Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best an economics, geopolitics, finance and investment.
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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App.
Speaker 2: Joining us now is Brian Levick, Global market strategist overt Invesco. Brian,
Speaker 2: I was thinking back to a conversation we had several
Speaker 2: months ago, and you refer to yourself as a fauxmo guy,
Speaker 2: someone who wanted to buy these techniques when everyone else
Speaker 2: was calling them just a bubble and a rally that
Speaker 2: wouldn't sustain itself. Brian, where are you now on that call?
Speaker 2: Given that a lot of people are starting to say, Okay,
Speaker 2: it's a ballmarket, we might have to live with it.
Speaker 2: Perhaps perhaps we can look how swear? Are you looking
Speaker 2: how swear?
Speaker 3: Yeah?
Speaker 4: I think you start to look elsewhere, and that's actually healthy.
Speaker 4: The market is broadening, it's more being into other, more
Speaker 4: value oriented parts of the market. The cyclical name smaller caps.
Speaker 4: So it's not just the very you know, narrow market
Speaker 4: that you saw call it March April May. You're actually
Speaker 4: getting assigned from markets that this is healthier and there's
Speaker 4: more participants. In so far, the earnings for the value
Speaker 4: oriented companies have been quite good.
Speaker 2: Ron I think's getting less bad or is the outlook
Speaker 2: for earnings actually improving?
Speaker 5: Well?
Speaker 4: I think that things are moderating. I mean that's what
Speaker 4: you would expect in this part of the cycle. But
Speaker 4: I think what a lot of investors missed is that
Speaker 4: the market priced it last year. I mean, you know,
Speaker 4: eleven months ago we were down nine percent in a month,
Speaker 4: so or thirteen months ago, I should say, So that
Speaker 4: was a market that had already assessed what was likely
Speaker 4: to be a weak economic environment because of all the tightening,
Speaker 4: and yet the economy has been more resilient than many expect.
Speaker 4: I think, or worry a bit is the valuations on
Speaker 4: the broad market. But that is in a handful of names,
Speaker 4: and you start to think about this broadening out the
Speaker 4: names that have not been bid up, or starting to
Speaker 4: participate more again, which is healthy.
Speaker 1: You got to participate, Brian Levitt. But I would suggest
Speaker 1: what you've got to do is extend your timeline. Where's
Speaker 1: the new levit terminal value? I mean it used to
Speaker 1: be seven years, five years. But if I'm going to
Speaker 1: buy Apple here or all these other fancy stocks, do
Speaker 1: I have to extend out my terminal value to justify
Speaker 1: acquisition of those shares? Now?
Speaker 4: Well, some of those names are trading at quite elevated valuations,
Speaker 4: so you want to be a little bit cautious and
Speaker 4: the near term. But yeah, I mean if you think
Speaker 4: about the structural themes that these companies are taking advantage of,
Speaker 4: those are long term stories. So you think about the
Speaker 4: AI trade, you get a bit of you four around
Speaker 4: that AI trade, and we saw that in the late
Speaker 4: nineties too with some names around the Internet.
Speaker 5: But if you pick the right names over the multi
Speaker 5: year period, you did quite well.
Speaker 4: It's about avoiding the euphoria and looking at the true fundamentals.
Speaker 1: Are you tilting It's a dangerous question for investment. Are
Speaker 1: you tilting active management or passive management? At this time?
Speaker 5: I think it's both.
Speaker 4: But in an environment where you're seeing a broadening out,
Speaker 4: you should see more opportunity in active management. And what
Speaker 4: you would expect as you move into you know, the
Speaker 4: next phase. So when we think about a new market
Speaker 4: cycle or recovery phase of a cycle, that's when smaller
Speaker 4: caps do really well, that's when international does really well,
Speaker 4: and in a lot of those places, that's where investors
Speaker 4: can can really take advantage of active I also see
Speaker 4: a lot of money going into money markets. We've all
Speaker 4: seen that, and you know, personally, I think yields start
Speaker 4: to come down and over time, so there is reinvestment
Speaker 4: risks there, and I would advise investors to look further
Speaker 4: out in duration, or to look further out in things
Speaker 4: like muni's or corporate bonds, where of course active management
Speaker 4: can serve you well.
Speaker 6: Basically, don't fight the momentum. You said, we make hay
Speaker 6: while the sun shines, and we heard from Pater Share
Speaker 6: over the weekend. Don't fight consensus in December and August,
Speaker 6: and that seems to be where we are. When does
Speaker 6: momentum stop working, I.
Speaker 4: Think you'll see the you know, when all of this
Speaker 4: tightening starts to find its way into the economy, you'll
Speaker 4: see the economy roll over a bit.
Speaker 5: Whether we're going to call.
Speaker 4: It a recession or just to slow down remains to
Speaker 4: be seen. But your markets go through these phases, and
Speaker 4: you know, right now this is a market that is
Speaker 4: feeling like a recovery trade. It's probably not the recovery trade.
