, because they've got the
Speaker 3: ten percent correction, they've got the handwringing about you know, tariffs,
Speaker 3: they've got to talk about a recession. And if we
Speaker 3: get to that May seventh meeting and they still can't
Speaker 3: find a reason to cut rates, then they're done for
Speaker 3: the year.
Speaker 4: And that the rate cut cycle ended last December. So
Speaker 4: I don't think they will, And I think that this.
Speaker 3: Means that they're pretty much on hold at least until
Speaker 3: the next cycle emergence. Maybe something else comes along that
Speaker 3: we can see economy, or we start talking about rate
Speaker 3: hikes later this year and too next year.
Speaker 2: For all of you across the Nation joining US tow
Speaker 2: surveillance Somalia. James Bianco Jim out of Napa Valley. I mean,
Speaker 2: I look at the Screaming Eagle in Oakville and it's
Speaker 2: really really exceptional. But it is a different tinge than
Speaker 2: the wines of ruugh Of in Napa Valley, aren't they?
Speaker 3: Yes, you know, this is a fantastic place to be.
Speaker 3: If anybody can ever come out here and sip wine
Speaker 3: and enjoy the weather, I highly recommend it.
Speaker 2: Which which wine? Which beverage of the wine do you
Speaker 2: do you like best? I mean, is there certain nuance
Speaker 2: to the Napa Velly wine that Michael Barr should know about?
Speaker 4: You know they all do.
Speaker 3: There's there's vineyards every half mile here, and each one
Speaker 3: is very different, and so you know, this is the
Speaker 3: wine connoisseurs heaven to be.
Speaker 2: Is it as gorgeous as that apples screen on Sequoia.
Speaker 2: Everybody's got this now in their computer screen. It is
Speaker 2: this gorgeous view of I guess Napa Valley?
Speaker 5: Is it that beautiful?
Speaker 3: Jim Bure, Yes, it is. I wish it wasn't still
Speaker 3: dark out. I'd flip the camera around and show.
Speaker 4: You the view. It's it's unbelievable.
Speaker 2: You're a trouper to be with its necessarily nine seven
Speaker 2: six fine is that? Six fifteen yes, six fifteen in
Speaker 2: the morning. Thank you, Jim beyoncle