1 00:00:14,440 --> 00:00:17,760 Speaker 1: Welcome to What Goes Up, a weekly markets podcast Humble 2 00:00:17,800 --> 00:00:19,360 Speaker 1: Down A Hire a markets reporter with. 3 00:00:19,320 --> 00:00:23,320 Speaker 2: Bluebir and I'm Peyton Forte, also a markets reporter with Bloomberg. 4 00:00:23,360 --> 00:00:25,239 Speaker 1: And this week on the show, we're talking to the 5 00:00:25,320 --> 00:00:28,080 Speaker 1: chief investment strategist at a major bank who's looking at 6 00:00:28,160 --> 00:00:31,840 Speaker 1: financial conditions tightening, interest rate sensitive sector is getting hit 7 00:00:31,960 --> 00:00:36,800 Speaker 1: and corporate profits deteriorating as signs of an impending US recession. 8 00:00:37,479 --> 00:00:40,720 Speaker 1: But first, Peyton, it's your first time on the show. Welcome. 9 00:00:40,760 --> 00:00:43,720 Speaker 1: I'm so happy you could join us, and the listeners 10 00:00:43,720 --> 00:00:45,479 Speaker 1: should know you and I are on the same team. 11 00:00:45,920 --> 00:00:48,599 Speaker 1: I know you pretty well, but they do not know you. 12 00:00:48,680 --> 00:00:52,240 Speaker 1: So this is your chance to introduce yourself and share 13 00:00:52,280 --> 00:00:55,080 Speaker 1: your deepest, darkest secrets with us. Yeah. 14 00:00:55,240 --> 00:00:59,080 Speaker 2: So longtime listener, first time hosts. So I appreciate you 15 00:00:59,120 --> 00:01:02,040 Speaker 2: for having me on. I don't really have that many 16 00:01:02,120 --> 00:01:04,920 Speaker 2: deep dark secrets, but what I can tell the people 17 00:01:05,080 --> 00:01:08,560 Speaker 2: is that I'm always teaching field. Donna gen Z terms 18 00:01:08,600 --> 00:01:12,720 Speaker 2: for her to sprinkle into her podcast and I have 19 00:01:12,880 --> 00:01:14,000 Speaker 2: yet to hear one. 20 00:01:14,400 --> 00:01:17,600 Speaker 1: So when I said deep secret, I meant secret about you, 21 00:01:17,720 --> 00:01:18,319 Speaker 1: not about me. 22 00:01:20,840 --> 00:01:23,560 Speaker 2: My secret about myself is that I teach you things, 23 00:01:23,640 --> 00:01:25,440 Speaker 2: and I teach you things for you to go out 24 00:01:25,440 --> 00:01:27,640 Speaker 2: into the wild and assimilate with the youth. 25 00:01:27,720 --> 00:01:30,000 Speaker 1: You know what I mean, assimilate with the youth. Yes, 26 00:01:30,080 --> 00:01:33,039 Speaker 1: you've taught me a lot of no printer. 27 00:01:33,840 --> 00:01:35,319 Speaker 2: Riz no cap. 28 00:01:35,720 --> 00:01:39,000 Speaker 1: What does no cap mean? Have you taught me no cap? 29 00:01:39,040 --> 00:01:39,640 Speaker 1: And I forgot? 30 00:01:39,920 --> 00:01:40,320 Speaker 2: Yeah? 31 00:01:40,480 --> 00:01:40,840 Speaker 3: I have? 32 00:01:41,400 --> 00:01:42,240 Speaker 1: What is no cap? 33 00:01:42,560 --> 00:01:47,880 Speaker 2: Just no lie, no lie, no lie, no cap, no cap. 34 00:01:47,960 --> 00:01:53,760 Speaker 1: Our guest is waiting for us right now? How's that? 35 00:01:53,760 --> 00:01:55,440 Speaker 2: That was beautiful? Thank you. 36 00:01:55,640 --> 00:01:58,120 Speaker 1: I want to bring in Tom Kennedy, the Chief Investment 37 00:01:58,160 --> 00:02:01,720 Speaker 1: Strategist for Global Wealth Management at JP Morgan. Tom, welcome 38 00:02:01,760 --> 00:02:02,160 Speaker 1: to the show. 39 00:02:02,280 --> 00:02:03,760 Speaker 3: Thank you for having me excited to be here. 40 00:02:04,200 --> 00:02:04,680 Speaker 4: You have this. 41 00:02:04,800 --> 00:02:08,959 Speaker 1: Really really cool background and biography that your team sent 42 00:02:09,000 --> 00:02:12,200 Speaker 1: over where we found out that you spent years working 43 00:02:12,200 --> 00:02:14,240 Speaker 1: with the FED. So I'm hoping you can just tell 44 00:02:14,320 --> 00:02:16,760 Speaker 1: us a little bit about your background and what your 45 00:02:16,800 --> 00:02:18,239 Speaker 1: role entails at JP Morgan. 46 00:02:18,760 --> 00:02:19,359 Speaker 3: Absolutely. 47 00:02:19,760 --> 00:02:22,280 Speaker 4: I joined JP Morgan about five years ago. I'm the 48 00:02:22,320 --> 00:02:25,120 Speaker 4: chief Investment Strategies and wealth Management. As you said, prior 49 00:02:25,160 --> 00:02:28,240 Speaker 4: to that, had the luxury to work for the senders 50 00:02:28,320 --> 00:02:31,200 Speaker 4: or Bank in New York in a unique markets role 51 00:02:31,320 --> 00:02:36,160 Speaker 4: that helped the FMC start every FOMC meeting and you 52 00:02:36,200 --> 00:02:39,160 Speaker 4: may say, well, what's so interesting and exciting about that. 53 00:02:39,919 --> 00:02:42,960 Speaker 4: The way the FMC starts its meeting is the solo 54 00:02:43,040 --> 00:02:46,720 Speaker 4: portfolio manager gets up and lays out what markets are 55 00:02:46,760 --> 00:02:49,919 Speaker 4: expecting from the economy and what markets are expecting the 56 00:02:49,960 --> 00:02:54,280 Speaker 4: FED to do. The FED calibrates its policy and maybe 57 00:02:54,440 --> 00:02:57,320 Speaker 4: dials up expected growth or dials it down, or dials 58 00:02:57,400 --> 00:03:01,560 Speaker 4: up expected inflation or down by chaining financial variables. So 59 00:03:01,600 --> 00:03:03,359 Speaker 4: you have to have a baseline of where you are. 60 00:03:03,720 --> 00:03:05,360 Speaker 4: I was part of the team that had the luxury 61 00:03:05,360 --> 00:03:09,000 Speaker 4: to write and research that piece of just bringing statistical 62 00:03:09,040 --> 00:03:12,799 Speaker 4: techniques to decide what is in the price some a luxury. 63 00:03:12,880 --> 00:03:16,400 Speaker 4: I think that fords our JP Morgan clients this framework 64 00:03:16,440 --> 00:03:17,200 Speaker 4: of what's in the price. 65 00:03:18,520 --> 00:03:20,520 Speaker 1: I have to be honest, I think that's so cool. 66 00:03:20,760 --> 00:03:23,680 Speaker 1: That's like the coolest little bio bit I've ever heard of. 67 00:03:24,760 --> 00:03:27,080 Speaker 4: I agree with people don I loved it. It really 68 00:03:27,120 --> 00:03:30,680 Speaker 4: is transformative. I think for how we're trying to bring 69 00:03:30,840 --> 00:03:33,720 Speaker 4: markets and investment opportunities to our clients at JAP Morgan, 70 00:03:34,280 --> 00:03:37,160 Speaker 4: many people flex their muscles and say I know what's 71 00:03:37,200 --> 00:03:40,760 Speaker 4: going to happen and listen to me. To be really 72 00:03:40,760 --> 00:03:42,840 Speaker 4: good on Wall Street, you got to get maybe sixty 73 00:03:42,880 --> 00:03:45,320 Speaker 4: percent of your calls right, So nobody's that big in bravado. 74 00:03:45,800 --> 00:03:48,560 Speaker 4: By starting with what's in the price, you actually allow 75 00:03:48,640 --> 00:03:56,280 Speaker 4: yourself to find asymmetryes in expected investment returns without having 76 00:03:56,320 --> 00:03:59,640 Speaker 4: to even introduce the bravado. The bravado helps you inform 77 00:03:59,680 --> 00:04:01,280 Speaker 4: it to say, but it's not the sole basis for 78 00:04:01,320 --> 00:04:01,840 Speaker 4: the decision. 