Speaker 4: It's not the beginning of the next cycle. So you'll
Speaker 4: probably give back some of this in early twenty twenty
Speaker 4: four as the economy starts to roll over. But what
Speaker 4: that means is the FED pivots, and when the FED pivots,
Speaker 4: that's when the new cycle emerges. So this is a
Speaker 4: you know, this is still a recovery trade here. We're
Speaker 4: likely to see you know, a pullback in early twenty
Speaker 4: twenty four with the economy, but as soon as the
Speaker 4: FED is you know, shift stands typically over the next
Speaker 4: couple of years, if not more.
Speaker 5: You tend to do quite well in markets.
Speaker 6: So then how do you borrow the rally and not
Speaker 6: buy it, not buy to own for the long term
Speaker 6: if you're looking to avoid some of that give back
Speaker 6: in the beginning of next year.
Speaker 5: Well, that was part of.
Speaker 4: What I was talking with Jonathan about with the FOMO story.
Speaker 5: It's you know, I don't know how tactical investors want
Speaker 5: to be. I mean, if you you know, we.
Speaker 4: Use we have tactical strategies that will rotate based on where.
Speaker 5: You are in the regime.
Speaker 4: But if you're looking out even from here over the
Speaker 4: next few years, you should be invested in risk assets.
Speaker 4: If I use nineteen eighty eighty one as an example,
Speaker 4: and I think I've said it on this show before,
Speaker 4: that you've got a nice rally. Once inflation head peaked
Speaker 4: in March of eighty the market did roll over with
Speaker 4: the with the recession, you never went through the bottom.
Speaker 4: And again, if you had invested when inflation had peaked
Speaker 4: in eighty or when the FED was done tightening at
Speaker 4: the end of eighty, you were very happy in eighty two,
Speaker 4: eighty three, eighty four and beyond.
Speaker 5: So you'll focus on the you know.
Speaker 4: To me, it's focus on what tends to move markets
Speaker 4: most and of inflation, and the tightening tends to be
Speaker 4: very good for ass assets.
Speaker 7: Brian first in first out.
Speaker 2: The right hiden cycle in AM started months and months,
Speaker 2: maybe eight nine months before the tightening cycle started in DM.
Speaker 2: We saw the rate cutover in Chile on Friday. I
Speaker 2: think Brazil is going to follow on Wednesday. Others will
Speaker 2: follow later this year. We've got an easing posture. I'll
Speaker 2: call it coming out of China, Brian, what are the
Speaker 2: opportunities in emerging markets at the moment?
Speaker 4: Yeah, I mean, look, you want to lean into where
Speaker 4: policymakers are aiding support.
Speaker 5: To the economy, and this is a very interesting environment.
Speaker 4: You know, investors didn't love EM for the prior decade,
Speaker 4: these em struggled to come out of the global financial crisis.
Speaker 4: To your point, EM leads out more accommodative, and even
Speaker 4: what you saw in the developed world, what you saw
Speaker 4: specifically with Japan on Friday, I mean, this is a
Speaker 4: very different environment where the FED could be contemplating easing
Speaker 4: by next year and the major developed market central banks
Speaker 4: are still tightening, which tends to pretend a weaker dollar
Speaker 4: versus our major trading partners, which we haven't seen in
Speaker 4: a long time, and that starts to unlock some of
Speaker 4: that value that exists outside the United States. And you know,
Speaker 4: investors haven't been there, they've they've avoided it. But it's
Speaker 4: a better backdrop for international investing than we've seen in
Speaker 4: a while, because quite frankly, anytime international participated in the
Speaker 4: last cycle, either the US phrase rates or started a
Speaker 4: trade war, or we got a pandemic, which ended up
Speaker 4: abruptly ending any type of participation from international markets.
Speaker 7: We've been bent a few times, Brian.
Speaker 2: It's going to catch up as olwise in great co
Speaker 2: for the so far, Brian Levitte of Investment on the
Speaker 2: secrety market.
Speaker 7: Thank you, sir, right now on.
Speaker 1: What we've done under surveillance, looking here, particularly at the
Speaker 1: Pacific room. Carl Weinberg Joints. This is chief economist at
Speaker 1: High Frequency Economics, but far more than that is steeped
Speaker 1: in financial crisis on an international basis, and his notes
Speaker 1: on China and Japan have been absolutely definitive. Carl Weinberg,
Speaker 1: Why hasn't the yen moved abruptly off of the verbiage
Speaker 1: and action of the Bank of Japan.
Speaker 8: Hi, Good morning, Tom, Good morning, John, Good morning Lisa.
Speaker 8: You know the currency isn't going to move on a dime.
Speaker 8: They only moved on Friday. And this change in policy
Speaker 8: brings sets off different versus in the economy. It's not
Speaker 8: just about interest rate differentials, but if you're an investor
Speaker 8: in Japan and you're looking to deploy marginal funds, you're
Speaker 8: looking at almost an assured loss on long term jgbs
Speaker 8: right now. And if you need to have long term
Speaker 8: assets to offset long term liabilities, you have to look abroad.
Speaker 8: So to a certain extent, this tightening of monetary conditions,
Speaker 8: or the allowance of bond yields to rise, whatever you
Speaker 8: want to call it, drives money abroad and makes the
Speaker 8: end cheaper, which is not what your traditional interest rate
Speaker 8: theory says it are to do in the terms of
Speaker 8: the currency. But I think we have to expect a
Speaker 8: really mixed pattern for the end moving forward from here.