79 00:04:02,160 --> 00:04:06,480 Speaker 2: I have a severely burning question. I wonder do you 80 00:04:06,560 --> 00:04:10,360 Speaker 2: ever look at fitz speak today and find yourself going, Hey, 81 00:04:10,440 --> 00:04:13,120 Speaker 2: that sounds like something I would have written, or hm, 82 00:04:13,120 --> 00:04:15,040 Speaker 2: I think I would have did that a little bit better. 83 00:04:15,760 --> 00:04:17,479 Speaker 4: I think everyone on Walls you would say they read 84 00:04:17,520 --> 00:04:19,920 Speaker 4: something from the FED and either agree disagree with it. 85 00:04:20,480 --> 00:04:23,640 Speaker 4: I do think my training there has a unique perspective 86 00:04:24,040 --> 00:04:27,359 Speaker 4: in that sometimes I can tease out what they're trying 87 00:04:27,400 --> 00:04:31,920 Speaker 4: to do a little bit better. For instance, in this environment, 88 00:04:32,200 --> 00:04:34,640 Speaker 4: what they're trying to tease out is do we need 89 00:04:34,680 --> 00:04:38,760 Speaker 4: to hike again in June? Or can we be done so? 90 00:04:38,800 --> 00:04:43,120 Speaker 4: Some FED policymakers are coming out and suggesting, while rates 91 00:04:43,120 --> 00:04:46,240 Speaker 4: are restrictive enough, here's my evidence, maybe we don't need 92 00:04:46,279 --> 00:04:49,120 Speaker 4: to hike anymore. While others are maybe taking the other 93 00:04:49,200 --> 00:04:51,680 Speaker 4: side of it, and you can see how the market 94 00:04:51,760 --> 00:04:55,080 Speaker 4: responds to it. I'm describing a dance that the FED 95 00:04:55,160 --> 00:04:57,600 Speaker 4: does with the market, and they have to do this 96 00:04:57,680 --> 00:05:03,040 Speaker 4: because it's the only way can transmit. It's an interesting time. Peyton, 97 00:05:03,080 --> 00:05:06,800 Speaker 4: Your question is important because it's quite likely we're at 98 00:05:06,800 --> 00:05:09,640 Speaker 4: the end of the hiking cycle. That's what the market 99 00:05:09,680 --> 00:05:12,240 Speaker 4: price is. I think that was the right conclusion out 100 00:05:12,279 --> 00:05:15,080 Speaker 4: of the mafom C meeting. But now the Fed can 101 00:05:15,120 --> 00:05:18,200 Speaker 4: start to use its communications to figure out if that's 102 00:05:18,279 --> 00:05:20,280 Speaker 4: exactly right, and if the market exactly agrees. 103 00:05:20,600 --> 00:05:23,040 Speaker 1: Okay, that's really awesome. You can sort of like take 104 00:05:23,120 --> 00:05:25,200 Speaker 1: little hints of what they're trying to tell us. But 105 00:05:25,279 --> 00:05:28,120 Speaker 1: so when it does come to your own projections and 106 00:05:28,240 --> 00:05:31,320 Speaker 1: JP Morgan's projections, I think earlier this week we had 107 00:05:31,360 --> 00:05:33,799 Speaker 1: a story saying JP Morgan is saying that the market 108 00:05:33,839 --> 00:05:36,680 Speaker 1: is right to be pricing in rate cuts. So can 109 00:05:36,720 --> 00:05:39,520 Speaker 1: you maybe just talk about what you foresee happening when 110 00:05:39,560 --> 00:05:41,520 Speaker 1: it comes to what we should be expecting from the Fed. 111 00:05:43,720 --> 00:05:45,760 Speaker 4: The FED, i think, has been on a five step 112 00:05:45,839 --> 00:05:51,520 Speaker 4: journey to bring inflation down towards trent. The first step 113 00:05:51,560 --> 00:05:54,320 Speaker 4: is to tighten financial conditions. The primary tool to do 114 00:05:54,320 --> 00:05:56,120 Speaker 4: that is to high rates, and for all of us 115 00:05:56,160 --> 00:06:00,080 Speaker 4: regular people, that should change your decision. Step two is 116 00:06:00,240 --> 00:06:03,520 Speaker 4: those rate hikes impact the most interest rate sensitive sectors 117 00:06:03,520 --> 00:06:06,640 Speaker 4: of the world. When interest rates go up, housing is 118 00:06:06,680 --> 00:06:09,159 Speaker 4: the part of the economy that tends to respond. First, 119 00:06:09,920 --> 00:06:13,520 Speaker 4: home sale prices in America are going down sequentially, not 120 00:06:13,640 --> 00:06:15,680 Speaker 4: a lot. Home prices went up a lot. They're coming 121 00:06:15,680 --> 00:06:17,480 Speaker 4: down a lot. Are theyre coming down a little bit? 122 00:06:18,640 --> 00:06:20,760 Speaker 4: But it's evidence now that rates are high enough and 123 00:06:20,760 --> 00:06:25,239 Speaker 4: people need to change their decisions. And that's the shortest 124 00:06:25,279 --> 00:06:27,320 Speaker 4: interest rate cycle though done. I imagine you walk into 125 00:06:27,640 --> 00:06:29,840 Speaker 4: a branch, one of JP Morgan's best branches and say 126 00:06:29,839 --> 00:06:30,640 Speaker 4: I want to buy a home. 127 00:06:31,240 --> 00:06:33,400 Speaker 3: We'll lock your mortgage rate for ninety days. 128 00:06:33,560 --> 00:06:34,960 Speaker 1: I've done that with you guys before. 129 00:06:35,040 --> 00:06:37,599 Speaker 4: By the way, come all back for another one. But 130 00:06:37,680 --> 00:06:40,479 Speaker 4: it's a very short cycle, and we have seen the 131 00:06:40,560 --> 00:06:43,600 Speaker 4: impact there. SOT raise rates the FED to that five 132 00:06:43,680 --> 00:06:46,520 Speaker 4: hundred basis points. Step two is the most interest rate 133 00:06:46,600 --> 00:06:50,400 Speaker 4: sensitive sectors respond, We're there. Step three is, now those 134 00:06:50,480 --> 00:06:53,600 Speaker 4: high rates have to impact corporations. How do we do 135 00:06:53,640 --> 00:06:56,000 Speaker 4: that or how do rates do that? Higher rates actually 136 00:06:56,040 --> 00:06:58,520 Speaker 4: limit the ability to borrow money and do capital investment. 137 00:06:59,080 --> 00:07:02,440 Speaker 4: JP Morgan does millions of dollars of capital investment every year. 138 00:07:03,120 --> 00:07:06,400 Speaker 4: If rates are too high, we can't borrow and can't 139 00:07:06,400 --> 00:07:09,400 Speaker 4: do the capital investment. If that's true, we're taking money 140 00:07:10,040 --> 00:07:12,240 Speaker 4: or revenue from another business, and so on you go 141 00:07:12,320 --> 00:07:17,480 Speaker 4: through the economy. We're we're in that phase. And when 142 00:07:17,640 --> 00:07:20,520 Speaker 4: revenues in the system start to slow, as we've seen 143 00:07:20,800 --> 00:07:23,320 Speaker 4: in the SP five hundred as an example, in Q one, 144 00:07:23,440 --> 00:07:26,720 Speaker 4: revenues relative to year ago down four percent, give or take, 145 00:07:27,280 --> 00:07:30,400 Speaker 4: what do businesses do. They tend to defend their earnings 146 00:07:30,440 --> 00:07:33,400 Speaker 4: and they can either cut capex more or more likely 147 00:07:33,680 --> 00:07:36,280 Speaker 4: end up having to do some sort of layoffs, and 148 00:07:36,320 --> 00:07:39,440 Speaker 4: then finally inflation comes down. So a five step process. 