Speaker 1: Do you what's your scope and scale on yen move?
Speaker 1: I mean, I know you're not in the business of
Speaker 1: FX analysis, but are you looking one fifty en or
Speaker 1: one thirty two yen?
Speaker 8: Well, I'm not going to take a long term position
Speaker 8: on that because I still don't know what the Bank
Speaker 8: of Japan is up to entirely. I mean, we saw
Speaker 8: this widening of the band. Was this a technical adjustment
Speaker 8: just to allow more trading both ways in the bond
Speaker 8: market and to improve trading conditions for people who have
Speaker 8: to be in the market, or was it the first
Speaker 8: step in an actual tightening of monetary conditions. It's not
Speaker 8: at all clear. As Lisa pointed out, we did the
Speaker 8: calculations that show that if we had the stock if
Speaker 8: we had the bond market fully adjust to the increase
Speaker 8: in the band, that the hit to portfolios economy wide
Speaker 8: would be about four and a half percent of GDP.
Speaker 8: That was our math, and right now we have a
Speaker 8: huge profit on the nike A that if we were
Speaker 8: to call the end of the fiscal year today and
Speaker 8: all those bond yield, all that bond y headroom were used,
Speaker 8: we'd see kind of a wash between gains on equities
Speaker 8: and losses on bonds. That's a one shot deal, and
Speaker 8: I think that uetus On is hoping to take advantage
Speaker 8: of that, hoping that the stock market will continue its
Speaker 8: rally and offset losses on the bond market and give
Speaker 8: him this little step toward normalization. But if that's it,
Speaker 8: if it's half a percentage point and that's it, then
Speaker 8: there's no impact on the end whatsoever beyond the next
Speaker 8: couple of weeks, and there's no basis to look for
Speaker 8: a major move.
Speaker 6: We were also talking about China and how much willingness
Speaker 6: there will be by the People's Bank of China and
Speaker 6: just in general from authorities to support an economy that's
Speaker 6: flirting with deflation. Outright deflation. Do you think that they
Speaker 6: can come in with something that can avoid more protracted
Speaker 6: deflation over a sustained period of time.
Speaker 8: Well, good morning, Lisa. You know, China's inflation has been
Speaker 8: not a thing much to talk about for a long time.
Speaker 8: We've been talking about sub two percent inflation except in
Speaker 8: times when pork places have been stalling. So we're at
Speaker 8: the low end of a distribution, but we're not nearly
Speaker 8: in a deflationary range. The signs of deflation are not
Speaker 8: there in China. In particular, the monetary aggregates are still growing,
Speaker 8: although not as fast as they like them to grow,
Speaker 8: and wages are still going up. So I'm not particularly
Speaker 8: scared about deflation in China. What concerns me more is
Speaker 8: that of a deep recession in China that might have
Speaker 8: impacts on the stability of the regime, on the stability
Speaker 8: and constancy of economic policy, and that's where I think
Speaker 8: the big risks are. China, unlike the Western economies, doesn't
Speaker 8: respond to interest rate cuts, to the normal kinds of
Speaker 8: consumer spending or depressing policies that we see in the
Speaker 8: Western world, because most of their growth is driven by
Speaker 8: investment and not by consumer spending, and most of that
Speaker 8: investment is planned by the state. The problem with their
Speaker 8: growth engine is that they've run out of really lucrative
Speaker 8: investment projects and that's causing their growth rate to slow
Speaker 8: down on a secular basis, and that's what they have
Speaker 8: to try to offset by switching, by switching the source
Speaker 8: of growth from investment to consumption, and that requires a
Speaker 8: careful mix of policies.
Speaker 6: So just quickly, Carl, how likely do you think it
Speaker 6: is that there is some sort of deeper recession within China?
Speaker 8: Well, I think that a recession is probably not the
Speaker 8: right word. Would be what we would call a growth recession,
Speaker 8: where growth doesn't occur fast enough to absorb people who
Speaker 8: still want to come from the farms into the city
Speaker 8: and to generate the increases in income that people want
Speaker 8: to see. I think that's the scenario we're looking at
Speaker 8: in China. Sub par of growth, so we'll see growth
Speaker 8: this year of maybe one or two or three percent
Speaker 8: is our forecast about three percent, but that's way short
Speaker 8: of what they want, which is in the five to
Speaker 8: six percent range, and that's the problem for policy makers.
Speaker 7: Cal thank you for your insight. It's always valuable.
Speaker 2: Can't wipe back there a high frequency economics on China
Speaker 2: and what's developing at the moment.
Speaker 1: Right now, we will go to the red bars. They're
Speaker 1: in a New York Times poll today, which is front
Speaker 1: and center as we stagger into August of twenty twenty three.
Speaker 1: It is an August of a Republican debate. Wendy Schiller
Speaker 1: joins this non director of Tomins Center for American Politics
Speaker 1: Policy at Brown University. She's familiar with the electoral process.
Speaker 1: When have you ever seen anything like this? We got
Speaker 1: a guy with various legal challenges completely dominating a party
Speaker 1: fifty four percent. Trump, the governor of Florida is seventeen percent,
Speaker 1: and everybody's barely a heartbeat as well. Does Trump own
Speaker 1: the party?
Speaker 9: It looks like he owns the party right now, and
Speaker 9: he's being treated like the incumbent president.
Speaker 10: You know, how dare you challenge him?
Speaker 9: I think you know, if you're the opposition, the takeaway
Speaker 9: from this poll is.
Speaker 10: You have to go after Trump directly.
Speaker 9: I think they've all resisted it, particularly DeSantis. He sort
Speaker 9: of runs around it, but he's got to go right
Speaker 9: at Trump.
Speaker 10: Some of the comments that they've solicited in the poll
Speaker 10: after their sort of standard answers or Trump's a fighter.
Speaker 9: Trump's a fighter, that's exactly what they want to see
Speaker 9: from the other candidates.
Speaker 10: Are you willing to do what this guy does?
Speaker 9: And the other warning sign I think for the party
Speaker 9: as a whole is that there be seems to be
Speaker 9: a bunch of Republicans that are willing to throw out
Speaker 9: the rules. So if Trump loses a few primaries or
Speaker 9: it's really close and he claims they're rigged, he can
Speaker 9: undermine the entire Republican Party nomination system. So I think
Speaker 9: that the comments are really important to look at in
Speaker 9: this poll.
Speaker 1: Longer and far away, Jimmy Carter, the governor of Georgia,
Speaker 1: walked down the stairs of an airplane in Rochester, New York,
Speaker 1: and shook Michka Stanza's hand, and we all said, who
Speaker 1: is this guy? Who's the Jimmy Carter this time around?
Speaker 1: Of the two percent, three percent, Pats Scott, Hayley, Ramaswami Christy,
Speaker 1: who's the Jimmy Carter of the moment right now?
Speaker 10: I think it's Tim Scott.
Speaker 9: I think that Tim Scott has a lot of equalities
Speaker 9: that would appeal to the base if they could get
Speaker 9: themselves out of a sort of culture personality of Trump,
Speaker 9: and you know, out of the sort of avenging his
Speaker 9: loss in twenty twenty. I think he has a lot
Speaker 9: of appeal, particularly among evangelicals or conservative Christian voters in
Speaker 9: the South, and can keel away theoretically some portion of
Speaker 9: that African American base, just as George Bush sort appealed
Speaker 9: away considered abortion of Blatino base, but also a little
Speaker 9: bit of the African American base. And I think that's
Speaker 9: someone you should pay attention to.
Speaker 10: I think you the political observer should pay attention to.
Speaker 9: And a Trump tim Scott ticket would be a very
Speaker 9: interesting dilemma I think for the dempart party.
Speaker 6: You said that one of the things that candidates have
Speaker 6: to do is go straight after the former president Trump,
Speaker 6: and yet Will Heard, formerly of Texas representative, came out
Speaker 6: and actually did that in Iowa and he was booed
Speaker 6: off the stage. What makes you think that it will
Speaker 6: be received by the voters.
Speaker 9: Well, the question is who's going to these rallies, you know,
Speaker 9: who's actually going to vote six months from now, And
Speaker 9: do you set the stage like Chris Christy's trying to
Speaker 9: do in some ways of saying I can fight just
Speaker 9: as hard for.
Speaker 10: What you believe in. And I'm willing to take your boots.
Speaker 10: I mean, I'm willing to take anything you throw at me.
Speaker 10: But I'm going to stay in the race.
Speaker 9: And I think that's, you know, if it's possible for
Speaker 9: them to do in terms of financial contributions. The other
Speaker 9: problem with this poll for DeSantis is that it will
Speaker 9: scare donors right that this guy can't get traction.
Speaker 10: What do we do?
Speaker 9: And the Republicans have to be careful what the Senate
Speaker 9: in twenty four the House. This helps right, generating Trump
Speaker 9: fans going out the door for calling as good in
Speaker 9: Jerrymander districts for the House Republicans.
Speaker 10: But for the Senate they lost.
Speaker 9: In twenty twenty two mainly because of Trump endorsed candidates.
Speaker 9: The same fate awaits them in twenty twenty four. So
Speaker 9: this is going to send I think, some shutters through
Speaker 9: the entire Republican Party.
Speaker 6: Today, We're going to get some disclosures from the former
Speaker 6: President Trump's campaign in terms of the Political Action Committee
Speaker 6: and how some of the money has been spent. The
Speaker 6: expectation is that millions, tens of millions of dollars have
Speaker 6: been spent on legal bills for Trump as.
Speaker 7: Well as his associates.
Speaker 6: Will this be a problem for the donors or has
Speaker 6: this been sort of understood that this is sort of
Speaker 6: the fight that they're trying to get behind as part
Speaker 6: of the fight that he is launching for president.
Speaker 9: Lisa, This is a sort of a watching technical question
Speaker 9: for people who care about campaign rules. But Trump has
Speaker 9: made no bones about so listening money for him for
Speaker 9: his campaign, for his legal defense. It is all about him.
Speaker 9: It is not about the Republican Party. It is about him.