149 00:07:39,440 --> 00:07:42,080 Speaker 4: I think we're about halfway there. We should expect to 150 00:07:42,080 --> 00:07:43,880 Speaker 4: see I think some level of layoffs in the back 151 00:07:43,920 --> 00:07:44,560 Speaker 4: half of this year. 152 00:07:45,240 --> 00:07:48,680 Speaker 2: Yah earlier this week, we had Mohammed iil Arian on 153 00:07:48,760 --> 00:07:52,880 Speaker 2: Bloomberg Television recently, and he said that a strong consumer 154 00:07:53,080 --> 00:07:56,680 Speaker 2: coupled with a weakening global economy kind of makes it 155 00:07:56,720 --> 00:08:00,120 Speaker 2: difficult to determine the right level for US rate and 156 00:08:00,160 --> 00:08:03,200 Speaker 2: also inflation. And I was just wondering if that is 157 00:08:03,280 --> 00:08:04,920 Speaker 2: a view that you hold as well. 158 00:08:05,240 --> 00:08:08,240 Speaker 4: I think it very hard to calibrate for an economy 159 00:08:08,280 --> 00:08:12,080 Speaker 4: that's three hundred and fifty plus million people, what's the 160 00:08:12,480 --> 00:08:15,400 Speaker 4: interest rate that's right, and what's the interest rates that's 161 00:08:15,440 --> 00:08:18,440 Speaker 4: high enough that changes people's behavior pay if we go 162 00:08:18,480 --> 00:08:20,520 Speaker 4: to that five step process. The point of changing interest 163 00:08:20,560 --> 00:08:22,520 Speaker 4: rates is to cause all of these other steps to 164 00:08:22,600 --> 00:08:26,280 Speaker 4: do something different. But when you're a regular person, you 165 00:08:26,280 --> 00:08:29,080 Speaker 4: don't think like that. You don't worry about, oh is 166 00:08:29,120 --> 00:08:33,360 Speaker 4: my checking account getting me zero percent today versus you 167 00:08:33,400 --> 00:08:34,559 Speaker 4: know one percent next year? 168 00:08:34,600 --> 00:08:35,199 Speaker 3: What it may be. 169 00:08:35,440 --> 00:08:37,920 Speaker 4: It takes time to move through the economy. I think 170 00:08:37,920 --> 00:08:40,360 Speaker 4: it's probably the biggest reason why we get recessions right. 171 00:08:40,360 --> 00:08:42,679 Speaker 4: It's hard to know exactly what the level of interest 172 00:08:42,720 --> 00:08:45,280 Speaker 4: rates that is right. When we look at the world 173 00:08:45,360 --> 00:08:47,880 Speaker 4: right now, I think we're getting very compelling evidence that 174 00:08:48,000 --> 00:08:50,360 Speaker 4: rates are high enough and it will just take time 175 00:08:51,120 --> 00:08:54,960 Speaker 4: for inflation and growth to come down. A couple of 176 00:08:54,960 --> 00:08:57,400 Speaker 4: really important points for us, like, first of all, banks 177 00:08:57,480 --> 00:09:01,200 Speaker 4: have failed in America. Banks are not to fail, so 178 00:09:01,240 --> 00:09:04,120 Speaker 4: something is happening there. And at the very least, rates 179 00:09:04,160 --> 00:09:07,200 Speaker 4: being high has made them on uneven ground. You can 180 00:09:07,280 --> 00:09:10,240 Speaker 4: look to the housing sector, like we talked about home 181 00:09:10,280 --> 00:09:11,960 Speaker 4: price is sequentially declining. 182 00:09:12,440 --> 00:09:13,600 Speaker 3: You can look to the consumer. 183 00:09:14,120 --> 00:09:16,400 Speaker 4: I think I agree that consumers in good shape right now, 184 00:09:16,400 --> 00:09:20,040 Speaker 4: but you're getting evidence that they need to turn to 185 00:09:20,120 --> 00:09:22,440 Speaker 4: debt to get their lifestyle to where they want it 186 00:09:22,480 --> 00:09:26,240 Speaker 4: to be. Delinquencies for autos, delinquencies for credit cards is 187 00:09:26,240 --> 00:09:28,800 Speaker 4: moving up. So I am getting evidence that rates are 188 00:09:28,840 --> 00:09:33,160 Speaker 4: high enough. Are they too high? Katon's your question, don't know, Well, 189 00:09:33,160 --> 00:09:35,400 Speaker 4: they need to stay at this level for a longer 190 00:09:35,480 --> 00:09:38,959 Speaker 4: period of time than say, the next six months or 191 00:09:39,000 --> 00:09:40,960 Speaker 4: eight months, which is our base case that they will. 192 00:09:41,320 --> 00:09:42,840 Speaker 3: It's unclear, that's the question. 193 00:09:43,200 --> 00:09:45,880 Speaker 1: Okay. So I love that you have these different checklists, 194 00:09:45,960 --> 00:09:48,760 Speaker 1: Like you have the checklist of, you know what, the 195 00:09:48,800 --> 00:09:51,800 Speaker 1: FED pause checklist. You also have a checklist of like 196 00:09:51,840 --> 00:09:54,280 Speaker 1: the things you're watching for a US recession. I love 197 00:09:54,280 --> 00:09:56,960 Speaker 1: it because it's exactly how my brain works too, Like 198 00:09:57,080 --> 00:09:59,400 Speaker 1: I'd love to check those things off. So tell us 199 00:09:59,400 --> 00:10:02,320 Speaker 1: about the US recession roadmap that you have and the 200 00:10:02,600 --> 00:10:03,920 Speaker 1: different items that are part of it. 201 00:10:04,960 --> 00:10:09,600 Speaker 4: Those five items are financial conditions, the most interest rate 202 00:10:09,679 --> 00:10:13,120 Speaker 4: sensitive sectors, and the corporate sector. From here now, it's 203 00:10:13,160 --> 00:10:15,719 Speaker 4: how long do you stay with the corporate sector. How 204 00:10:15,760 --> 00:10:19,320 Speaker 4: long is the corporate sector able to absorb high interest rates? 205 00:10:19,800 --> 00:10:21,880 Speaker 4: And at what point do they move to step forward, 206 00:10:21,880 --> 00:10:24,840 Speaker 4: which is the layoffs bill. Dana, I'm glad you brought 207 00:10:24,880 --> 00:10:26,840 Speaker 4: us back to this point of the five steps because 208 00:10:26,960 --> 00:10:28,520 Speaker 4: a lot of folks will look at the tech sector 209 00:10:28,559 --> 00:10:31,880 Speaker 4: and say, well, tech already did its layoffs, They've already 210 00:10:31,920 --> 00:10:36,240 Speaker 4: done with the recession. And that's entirely possible. It's also 211 00:10:36,440 --> 00:10:41,480 Speaker 4: possible that tech needed to adjust its business model or 212 00:10:41,520 --> 00:10:45,920 Speaker 4: defend its earnings because maybe some of those businesses. 213 00:10:47,280 --> 00:10:51,239 Speaker 3: Miscalculated what the world would. 214 00:10:50,960 --> 00:10:53,880 Speaker 4: Do coming out of COVID on wall sheet people will 215 00:10:53,880 --> 00:10:57,120 Speaker 4: call this like a bull whip phenomenon where you expected 216 00:10:57,120 --> 00:11:01,839 Speaker 4: revenues to go up at double rates, but wow, the 217 00:11:01,920 --> 00:11:05,000 Speaker 4: feed either highted rates or consumers just rotated away from 218 00:11:05,040 --> 00:11:08,480 Speaker 4: your business. Revenues came down, but you had too many 219 00:11:08,520 --> 00:11:13,600 Speaker 4: expenses for that revenues to come down. It's possible some 220 00:11:13,640 --> 00:11:16,280 Speaker 4: of those businesses went through their own micro recessions, but 221 00:11:16,280 --> 00:11:19,480 Speaker 4: they haven't been through their macro recession yet. I would 222 00:11:19,760 --> 00:11:25,319 Speaker 4: circle this as the most important economist conversation to be. 223 00:11:25,280 --> 00:11:26,840 Speaker 3: Had right now. 224 00:11:26,880 --> 00:11:29,720 Speaker 4: Are we about to walk into a big macro recession 225 00:11:29,720 --> 00:11:33,760 Speaker 4: where broad layoffs happen, or can you keep these micro 226 00:11:33,880 --> 00:11:36,280 Speaker 4: recessions like we saw in tech and not have broad 227 00:11:36,280 --> 00:11:40,080 Speaker 4: based layoffs from the recession roadmap. Coming back to your question, 228 00:11:40,480 --> 00:11:42,560 Speaker 4: more likely than not, we think you're going to see 229 00:11:42,840 --> 00:11:46,920 Speaker 4: a layoff cycle. Don't think it's going to be crisis like, 230 00:11:47,040 --> 00:11:50,880 Speaker 4: not two thousand and eight like, but nonetheless, you will 231 00:11:50,920 --> 00:11:54,360 Speaker 4: most likely need to see people lose their job for 232 00:11:54,440 --> 00:11:57,760 Speaker 4: there to be confidence that inflation won't just pick right 233 00:11:57,840 --> 00:11:58,439 Speaker 4: back up again. 