Speaker 9: So nobody will be surprised, and the donors, particularly small donors,
Speaker 9: don't seem to care. They're in it for him. He's
Speaker 9: their team. They're not defecting from him. The problem is,
Speaker 9: you know, the majority of voters or the people who
Speaker 9: can win an election for you, have defected, particularly Independence,
Speaker 9: but some slice of the Republican Party, and that for
Speaker 9: the general election is really a tremendous problem, you know,
Speaker 9: facing the Republican Party going to twenty four. So the
Speaker 9: voters in the Republican Party don't care how Trump spends
Speaker 9: the money.
Speaker 10: They're giving it to support him.
Speaker 2: Can we talk about the voters in the Democratic Party
Speaker 2: and how they might view the president's handling of a
Speaker 2: situation with his son at the moment when there are
Speaker 2: plenty of valligations over the last year about his business dealings.
Speaker 7: What have you heard of on that recently?
Speaker 9: Well, I mean, I think Democrats face an enthusiasm gap.
Speaker 9: We've seen that Biden's getting a little bit better, you know, school,
Speaker 9: We're even going a little bit higher. You know, things
Speaker 9: are better than people thought they might be, particularly with
Speaker 9: the economy, and some of the policies that he enacted
Speaker 9: are starting to show to voters. So he's got a
Speaker 9: little bit of momentum. He said flat out he wouldn't
Speaker 9: pardon his own son. This deal at fell apart a
Speaker 9: plea deal. I think in the end, politically that's an
Speaker 9: advantage for Joe Biden. I think people were skeptical of
Speaker 9: that deal and it can be a liability for him
Speaker 9: a year from now among Democratic voters who don't get
Speaker 9: the same deal from prosecutors.
Speaker 10: So I think in how this plays out for Hunter.
Speaker 9: Biden, if there's any punishment that people view as legitimate,
Speaker 9: I think that actually helps Joe Biden personally obviously not,
Speaker 9: but politically I think he does Wendy.
Speaker 7: Shela of Brand University. Wendy, thank you, But.
Speaker 1: We need to talk to Doug Cass because he is
Speaker 1: a conduit to Kate Upton. And the real question here
Speaker 1: is does missus Verlander does she decide that we need
Speaker 1: to stay in New York for their daughter's well being
Speaker 1: and schooling. Doug cast is Kate and the one that
Speaker 1: will decide whether mister Verlander goes in the Mets to
Speaker 1: the dreaded New York Yankees.
Speaker 3: We do need some help these Speaking of pitches these days,
Speaker 3: I feel like Louis Severino. He had that standing year
Speaker 3: in twenty twenty two, I think is one loss record
Speaker 3: was seven and three, Aaron run average of three ten
Speaker 3: this year is two and five with an ERA seven fifty.
Speaker 3: I feel that way being bearish on the market what
Speaker 3: I see her.
Speaker 1: Doug and you and I have had such a joy
Speaker 1: talking the history of the game. I find it fascinating
Speaker 1: how the end of July is maybe the tension of
Speaker 1: what we felt the first week of September was not
Speaker 1: too long ago. Do you think the new expanded wildcard
Speaker 1: has been good for the sport?
Speaker 3: Oh gosh, I don't know. It seems it's when all
Speaker 3: the trades o car at the end of July, because
Speaker 3: there is finally resolution of where you stand.
Speaker 11: You know.
Speaker 3: Stevie Cohen's a very good example his move last week
Speaker 3: with his pitcher.
Speaker 1: I mean, it's gonna be interesting to see. Just one
Speaker 1: more question on baseballs. What are the What do the
Speaker 1: Yankees do? I mean, I don't get it.
Speaker 2: I mean.
Speaker 3: Nope, I have to talk both about the Yankees and
Speaker 3: being wrong footed on the market's.
Speaker 1: Let's make this easier. Does the GM go, mister Cashman,
Speaker 1: does the GM go?
Speaker 3: I said to you last year, I thought he should go.
Speaker 3: You know, okay, you know I was palsed with his
Speaker 3: dad and who passed away unfortunately, and Brian's a good man.
Speaker 3: But maybe it's time for a change.
Speaker 1: Yeah, the the your agent says, okay, it's time now
Speaker 1: to talk to market. Doug cass you've been wrong footed
Speaker 1: on the market. As you put it, We've all been there.
Speaker 1: We all have a humility of how hard this is.
Speaker 1: How do you go about identifying that this is perhaps
Speaker 1: a true bull market?
Speaker 3: Well, as I said, there's nothing more humbling than being
Speaker 3: on the wrong side of a trending market, especially one
Speaker 3: if one approaches the investment businesses. I do with intensity,
Speaker 3: as I do with the New York Yankees. So I'm
Speaker 3: over two this year with a pretty high ra and
Speaker 3: that's been the case of the last couple of months. Look,
Speaker 3: two quotes come in mind. Come to mind. The first
Speaker 3: one I think was from Emerson. He said, in life,
Speaker 3: our greatest glory is not never failing, but in rising
Speaker 3: up every time we fail. I did a terrible job
Speaker 3: in well. I did a good job in expecting a
Speaker 3: strong first half, unlike the consensus, and we were positioned
Speaker 3: for that. But I did not expect the rally of
Speaker 3: the last three months, on top of the ten percent
Speaker 3: rally ahead of it, the good I think. There's another
Speaker 3: quote Howard Marks made in taking the Temperature of the market,
Speaker 3: you know, one of his great oak Tree commentaries last month.
Speaker 3: He said, remember that in extreme times, the secret to
Speaker 3: making money lies in being contrary, not a conformist. And
Speaker 3: to my credit, you know, we think that risk control
Speaker 3: is an essential part in managing money, especially when one
Speaker 3: is as wrong footed as I have been. Indeed, in
Speaker 3: the remarkable advance of the last couple of months, we
Speaker 3: have been that short, but we didn't lose net money
Speaker 3: in the life.
Speaker 1: Give me a number here. I mean, you know, I
Speaker 1: don't like to talk numbers with people a lot, but
Speaker 1: when you say you've eenpowdered in the market, I would
Speaker 1: suggest with your risk management, it's not as painful as
Speaker 1: some people. Are you down like single digits or is
Speaker 1: it double digit agony?
Speaker 3: We're up for the year, and as we were last
Speaker 3: year when everyone was suffering, and as I said in
Speaker 3: the rally of the last three months, we're even. So
Speaker 3: we're not even on the year, we're even during that period,
Speaker 3: which is a good example of the importance which a
Speaker 3: lot of people don't discuss, even you guys sometimes as
Speaker 3: risk control. I know Alison Schrager did a wonderful conversation
Speaker 3: in the prior segment about reward taking, you know, controlling
Speaker 3: reward versus risk, and a lot more, a lot more
Speaker 3: discussion should be made about that.
Speaker 12: So with hindsight, Doug, what do you think you and
Speaker 12: your team got wrong over the last three months.
Speaker 3: I think what happened is I underestimated the animal spirits
Speaker 3: and the fear of missing out in a market that
Speaker 3: has changed structurally and now is dominated by products and
Speaker 3: quantitative products and strategies that utilize volatility more than ever
Speaker 3: before and price momentum, and these strategies know everything about
Speaker 3: price and nothing about that value. And it's in periods
Speaker 3: like this, I think that's what bowls like myself and
Speaker 3: Mike Wilsons misunderstood.
Speaker 12: What have you taken away, if anything, from this earnings
Speaker 12: period that we're kind of just macanimical love right here.
Speaker 3: Look, I see, I see basically earnings as they always
Speaker 3: are in seventy percent of the cases, slightly better than guidance,
Speaker 3: which is you know, by design by investor relations departments.
Speaker 3: And also they're slightly higher than revised lower of six
Speaker 3: months ago earnings expectations. But we see the emergence of
Speaker 3: a number of concerns, not the least of which is
Speaker 3: sluggish growth and prickly inflation what I call slugflation as
Speaker 3: opposed to stagflation, and you're seeing it now in agricultural commodities.
Speaker 3: The CRB foodstuck Foodstock Index at a fifty two week high.
Speaker 3: Look at the price of eggs, bacon, of urea, of ammonium,
Speaker 3: and obviously of course oil, which is now up I
Speaker 3: believe has its first five week windstreak in a year
Speaker 3: and a half or two years and now is above
Speaker 3: it's fifty week moving average. These are all I looked at.
Speaker 3: Look at orange juice, orange juice, which we drink. You
Speaker 3: drink tang ony orange juice, but normal people Tom drink
Speaker 3: orange juice. It's up twenty four in the month of July,
Speaker 3: and people look, the bond market has gotten the clue.
Speaker 3: The ten year is up twelve BIPs in the last
Speaker 3: week up and the three or four BIPs today, and
Speaker 3: they figured it out, but the market hasn't because in
Speaker 3: my view, market structure animal spirits and fomo and the
Speaker 3: other thing is the other thing is that what we've
Speaker 3: also realized is that the US economy has grown far
Speaker 3: less interest rate sensitive than the consensus or a monetary policies,
Speaker 3: policy authorities suspect. So fundamental to my and the cornerstone
Speaker 3: of my various views that we have higher for longer
Speaker 3: policy and our rates are going to remain high, and
Speaker 3: we have as a result, a paper thin equity risk premium,
Speaker 3: which portends valuation risk, reduces the margin of safety, expands
Speaker 3: the downside risk for stocks relative to the f side reward,
Speaker 3: and extends the advantage of credit credit over equity.
Speaker 1: Yeah, very quickly here, Doug. What everyone knows is there's
Speaker 1: a massive overweight on tech. How does that end?
Speaker 3: Well, it ends barely, you know, I facetiously said in
Speaker 3: a column I wrote on Real Money pro that I
Speaker 3: sent to you that AI is for now an elegant
Speaker 3: farlow trick with few accumulating near term revene, new benefits,
Speaker 3: and a lot of increased costs. We will recall the
Speaker 3: Internet created the dot com boom, but that didn't keep
Speaker 3: the NaSTA going down eighty three percent in the next
Speaker 3: three years beginning in late two thousand. So I think
Speaker 3: that the greatest overval evaluation in the market is technology.
Speaker 3: You have to remember, remember we were buying Amazon, Alphabet
Speaker 3: Facebook at the end of last year. Remember the tax selling.
Speaker 3: How these doctors are being thrown out. No one wanted them.
Speaker 3: You know, this is the only business where people are
Speaker 3: confident in view and can be terribly wrong and come
Speaker 3: back and our confident view again. I mean, the bulls
Speaker 3: today are much like the bulls at the end of
Speaker 3: twenty twenty were bearished in October twenty.