234 00:11:59,080 --> 00:12:01,600 Speaker 1: Where do you see the unimployment rate taking too? Then 235 00:12:01,640 --> 00:12:02,760 Speaker 1: in that case, in. 236 00:12:02,720 --> 00:12:04,720 Speaker 4: Our baseline scenario, we have it going to five five 237 00:12:04,720 --> 00:12:09,320 Speaker 4: and a half percent. Now, not incredible precision in what 238 00:12:09,360 --> 00:12:11,760 Speaker 4: that might look like, but again, bias is a real 239 00:12:11,800 --> 00:12:14,480 Speaker 4: thing and a big part of our process. The checklists, 240 00:12:15,679 --> 00:12:18,240 Speaker 4: what's in the price framework are meant to remove bias 241 00:12:18,240 --> 00:12:23,640 Speaker 4: from our investment decisions. Everyone has bias, but we have 242 00:12:23,679 --> 00:12:25,880 Speaker 4: a recency bias that goes on of oh, it's going 243 00:12:25,920 --> 00:12:27,520 Speaker 4: to be the same as two thousand and eight, or 244 00:12:27,520 --> 00:12:29,400 Speaker 4: even worse, it's going to be like COVID. 245 00:12:29,520 --> 00:12:30,560 Speaker 3: Again, I don't think people. 246 00:12:30,320 --> 00:12:33,679 Speaker 4: Are making that comparison, but the unemployment rate going up 247 00:12:34,040 --> 00:12:36,360 Speaker 4: two and a half three percentage points is pretty average 248 00:12:36,760 --> 00:12:41,000 Speaker 4: going back for non crisis recessions, and those were traditionally 249 00:12:41,000 --> 00:12:43,320 Speaker 4: monetary policy induced, like what we expect this one to be. 250 00:12:44,559 --> 00:12:46,320 Speaker 3: The importance sorry built down to the last point of there. 251 00:12:47,440 --> 00:12:50,120 Speaker 4: I think you really need to see the layoffs in 252 00:12:50,200 --> 00:12:57,880 Speaker 4: certain sectors places like manufacturing, like construction, and unfortunately probably 253 00:12:57,920 --> 00:12:59,640 Speaker 4: in financial services to. 254 00:12:59,640 --> 00:13:02,240 Speaker 3: Really feel like this broad based. 255 00:13:01,880 --> 00:13:05,360 Speaker 4: Reset happens, and that if and when the FED cuts rates, 256 00:13:05,440 --> 00:13:09,240 Speaker 4: inflation will stay at two percent rather than inflect higher 257 00:13:09,320 --> 00:13:10,560 Speaker 4: up towards four percent. 258 00:13:10,640 --> 00:13:11,240 Speaker 3: Something like that. 259 00:13:18,320 --> 00:13:20,840 Speaker 2: And you said that in your view, if we do 260 00:13:20,920 --> 00:13:25,000 Speaker 2: get this macro recession, it won't be crisis like like 261 00:13:25,040 --> 00:13:27,280 Speaker 2: we've seen in two thousand and eight. What makes you 262 00:13:27,360 --> 00:13:29,040 Speaker 2: think this time is different? 263 00:13:29,880 --> 00:13:32,680 Speaker 4: It was a much more defensible statement to be said 264 00:13:32,880 --> 00:13:36,880 Speaker 4: on March first of this year. Banks failing really challenges 265 00:13:36,920 --> 00:13:40,560 Speaker 4: that thesis, and like, I think we should acknowledge that. 266 00:13:41,080 --> 00:13:43,120 Speaker 4: But the key pillars, even prior to March first, I 267 00:13:43,160 --> 00:13:43,920 Speaker 4: think are still there. 268 00:13:44,080 --> 00:13:44,320 Speaker 3: One. 269 00:13:45,280 --> 00:13:51,840 Speaker 4: Corporate leverage is sustainable or at least not overly levered 270 00:13:52,000 --> 00:13:54,719 Speaker 4: from what we can see in investment grade and high 271 00:13:54,760 --> 00:14:00,520 Speaker 4: yield businesses. These are interest coverage ratios, that are or 272 00:14:00,520 --> 00:14:04,120 Speaker 4: at least average relative to history. Let's look at the consumer. 273 00:14:04,360 --> 00:14:06,959 Speaker 4: The consumer is not over levered to their big durable 274 00:14:07,000 --> 00:14:13,200 Speaker 4: purchases things like houses and secondarily to auto purchases. It 275 00:14:13,240 --> 00:14:16,920 Speaker 4: doesn't also seem third probly that there is much excessive 276 00:14:17,000 --> 00:14:20,360 Speaker 4: leverage in financial markets. Remember, an investor can have excess 277 00:14:20,440 --> 00:14:24,040 Speaker 4: leverage on as well. Now those are the visible places, right, 278 00:14:24,080 --> 00:14:26,160 Speaker 4: and it was all predicated on March first, Like, banks 279 00:14:26,160 --> 00:14:30,080 Speaker 4: weren't failing at that time. So there are vulnerabilities that 280 00:14:30,120 --> 00:14:33,280 Speaker 4: are out there that could accelerate a recession. But even 281 00:14:33,280 --> 00:14:34,960 Speaker 4: if you get a recession, it doesn't look like you 282 00:14:35,000 --> 00:14:38,000 Speaker 4: have a major de leveraging cycle that needs to follow. 283 00:14:38,720 --> 00:14:42,920 Speaker 4: Gives us some confidence, Payton. The asterisk is, though, when 284 00:14:43,040 --> 00:14:47,320 Speaker 4: rates are very high, your vulnerabilities get exposed. I think 285 00:14:47,400 --> 00:14:50,480 Speaker 4: it quite common on Wall Street for people to say 286 00:14:51,400 --> 00:14:54,920 Speaker 4: the banks that have failed so far were unique and 287 00:14:55,440 --> 00:14:59,600 Speaker 4: they were mismanaged. That all may be true, but those 288 00:14:59,640 --> 00:15:01,800 Speaker 4: things most likely could have gone on for a long 289 00:15:01,800 --> 00:15:03,680 Speaker 4: period of time if the Fed Funds rate wasn't at 290 00:15:03,720 --> 00:15:06,640 Speaker 4: five percent, and the assets that were on their balance 291 00:15:06,680 --> 00:15:12,960 Speaker 4: sheet weren't trading below par, and there wasn't susceptibility to 292 00:15:13,600 --> 00:15:17,920 Speaker 4: deposit flight. So it's a recipe, it's a mixture of things, 293 00:15:17,960 --> 00:15:22,000 Speaker 4: it's not just one unique situation. And quite frankly, the 294 00:15:22,120 --> 00:15:25,960 Speaker 4: banking stress really can't go away or down to zero 295 00:15:27,080 --> 00:15:29,320 Speaker 4: until rates come down. I'm not saying they go back 296 00:15:29,320 --> 00:15:32,200 Speaker 4: to zero, but you can't have banks competing so much 297 00:15:32,200 --> 00:15:35,320 Speaker 4: for deposits, and you need to actually have monetary policy 298 00:15:35,360 --> 00:15:37,720 Speaker 4: support there net interest margins to believe the stress will 299 00:15:37,720 --> 00:15:38,080 Speaker 4: go away. 300 00:15:38,600 --> 00:15:41,600 Speaker 1: Longtime listeners will know that I took out a First 301 00:15:41,600 --> 00:15:45,960 Speaker 1: Republic mortgage like two weeks before everything happened, so I'm 302 00:15:46,000 --> 00:15:48,600 Speaker 1: back to being a JP Morgan customer in the wake 303 00:15:48,640 --> 00:15:50,320 Speaker 1: of that. But I want to turn to something else, 304 00:15:50,360 --> 00:15:53,360 Speaker 1: which is in the notes that you sent over to 305 00:15:53,440 --> 00:15:56,320 Speaker 1: us before the taping. You said our clients are the 306 00:15:56,320 --> 00:16:00,200 Speaker 1: most overweight cash they've been in the last ten years, 307 00:16:00,240 --> 00:16:04,240 Speaker 1: which is so so interesting to me. So I'm wondering, like, 308 00:16:04,320 --> 00:16:06,280 Speaker 1: if for somebody who is in cash right now, what 309 00:16:06,320 --> 00:16:08,560 Speaker 1: are you recommending that they actually be doing. 