Speaker 1: It reminds you of the Yankees in Tampa and February.
Speaker 1: Dougcash thank you so much, greatly appreciate that with Seabury's
Speaker 1: partners right now and this is a joy after what
Speaker 1: we saw in Belgium to bring in Zach Brown. He's
Speaker 1: the chief executive officer of McLaren Racing and to give
Speaker 1: you an idea of the breadth, the scope to scale
Speaker 1: of his history with racing. He actually was in the
Speaker 1: cars doing it at a very young age. And he's
Speaker 1: someone that also has a great amount of Americana, including
Speaker 1: a precious letter from George Washington to someone arguing about
Speaker 1: the travesty of Benedict Arnold. This is a renaissance man,
Speaker 1: John running things at the August You told me McLaren
Speaker 1: was special.
Speaker 2: It's very special, and it's a special opportunity to catch
Speaker 2: up with Zach Brown of McLaren Racing. Zach water for
Speaker 2: to catch up with you, sir. A difficult week compared
Speaker 2: to the success in Hungary and at Silverston in the
Speaker 2: UK as well. Zach, can you catch these red bulls
Speaker 2: this year? Can you get away?
Speaker 11: Well, we're trying, We're trying. We need them to blink.
Speaker 11: But you know there's a lot of racing left to go.
Speaker 11: We're getting closer. Unfortunately, no one's close enough yet, but
Speaker 11: I would think a win is possible in the second
Speaker 11: half of the season. It's certainly our goal.
Speaker 2: What is it about the setup of the card, the
Speaker 2: developments that you've made over the last several races, SAG
Speaker 2: where you think you've made progress, and what kind of
Speaker 2: races on the calendar do you think we can see
Speaker 2: that a little bit more.
Speaker 11: Aerodynamics? You know, it's very much an aerodynamics game. Of course,
Speaker 11: you have to have two great drivers, which we have,
Speaker 11: and you have to have great pit stops and reliability.
Speaker 11: But it is an arrow game and that is where
Speaker 11: we've made our biggest gains. We started that in Austria,
Speaker 11: I think some of the quicker tracks, so I would
Speaker 11: think austin Japan we should be strong. Abbi Dabi, we
Speaker 11: should be strong. It's the slow corners we don't like,
Speaker 11: but who likes going slow anyway? But that's where we
Speaker 11: need to improve and we've got some more developments coming,
Speaker 11: but so does everyone in Formula one, so it is
Speaker 11: definitely a development race.
Speaker 1: Zach West every minute of Belgium, and somewhere in the
Speaker 1: vicinity of lap thirty one or thirty three, there was
Speaker 1: Zach Brown talking to a twenty two year old kid
Speaker 1: quietly who had gone out of the race early as well.
Speaker 1: Oscar Piazzi is twenty two. At fourteen, he was basically
Speaker 1: a professional. That's all these kids do is drive, drive, drive.
Speaker 1: What were you saying to Oscar Piastree at lap thirty
Speaker 1: three there after he bombed out of the Belgium race.
Speaker 11: Yeah, I told him a couple of things. One, don't
Speaker 11: worry about it. You know, he had such a great Saturdays,
Speaker 11: having a great season. So these guys feel like they
Speaker 11: not only let themselves down, but the team down, and
Speaker 11: so they need to know we're all in this together,
Speaker 11: and we win together, we lose together. And then also
Speaker 11: we had a pretty difficult race with our arrows set up,
Speaker 11: so at that particular moment, Lando was going backwards until
Speaker 11: we kind of strategically got him in a better place.
Speaker 11: So I also told him he probably wasn't missing having
Speaker 11: too much fun at the moment, just being a little
Speaker 11: bit light hearted, and you know, these things happen. He's
Speaker 11: done a fast, fantastic job all year.
Speaker 1: Explain to our American audience, including a dummy like me,
Speaker 1: what did Bruce McLaren give you? What does the McLaren
Speaker 1: name mean to John Ferrell and auto racing.
Speaker 5: It I mean, he was a legend.
Speaker 11: He was all about innovation, he was a driver, he
Speaker 11: was a designer.
Speaker 5: So you know, we're very.
Speaker 11: Proud to wear the Papaya colors, which was Bruce's colors
Speaker 11: back in the day, and that was actually done so
Speaker 11: he could have more standout on television back in the
Speaker 11: black and white days. And so he's an inspiration to
Speaker 11: all of us. And he was a racer, he was
Speaker 11: an innovator, he was a designer and of course a
Speaker 11: team owner. So we're the second most successful team in
Speaker 11: the history of Formula One and something that we're very
Speaker 11: very proud of. And we were also the only team
Speaker 11: to one what's called the Triple Crown, which is the
Speaker 11: twenty four Hours of Lama and the eighty five hundred
Speaker 11: and of course the Monaco Grand Prix, and it's something
Speaker 11: that we can hope to do again in the future.
Speaker 6: Zach, as you try to plow further into the US,
Speaker 6: is this something that Formula one has tried to do?