310 00:16:09,240 --> 00:16:12,520 Speaker 4: Yeah, the first is to acknowledge why they have such 311 00:16:12,520 --> 00:16:15,200 Speaker 4: overweights to cash. 312 00:16:15,240 --> 00:16:16,320 Speaker 3: For the first. 313 00:16:15,960 --> 00:16:19,160 Speaker 4: Time since two thousand and six five you can get 314 00:16:19,200 --> 00:16:22,840 Speaker 4: five percent yields risk free. I think a really important 315 00:16:22,840 --> 00:16:25,560 Speaker 4: anchor point is to say, well, for the last ten 316 00:16:25,640 --> 00:16:29,360 Speaker 4: years I've been really investing in equities. Great, they've done 317 00:16:29,480 --> 00:16:31,920 Speaker 4: very well for you over a long horizon, say since 318 00:16:31,920 --> 00:16:34,000 Speaker 4: the year two thousand, the S and P five hundred 319 00:16:34,040 --> 00:16:37,920 Speaker 4: has annualized you seven percent, give or take. Well, now 320 00:16:37,960 --> 00:16:40,680 Speaker 4: you can take almost no risk or near zero risk 321 00:16:40,720 --> 00:16:44,400 Speaker 4: and get five percent. So risk adjusting your life, five 322 00:16:44,440 --> 00:16:47,520 Speaker 4: percent is better than seven. The raising of cash makes 323 00:16:47,560 --> 00:16:50,680 Speaker 4: sense to me. But is it possible that that five 324 00:16:50,720 --> 00:16:54,000 Speaker 4: percent rate, which is only an overnight rate, can change 325 00:16:54,000 --> 00:16:57,600 Speaker 4: and change very quickly? Think yes, more likely than that. 326 00:16:57,640 --> 00:16:59,280 Speaker 4: I think the Fed is done with its hiking cycle. 327 00:16:59,360 --> 00:17:02,840 Speaker 4: Rates are enough, the employment picture is still strong. Things 328 00:17:02,880 --> 00:17:07,600 Speaker 4: are softening, but you're also getting an inflation stabilization, which 329 00:17:07,600 --> 00:17:10,040 Speaker 4: means they may not need to chase it. So I 330 00:17:10,119 --> 00:17:13,240 Speaker 4: really challenge clients to say to them, I know you 331 00:17:13,359 --> 00:17:16,760 Speaker 4: love five percent overnight. If you love it overnight, why 332 00:17:16,760 --> 00:17:21,560 Speaker 4: don't you lock in that yield for three, four, five years? Well, 333 00:17:22,600 --> 00:17:25,000 Speaker 4: I don't know, Tom, maybe I should consider that. I 334 00:17:25,040 --> 00:17:28,520 Speaker 4: think it's the best idea we have. Reinvestment risk for 335 00:17:28,600 --> 00:17:31,200 Speaker 4: a long term wealth aggregator can be a big problem. 336 00:17:31,640 --> 00:17:35,760 Speaker 4: Cash very rarely outperforms and it takes a long dip 337 00:17:35,880 --> 00:17:38,280 Speaker 4: rates to go up, they can come down really fast 338 00:17:38,960 --> 00:17:40,879 Speaker 4: the point go down and that really hits home for 339 00:17:40,920 --> 00:17:45,440 Speaker 4: folks in the twenty four historically the last seven business cycles, 340 00:17:46,240 --> 00:17:49,359 Speaker 4: when you have the last rate hike from the Fed, 341 00:17:49,520 --> 00:17:54,160 Speaker 4: in the two years after that, cash tends to underperform 342 00:17:54,560 --> 00:17:56,679 Speaker 4: duration assets by fourteen percent. 343 00:17:57,440 --> 00:18:01,040 Speaker 3: And in there, I'm using a Barclay's aggregate INDO, that's. 344 00:18:00,880 --> 00:18:03,880 Speaker 4: A big difference from a wealth aggregator that's trying to 345 00:18:03,920 --> 00:18:05,320 Speaker 4: generate wealth for a generation. 346 00:18:06,040 --> 00:18:08,920 Speaker 1: That's a really good statistic. Actually, so is it. Are 347 00:18:09,080 --> 00:18:11,719 Speaker 1: a lot of your clients coming to you and asking 348 00:18:11,760 --> 00:18:14,359 Speaker 1: you specifically what they should be doing or are people 349 00:18:14,960 --> 00:18:17,400 Speaker 1: for the most part right now kind of comfortable being 350 00:18:17,440 --> 00:18:18,080 Speaker 1: in cash. 351 00:18:18,640 --> 00:18:21,480 Speaker 4: For the most part, people are comfortable in cash. Our 352 00:18:21,560 --> 00:18:24,679 Speaker 4: aggregation at the high level, just what is happening in 353 00:18:24,680 --> 00:18:29,040 Speaker 4: our community, jpmore and community globally. We're raising cash. The 354 00:18:29,160 --> 00:18:32,679 Speaker 4: next biggest decision being made is to add some duration. 355 00:18:33,119 --> 00:18:35,960 Speaker 4: Just what we described and over the last you know, 356 00:18:36,000 --> 00:18:39,719 Speaker 4: to start the year, we've seen net outflows from equities, 357 00:18:40,119 --> 00:18:43,560 Speaker 4: so now that can all change on a dime. But 358 00:18:43,960 --> 00:18:47,040 Speaker 4: what's in the price you know, where we start all 359 00:18:47,080 --> 00:18:50,800 Speaker 4: of our big bad decisions. You have cash giving you 360 00:18:50,840 --> 00:18:53,120 Speaker 4: five percent. Every decision you make has to beat that. 361 00:18:54,200 --> 00:18:56,160 Speaker 4: You have the S and P five hundred trading at 362 00:18:56,800 --> 00:19:01,399 Speaker 4: eighteen eighteen and a half times, and that's about a 363 00:19:01,440 --> 00:19:06,080 Speaker 4: standard deviation above historical averages, and you just start to 364 00:19:06,080 --> 00:19:08,720 Speaker 4: get a trade off. Am I getting enough risk adjusted 365 00:19:09,080 --> 00:19:13,080 Speaker 4: expected return in equities versus what I get in fixed income? 366 00:19:13,640 --> 00:19:15,880 Speaker 4: That's a tough decision for us. I think I think 367 00:19:15,960 --> 00:19:19,040 Speaker 4: this push is first decision. Take that cash, lock in 368 00:19:19,080 --> 00:19:21,520 Speaker 4: those yields for a longer period of time than overnight, 369 00:19:22,160 --> 00:19:24,320 Speaker 4: and then we can start to be adding to equities 370 00:19:24,320 --> 00:19:26,359 Speaker 4: for very long term investments. 371 00:19:26,800 --> 00:19:30,200 Speaker 2: And as investors sit on the sidelines, the S and 372 00:19:30,240 --> 00:19:33,200 Speaker 2: P five hundred has been moving in a narrow trading 373 00:19:33,280 --> 00:19:36,320 Speaker 2: range for much of this year. I know that type 374 00:19:36,320 --> 00:19:38,679 Speaker 2: of price action is usually taken as a sign of 375 00:19:38,840 --> 00:19:41,879 Speaker 2: investor complacency, but I'm interested in knowing where you think 376 00:19:41,960 --> 00:19:45,000 Speaker 2: investors can put money to work within this sideways market. 377 00:19:45,200 --> 00:19:47,160 Speaker 2: At least in the short to medium term. 378 00:19:47,480 --> 00:19:49,760 Speaker 4: Year to date, the SP five hundred is performed well. 379 00:19:50,040 --> 00:19:53,240 Speaker 4: The top megacap names, let's not even call them technaus. 380 00:19:53,320 --> 00:19:58,840 Speaker 4: Megacap names have pulled the index higher over a longer horizon. 381 00:19:58,920 --> 00:20:01,280 Speaker 4: Let's say the last year, last fifteen months, the SP 382 00:20:01,359 --> 00:20:03,399 Speaker 4: five hundred has been trading in a very tight range. 383 00:20:03,840 --> 00:20:06,960 Speaker 4: The same head can be said about bonds. So I 384 00:20:07,000 --> 00:20:09,680 Speaker 4: think in a late cycle environment this has been said 385 00:20:09,720 --> 00:20:13,240 Speaker 4: before but is very true now, you have to be active. 386 00:20:13,680 --> 00:20:18,960 Speaker 4: You have to be using statistical valuation tools to try 387 00:20:19,000 --> 00:20:23,240 Speaker 4: to navigate this process. What's first question is what's inexpensive 388 00:20:23,400 --> 00:20:26,080 Speaker 4: if we're worried about a recession. What's kind of pricing 389 00:20:26,119 --> 00:20:31,320 Speaker 4: in that risk? Already mid cap stocks in America, European stocks. 390 00:20:32,400 --> 00:20:35,480 Speaker 4: What's really interesting about those two things is our clients 391 00:20:35,480 --> 00:20:39,080 Speaker 4: and that JP Morgan community globally are underweight both. Wow, okay, 392 00:20:39,200 --> 00:20:42,160 Speaker 4: this is something to talk about. We can diversify late 393 00:20:42,240 --> 00:20:44,679 Speaker 4: cycle and these things are giving me a little bit 394 00:20:44,680 --> 00:20:47,440 Speaker 4: more cushion should we hit the unfortunate recession. Love that 395 00:20:48,359 --> 00:20:51,920 Speaker 4: in America again, same process. Where can I find defensive 396 00:20:52,040 --> 00:20:58,119 Speaker 4: things like healthcare and even some reasonably priced tech names, Peyton, 397 00:20:58,160 --> 00:20:58,680 Speaker 4: That's kind of. 398 00:20:58,600 --> 00:21:00,560 Speaker 3: The push the lens. 399 00:21:00,600 --> 00:21:04,520 Speaker 4: That's important is active management, as you said, but where 400 00:21:04,560 --> 00:21:08,240 Speaker 4: is their valuation support? That's more or less critical for 401 00:21:08,280 --> 00:21:11,080 Speaker 4: our investment committee right now when we have a recession 402 00:21:11,080 --> 00:21:12,200 Speaker 4: that is more likely. 403 00:21:12,040 --> 00:21:13,919 Speaker 3: Than not in the next six to twelve months. 404 00:21:14,240 --> 00:21:18,280 Speaker 1: Okay, talk more about your European equities call, because I 405 00:21:18,359 --> 00:21:22,880 Speaker 1: think your thought process is that a recession possibly can't 406 00:21:22,920 --> 00:21:26,040 Speaker 1: be avoided in the US, but actually Europe has successfully 407 00:21:26,040 --> 00:21:27,440 Speaker 1: avoided a recession. Is that right. 408 00:21:28,320 --> 00:21:28,679 Speaker 3: Yeah. 409 00:21:29,119 --> 00:21:32,920 Speaker 4: We walked into twenty twenty three and the consensus was 410 00:21:32,960 --> 00:21:35,960 Speaker 4: you get a recession in Europe. Candidly, we thought that too. 411 00:21:36,200 --> 00:21:41,439 Speaker 4: Energy led recession and energy shocked effectively. Sure enough, a 412 00:21:41,480 --> 00:21:47,119 Speaker 4: warm winter and the surprising ability of individual citizens to 413 00:21:47,200 --> 00:21:50,800 Speaker 4: ration energy and very powerful avoid the recession. 414 00:21:51,760 --> 00:21:53,880 Speaker 3: Right now, Europe is coming out of the winter. 415 00:21:54,000 --> 00:21:57,760 Speaker 4: They have more energy storage than they've had at some 416 00:21:57,880 --> 00:22:01,119 Speaker 4: of the lows in the last five years, doing fantastically well. 417 00:22:01,400 --> 00:22:03,359 Speaker 4: It doesn't mean that won't be an issue next winter, 418 00:22:03,800 --> 00:22:06,880 Speaker 4: but it's avoided and businesses can remain on. You didn't 419 00:22:06,920 --> 00:22:11,280 Speaker 4: have to turn off the industrial sector. You're transitioning now 420 00:22:11,720 --> 00:22:18,399 Speaker 4: to is inflation just transmitting itself from strictly the energy 421 00:22:18,440 --> 00:22:21,480 Speaker 4: sector is something more sticky, something like what we've seen 422 00:22:21,520 --> 00:22:24,080 Speaker 4: in America, and the ECB has had to respond. 423 00:22:24,080 --> 00:22:25,000 Speaker 3: Now, so you've. 424 00:22:24,880 --> 00:22:27,600 Speaker 4: Pushed out the recession risk and it looks like Europe 425 00:22:27,640 --> 00:22:31,560 Speaker 4: is maybe six nine months behind the US, and the 426 00:22:31,640 --> 00:22:34,560 Speaker 4: ECB is hiking quite a bit. But that means businesses 427 00:22:34,600 --> 00:22:36,840 Speaker 4: have six to nine months more to make earnings. And 428 00:22:36,880 --> 00:22:39,080 Speaker 4: I know it's a forward looking mechanism, of course it is. 429 00:22:39,800 --> 00:22:43,720 Speaker 4: But the index trades thirty percent cheap to America. Our 430 00:22:43,760 --> 00:22:46,320 Speaker 4: clients ask us to manage dollars for them. The dollar 431 00:22:46,400 --> 00:22:50,640 Speaker 4: is expensive, should depreciate. That's a nice tail into the trade. 432 00:22:50,760 --> 00:22:55,920 Speaker 4: There are shorter duration assets in Europe and much more 433 00:22:55,960 --> 00:22:58,919 Speaker 4: tied to a green energy economy, a transition where capital 434 00:22:58,960 --> 00:23:01,400 Speaker 4: investment is likely to happen even if we stay high, 435 00:23:01,400 --> 00:23:04,080 Speaker 4: so it feels like it has more runway and more 436 00:23:04,119 --> 00:23:07,639 Speaker 4: relative value attractiveness. It's a big diversifier for us to 437 00:23:08,000 --> 00:23:10,920 Speaker 4: our clients have a heavy overweight to America, a heavy 438 00:23:10,960 --> 00:23:15,480 Speaker 4: overweight to megacap tech names. Diversification is a really a 439 00:23:15,480 --> 00:23:17,080 Speaker 4: great thing for a long term investor as well. 440 00:23:18,000 --> 00:23:22,840 Speaker 2: And other than Europe, are you seeing opportunities outside of 441 00:23:22,920 --> 00:23:25,320 Speaker 2: the US elsewhere we do? 442 00:23:25,600 --> 00:23:27,720 Speaker 3: I think in China there are opportunities. 443 00:23:27,760 --> 00:23:30,199 Speaker 4: The reopening has been swift, but now you see the 444 00:23:30,200 --> 00:23:32,480 Speaker 4: economy rolling act flatlining is not the right word, but 445 00:23:32,520 --> 00:23:34,760 Speaker 4: you've pulled forward a lot of the expected growth there. 