Speaker 6: Is I'm learning and I'm one of the people who
Speaker 6: are becoming the adopters here where is the distinction the
Speaker 6: overlap between Formula One and NASCAR. How competitive is that
Speaker 6: at a time when NASCAR already has such a cult
Speaker 6: following in the US and Formula One has a very
Speaker 6: different type of energy coming from Europe.
Speaker 11: Yeah, I think they're complementary. They're different. You know, they're
Speaker 11: probably have almost the same similarities between baseball and basketball
Speaker 11: because they're radically different as far as the type of racing,
Speaker 11: so a little bit of a different demographic and psychographic. Obviously,
Speaker 11: Formula one is very global, where NASCAR's domestic sport. But
Speaker 11: I think all motor sports help each other, so I
Speaker 11: think there's a room for both, including IndyCar, which is
Speaker 11: much more like Formula One. It's just awesome to see
Speaker 11: how big Formula One has got in America as quickly
Speaker 11: as it has, and I think Netflix obviously has a
Speaker 11: lot to do with that, as does the Austin Grand Prix,
Speaker 11: Miami Grand Prix, and the soon to come Vegas Grand Prix,
Speaker 11: which is going to be off the charts.
Speaker 6: As a lot of purists probably feel that the Netflix
Speaker 6: series perhaps inaccurately reflects some of the dropmor the lack
Speaker 6: there of, as Max Verstoppin, as John was pointing out
Speaker 6: has noted as an American who has been in a
Speaker 6: sport that really has been dominated by European presence, how
Speaker 6: does the sport have to change to really become as
Speaker 6: popular in the US.
Speaker 11: Well, I think it is changing, and a lot of
Speaker 11: credit to Liberty who acquired the sport, you know, five
Speaker 11: six years ago. I think Netflix is a great example
Speaker 11: that would have probably not happened with previous ownership because
Speaker 11: the industry, the sport would not have wanted the cameras
Speaker 11: on the inside of the sport. It was kind of
Speaker 11: a wasn't an inclusive sport. And I think now we're
Speaker 11: very digitally savvy. We've embraced the fan. We're all about
Speaker 11: the fan and things like Netflix where we're showing people
Speaker 11: about our great sport. And I've seen some of those comments,
Speaker 11: which they are a little disappointing because I think they're
Speaker 11: a bit inaccurate in the sense of we're capturing our
Speaker 11: great sport. When Netflix puts together the content, well sometimes
Speaker 11: pick and poll because they're trying to illustrate a point.
Speaker 11: So we as the racers, we'll see, for instance, oh
Speaker 11: that was a clip of our pit crew from Monaco.
Speaker 11: But they're showing US in Italy, but it kind of
Speaker 11: doesn't change the narrative. So I think we're a little
Speaker 11: bit too close to it. Mdtrus Formula ones all about
Speaker 11: the details. We get a little bit wound up when
Speaker 11: the details a little bit inaccurate.
Speaker 2: E zact, tell me how the commercial agreements have developed
Speaker 2: over the last couple of years. Let's just say, for example,
Speaker 2: we wanted to put Bloomberg surveillance on the side of
Speaker 2: Lando's car.
Speaker 7: Let's just say, let's just say, what's the cost of
Speaker 7: that now.
Speaker 2: Competuating us several years ago, Zach, how much has the
Speaker 2: price of that increased.
Speaker 11: It's probably gone up twofold in five years. And I
Speaker 11: think what's great, though, is the exposure has gone up fourfold,
Speaker 11: so you know, it's all value for money, but the demand.
Speaker 7: I mean, if we look.
Speaker 11: At our our partners, right, Google, Cisco, Dell, Goldman, Sachs,
Speaker 11: I mean, these companies were not considering Formula one five
Speaker 11: years ago, and now you've got the world's greatest companies
Speaker 11: joining those that were already there. So it's it's been
Speaker 11: unbelievably commercial success, Zach.
Speaker 1: Real quickly, and by the way, you know, John and
Speaker 1: I think we can piece together five thousand dollars to
Speaker 1: get Bloomberg Savellians on the side of the car. You
Speaker 1: guys are always tweaking the cars. Now you've got a
Speaker 1: summer break like Pharaoh has a summer break. I mean
Speaker 1: John's taking off all of August into September. You go
Speaker 1: from Belgium to Netherlands. Is your car going to be
Speaker 1: tweaked and different for Netherlands or do you actually take
Speaker 1: a real European holiday?
Speaker 7: No, well, a bit of both.
Speaker 11: But you know, everything's about advanced planning. So we will
Speaker 11: have new bits if you'd like on our car and
Speaker 11: hauland but those have already been developed. The shutdown is
Speaker 11: for the technical team is mandatory. We can't even send
Speaker 11: an email. So I'm going to go to a lot
Speaker 11: of time with our IndyCar team because you can't keep
Speaker 11: me away from a racetrack. But no, we are. It
Speaker 11: is a very genuine You cannot touch the race car
Speaker 11: for two weeks. You can't even communicate about the race car.
Speaker 11: But that's all planned in so our developments are already ready.
Speaker 7: I'm having that written into my class.
Speaker 1: Same bratas did you just hear that?
Speaker 2: Zach Brown of the Clown racing Zach, Thank you, sir,
Speaker 2: appreciate it, and good luck for the rest of the season.
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