446 00:23:35,760 --> 00:23:39,119 Speaker 4: This idea we think there's value there. We get tons 447 00:23:39,160 --> 00:23:42,400 Speaker 4: of pushback and tons of challenges. There's a lot of 448 00:23:42,520 --> 00:23:45,880 Speaker 4: bildin a bias to what we talked about before. A baggage, 449 00:23:45,920 --> 00:23:47,560 Speaker 4: if you will. I got a lot of baggage in 450 00:23:47,600 --> 00:23:49,480 Speaker 4: my personal life. I don't need it in my investing life. 451 00:23:49,480 --> 00:23:54,000 Speaker 4: I think is what you get. But the baggage becomes geopolitics, 452 00:23:54,560 --> 00:24:00,440 Speaker 4: It becomes president is policymakers in China going to support 453 00:24:00,480 --> 00:24:03,640 Speaker 4: this market, the housing de leveraging cycle. There's a lot 454 00:24:03,720 --> 00:24:06,560 Speaker 4: to it. But businesses there are likely to inflect hire 455 00:24:06,560 --> 00:24:09,240 Speaker 4: in their earnings process. I think in America we want 456 00:24:09,280 --> 00:24:13,320 Speaker 4: to believe businesses earnings are going to bottom and inflect hire. 457 00:24:14,359 --> 00:24:16,199 Speaker 4: It is happening in China. They seem to be in 458 00:24:16,200 --> 00:24:18,840 Speaker 4: a different phase, more early cycle phase. So we do 459 00:24:18,840 --> 00:24:20,760 Speaker 4: think there's value there. We talk about Europe a lot 460 00:24:20,800 --> 00:24:24,439 Speaker 4: more more because we can get people to actually believe, 461 00:24:24,480 --> 00:24:26,919 Speaker 4: we can convince them there's not as much baggage to 462 00:24:26,960 --> 00:24:30,360 Speaker 4: that trade, even though Europe has underperformed the US for 463 00:24:30,600 --> 00:24:33,680 Speaker 4: the better part of a decade too. So the point 464 00:24:33,720 --> 00:24:37,240 Speaker 4: of the concept is to say where's their valuation support? 465 00:24:37,520 --> 00:24:39,800 Speaker 4: You know, what's in the price? Where can I see 466 00:24:39,800 --> 00:24:42,959 Speaker 4: earnings that have a trajectory I can be confident in, 467 00:24:43,560 --> 00:24:46,200 Speaker 4: and where can I get diversification benefits. So Europe, I 468 00:24:46,200 --> 00:24:48,199 Speaker 4: think is Europe is a preferred trade for US, but 469 00:24:48,440 --> 00:24:50,880 Speaker 4: in China it's quite possible that what I'll perform us 470 00:24:50,920 --> 00:24:51,520 Speaker 4: this year as well. 471 00:24:52,280 --> 00:24:54,960 Speaker 1: And then just back to the US for one more thing, 472 00:24:55,000 --> 00:24:58,840 Speaker 1: which is I think that you guys like reasonably priced tech, 473 00:24:58,960 --> 00:25:01,239 Speaker 1: and I'm curious what that is considering the run up 474 00:25:01,240 --> 00:25:02,240 Speaker 1: we've seen in tech. 475 00:25:03,080 --> 00:25:06,080 Speaker 4: So when we say tech, everyone thinks about fang stocs 476 00:25:06,160 --> 00:25:09,760 Speaker 4: or megacap names are the top five in the index. 477 00:25:10,440 --> 00:25:14,159 Speaker 4: But growth is pervasive across our economy, and you can 478 00:25:14,200 --> 00:25:17,320 Speaker 4: think about growth in healthcare and biotech and find reasonably 479 00:25:17,400 --> 00:25:19,760 Speaker 4: priced names there. You can think about in the industrial sector, 480 00:25:19,840 --> 00:25:21,919 Speaker 4: you can think about it in the traditional tech sector. 481 00:25:22,520 --> 00:25:26,280 Speaker 4: Growth at a reasonable price is about the valuation and 482 00:25:26,400 --> 00:25:29,520 Speaker 4: about where I can expect or hope to see above 483 00:25:29,560 --> 00:25:32,480 Speaker 4: trend earnings. We can find that in those three sectors, 484 00:25:32,920 --> 00:25:36,240 Speaker 4: and we keep coming back to this point in late cycle, 485 00:25:36,480 --> 00:25:41,439 Speaker 4: wanting to be valuation aware now more than ever, so 486 00:25:41,480 --> 00:25:43,399 Speaker 4: that growth at a reasonable price. Will Danta tries to 487 00:25:43,480 --> 00:25:46,800 Speaker 4: capture that concept, though it is across sectors. 488 00:25:46,440 --> 00:25:49,600 Speaker 1: Not strictly a tech Well, all I can think about 489 00:25:49,680 --> 00:25:51,640 Speaker 1: is how you said you have a lot of baggage, 490 00:25:51,680 --> 00:25:52,600 Speaker 1: and I think we all do. 491 00:25:54,400 --> 00:25:55,760 Speaker 3: Post pandemic. How could you not? 492 00:25:56,400 --> 00:25:58,359 Speaker 2: Most of mine are under my eyes. 493 00:25:58,400 --> 00:26:11,439 Speaker 1: Under your eyes, you made Tom spit out his coffee. 494 00:26:19,600 --> 00:26:22,880 Speaker 1: Tom Kennedy from JP Morgan, thank you so much for 495 00:26:23,080 --> 00:26:25,320 Speaker 1: joining us on the podcast. That was really, really great. 496 00:26:25,320 --> 00:26:27,800 Speaker 1: But we can't let you go until we all go 497 00:26:27,920 --> 00:26:31,520 Speaker 1: through our craziest things that we saw in markets this weekend. 498 00:26:31,560 --> 00:26:34,719 Speaker 1: I hope you've come prepared with something, but Peyton has 499 00:26:34,720 --> 00:26:36,480 Speaker 1: set the bar super high, so I'm gonna let her 500 00:26:36,560 --> 00:26:39,479 Speaker 1: go first, and you can't disappoint Peyton. 501 00:26:40,400 --> 00:26:42,880 Speaker 2: I know the audience can't see me, but I am 502 00:26:43,240 --> 00:26:46,400 Speaker 2: rubbing my fingers right now because this is the moment 503 00:26:46,440 --> 00:26:49,399 Speaker 2: I've been waiting for. So I know the past couple 504 00:26:49,520 --> 00:26:53,680 Speaker 2: of episodes we have talked about fast food companies and 505 00:26:53,880 --> 00:26:57,480 Speaker 2: this episode will be no different. So Taco Bell, which 506 00:26:57,520 --> 00:27:01,440 Speaker 2: is a subsidiary of Young Brands, is fighting the good 507 00:27:01,480 --> 00:27:05,480 Speaker 2: fight by filing two legal petitions with the US Patent 508 00:27:05,560 --> 00:27:09,600 Speaker 2: and Trademark Office to cancel federal trademark registrations for the 509 00:27:09,640 --> 00:27:14,160 Speaker 2: phrase Taco Tuesday as part of a new liberation campaign. 510 00:27:14,200 --> 00:27:17,440 Speaker 2: The company ruled out earlier this week, so the trademark 511 00:27:17,480 --> 00:27:21,760 Speaker 2: currently belongs to Wyoming based restaurant Taco Johns, which has 512 00:27:21,800 --> 00:27:26,200 Speaker 2: held the registration since nineteen eighty nine. Taco Bell's beef 513 00:27:26,359 --> 00:27:29,359 Speaker 2: with Taco Johns is rooted in the belief that Taco 514 00:27:29,480 --> 00:27:33,200 Speaker 2: Tuesday is a generic and informational phrase and does it 515 00:27:33,280 --> 00:27:36,360 Speaker 2: function as a trademark that identifies the source of a product, 516 00:27:36,760 --> 00:27:41,000 Speaker 2: and as such, Taco Bell's filing reads Taco Bell believes 517 00:27:41,040 --> 00:27:45,560 Speaker 2: Taco Tuesday is critical to everyone's Tuesday. To deprive anyone 518 00:27:45,600 --> 00:27:48,840 Speaker 2: of saying Taco Tuesday, be it Taco Bell or anyone 519 00:27:48,880 --> 00:27:52,040 Speaker 2: who provides taco to the world, is like depriving the 520 00:27:52,040 --> 00:27:56,760 Speaker 2: world of sunshine itself. Powerful words from Taco Bell Taco 521 00:27:56,840 --> 00:27:57,520 Speaker 2: Bell's beef. 522 00:27:57,800 --> 00:27:59,480 Speaker 1: That's so good. I hope you wrote that. 523 00:28:00,160 --> 00:28:01,520 Speaker 2: Thank you, Thank you for catching that. 524 00:28:01,920 --> 00:28:04,560 Speaker 1: I have another one, not your phrase. 525 00:28:05,000 --> 00:28:06,560 Speaker 2: Stop it so. 526 00:28:06,560 --> 00:28:07,440 Speaker 1: We could keep going. 527 00:28:09,440 --> 00:28:10,159 Speaker 2: That was cheesy. 528 00:28:10,880 --> 00:28:14,960 Speaker 1: Oh very good, Tom. What about you? Anything crazy you 529 00:28:15,000 --> 00:28:16,080 Speaker 1: saw in markets? 530 00:28:16,640 --> 00:28:20,800 Speaker 4: The craziest thing I've seen in markets is around the 531 00:28:20,840 --> 00:28:27,639 Speaker 4: debt limit. The most well known interest payment from the 532 00:28:27,720 --> 00:28:31,320 Speaker 4: Treasury happened this week on Monday, fifty plus billion, and 533 00:28:31,440 --> 00:28:35,240 Speaker 4: yet people are rushing to the debt limit date as 534 00:28:35,240 --> 00:28:38,920 Speaker 4: if it's happening today. Don't let ourselves get too far 535 00:28:38,960 --> 00:28:41,160 Speaker 4: ahead of ourselves. The debt limit is a real issue. 536 00:28:41,200 --> 00:28:45,920 Speaker 4: It will be resolved, I think very confident, but the 537 00:28:45,960 --> 00:28:48,880 Speaker 4: process is going to be very volatile. 538 00:28:48,440 --> 00:28:52,480 Speaker 3: And most likely bring brinksmanship. Let's not leave all the hype. 539 00:28:52,560 --> 00:28:54,719 Speaker 4: Treasury payments will have to be made, and even this 540 00:28:54,760 --> 00:28:58,040 Speaker 4: fifty plus billion dollar one made this week brings the 541 00:28:58,400 --> 00:29:00,760 Speaker 4: debt limit maybe a little bit closer, but we still 542 00:29:00,760 --> 00:29:01,480 Speaker 4: have some runway to go. 543 00:29:02,120 --> 00:29:03,880 Speaker 1: I'm glad you brought up this topic, though, because I 544 00:29:03,960 --> 00:29:06,440 Speaker 1: am curious. If you have clients calling. 545 00:29:06,600 --> 00:29:10,680 Speaker 4: Anytime things are uncontrollable, it's something to worry about over 546 00:29:11,080 --> 00:29:14,880 Speaker 4: The Deatlmit's been part of our culture and ecosystem and 547 00:29:14,920 --> 00:29:17,040 Speaker 4: political regime in America for over one hundred years, and 548 00:29:17,040 --> 00:29:19,720 Speaker 4: the debt limit's either been raised or suspended one hundred plus. 549 00:29:20,120 --> 00:29:23,160 Speaker 4: The US is a deficit creditor country. It needs to 550 00:29:23,200 --> 00:29:25,320 Speaker 4: be able to borrow, so the deatlmit must be raised. 551 00:29:25,880 --> 00:29:29,640 Speaker 4: But this is a way to bring bipartisanship. It's some 552 00:29:29,760 --> 00:29:32,800 Speaker 4: unfortunate reality I think of the system here, but I 553 00:29:32,840 --> 00:29:34,600 Speaker 4: do believe it will be raised. People are very worried, 554 00:29:35,160 --> 00:29:37,520 Speaker 4: and I think we're in the anxiety phase where every 555 00:29:37,600 --> 00:29:41,520 Speaker 4: day the movements from the Treasury will matter. The craziest 556 00:29:41,520 --> 00:29:44,880 Speaker 4: thing I've seen this week, though, is people building anxiety 557 00:29:45,280 --> 00:29:47,880 Speaker 4: for a payment that we know needed to be made 558 00:29:47,920 --> 00:29:51,800 Speaker 4: on that specific day for months at a time, so 559 00:29:52,280 --> 00:29:53,640 Speaker 4: trying to lower the hype of it. 560 00:29:53,680 --> 00:29:55,440 Speaker 3: I guess with my craziest thing. 561 00:29:55,920 --> 00:29:58,640 Speaker 1: I like to hear that there's others who are very 562 00:29:58,720 --> 00:30:00,640 Speaker 1: worried about all kinds of stuff. I'm not the only 563 00:30:00,680 --> 00:30:04,200 Speaker 1: one who just has like a list of worries constantly 564 00:30:04,240 --> 00:30:07,200 Speaker 1: running through my mind. Anyway, that's really good. I'm really 565 00:30:07,240 --> 00:30:09,200 Speaker 1: happy you brought up the dead ceiling. I have one, 566 00:30:09,880 --> 00:30:13,760 Speaker 1: and listeners recent listeners will know that my sister now 567 00:30:13,800 --> 00:30:16,719 Speaker 1: listens to the podcast and she sends me tons of 568 00:30:17,520 --> 00:30:19,960 Speaker 1: crazy things that she sees in markets. She works in 569 00:30:20,000 --> 00:30:23,440 Speaker 1: supply chains, so she's always like berating me for not 570 00:30:23,480 --> 00:30:28,280 Speaker 1: tying things back to supply chains, which she loves to 571 00:30:28,320 --> 00:30:31,560 Speaker 1: talk about. This one's not about exactly about supply chains, 572 00:30:31,560 --> 00:30:35,280 Speaker 1: but still very interesting. It's this story about Lululemon dupes. 573 00:30:35,400 --> 00:30:39,640 Speaker 1: There's TikTok influencers. They go on TikTok, they make videos 574 00:30:39,760 --> 00:30:44,800 Speaker 1: they pedal Lululemon knockoff pants, so dupes duplicates and say 575 00:30:44,880 --> 00:30:47,880 Speaker 1: things like, hey, look, I used to work at Lululemon 576 00:30:47,960 --> 00:30:52,520 Speaker 1: and like these twenty dollars pants are the exact same 577 00:30:52,640 --> 00:30:56,360 Speaker 1: type of thing. And the Lululemon dupes hashtag has more 578 00:30:56,400 --> 00:30:59,479 Speaker 1: than one hundred and fifty million views on TikTok. And 579 00:30:59,520 --> 00:31:03,880 Speaker 1: so what Ulu Lemon, the actual Lululemon did is in 580 00:31:04,040 --> 00:31:06,880 Speaker 1: LA they held an event where you could bring in 581 00:31:07,200 --> 00:31:10,000 Speaker 1: your fake Lululemon pants and they would give you real ones, 582 00:31:10,440 --> 00:31:13,720 Speaker 1: so you would swap your twenty dollars pants for ninety 583 00:31:13,760 --> 00:31:16,800 Speaker 1: dollars Lulu Lemon pants, which is crazy to me, Like 584 00:31:17,200 --> 00:31:20,080 Speaker 1: do that in New York please? You know, not that 585 00:31:20,120 --> 00:31:26,080 Speaker 1: I have dupes yet yet exactly. Yeah, I would definitely 586 00:31:26,080 --> 00:31:29,040 Speaker 1: buy them to attend one of these events. Anyway, Tons 587 00:31:29,080 --> 00:31:32,200 Speaker 1: of great stuff. Tom, thank you so much for joining 588 00:31:32,240 --> 00:31:35,120 Speaker 1: us in Peyton. So happy you could join us for 589 00:31:35,160 --> 00:31:35,760 Speaker 1: the first time. 590 00:31:36,520 --> 00:31:39,280 Speaker 2: I appreciate the invitation. Thank you, Thank you both. 591 00:31:39,840 --> 00:31:45,120 Speaker 3: Thank you. 592 00:31:47,760 --> 00:31:50,760 Speaker 1: What goes up, we'll be back next week. Until then, 593 00:31:50,840 --> 00:31:53,800 Speaker 1: you can find us on the Bloomberg Terminal website and app, 594 00:31:54,320 --> 00:31:57,400 Speaker 1: or wherever you get your podcasts. We'd love it if 595 00:31:57,400 --> 00:31:59,440 Speaker 1: you took the time to rate and review the show 596 00:31:59,520 --> 00:32:02,360 Speaker 1: so more listeners can find us. You can find us 597 00:32:02,440 --> 00:32:07,080 Speaker 1: on Twitter, follow me at Wildona Hirich. Mike Reagan is 598 00:32:07,120 --> 00:32:12,040 Speaker 1: at Reaganonymous. You can also follow Boomer Podcasts at podcasts. 599 00:32:12,760 --> 00:32:15,560 Speaker 1: What Goes Up is produced by Stacy Long, and our 600 00:32:15,560 --> 00:32:18,760 Speaker 1: head of podcasts is Sage Paulman. Thanks for listening and 601 00:32:18,800 --> 00:32:23,920 Speaker 1: we'll see you next week.