WEBVTT - Fidelity Sees a Return to Bear-Market Lows 0:00:14.040 --> 0:00:17.239 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.360 --> 0:00:19.880 My name is Mike Reagan. I'm a senior editor at Bloomberg, 0:00:19.960 --> 0:00:23.360 and I'm Lodona Hio, Across Acid reporter with Bloomberg. This 0:00:23.440 --> 0:00:26.279 week on the show, well do you remember Tina, the 0:00:26.320 --> 0:00:29.479 acronym standing for there is no alternative two stocks for 0:00:29.560 --> 0:00:33.600 investors looking for positive returns? Well, Tina left the building 0:00:33.640 --> 0:00:36.720 in two and no one seems to expect her to 0:00:36.760 --> 0:00:40.680 return this year. Either. With investment grade corporate bonds offering 0:00:40.760 --> 0:00:43.880 yields of almost six percent and even to year treasuries 0:00:43.960 --> 0:00:48.280 yielding well above four there are alternatives two stocks this year. 0:00:48.720 --> 0:00:50.839 We're gonna get into it with the director of Global 0:00:50.880 --> 0:00:54.560 Macro at a major investment firm. But Voldonna before that, 0:00:55.280 --> 0:00:57.760 I've noticed it's a new year. I am still not 0:00:57.880 --> 0:01:01.360 a member of your professional network. On Lincoln, this week's 0:01:01.360 --> 0:01:04.520 guess actually is a member of I think I'm a 0:01:04.520 --> 0:01:06.640 member of his professional network. I don't know how it works. 0:01:06.680 --> 0:01:09.560 I definitely added him because I was looking at his 0:01:09.600 --> 0:01:13.720 LinkedIn earlier and in preparation for the show, and he 0:01:13.760 --> 0:01:16.240 has some really great posts about food. He's a good follow, 0:01:16.280 --> 0:01:18.679 he's a good chef. He's a good person to follow. 0:01:18.760 --> 0:01:20.080 I was just going to say, you can make a 0:01:20.160 --> 0:01:24.839 name in social media either with great charts, financial charts 0:01:25.240 --> 0:01:28.120 or with good food picks. Yeah, good foods. I think 0:01:28.160 --> 0:01:30.720 he's got both bases, have both. I'm getting hungry. I 0:01:30.760 --> 0:01:32.679 get hungry every time I see is. Can I just 0:01:32.720 --> 0:01:35.479 tell you I have so many invites pending on LinkedIn. Now, 0:01:36.040 --> 0:01:39.480 even if I tried to add I would never You 0:01:39.520 --> 0:01:42.800 couldn't possibly even find it. Take me like years. Yeah, 0:01:42.920 --> 0:01:45.000 that's that's the reason I'm not. But I am friends 0:01:45.080 --> 0:01:49.120 with with our guests. It's it's Ran tim Or. He's 0:01:49.120 --> 0:01:52.120 the director of Global Macro ad Fidelity Investments. Yourian, thank 0:01:52.120 --> 0:01:54.520 you so much for joining us on the podcast. Yeah, well, 0:01:54.520 --> 0:01:56.200 thank you for having me. And you know, it's funny 0:01:56.240 --> 0:01:59.200 you mentioned the food on on social media because you 0:01:59.240 --> 0:02:03.240 can never please everyone, you know, like I'll get comments saying, oh, 0:02:03.360 --> 0:02:05.720 you know, just you know what is his Facebook? You know, 0:02:05.800 --> 0:02:08.520 just just to stick to the market commentary. And then 0:02:09.320 --> 0:02:12.280 how about the vegans out there, like show me somety 0:02:12.320 --> 0:02:16.040 and so you can never please everyone? Will want some cauliflower. 0:02:16.160 --> 0:02:18.600 I think I love cauliflower. I am vegetarian, so I 0:02:18.639 --> 0:02:22.240 actually would like to see more vegetables. Yeah, absolutely he did. Uh. 0:02:22.280 --> 0:02:25.640 I think he did bee fund for for Christmas. I 0:02:25.639 --> 0:02:27.679 did not know that was legal that you could do 0:02:27.800 --> 0:02:30.120 beef fun. You can actually dip the beef in the cheese. 0:02:30.120 --> 0:02:33.120 This is like a dream come true for me. It's 0:02:33.160 --> 0:02:35.800 an old recipe from It's a recipe from my My 0:02:35.880 --> 0:02:38.440 mom is a great chef. She's eighty eight years old. 0:02:38.960 --> 0:02:42.359 But some of my my best recipes are really vintage 0:02:42.360 --> 0:02:46.280 retro recipes that were hers from the nineteen seventies. And 0:02:46.320 --> 0:02:48.800 you know, beefund was like a big thing back there 0:02:49.720 --> 0:02:53.000 back then. So most people think of cheese fondu, but 0:02:53.080 --> 0:02:56.720 beefndu is a very good social social type of dinner. 0:02:56.760 --> 0:02:58.560 You can have ten people over, so it's a lot 0:02:58.560 --> 0:03:00.840 of fun. I'm salvating just thinking about it. Should have 0:03:00.840 --> 0:03:04.960 a party mine. You're into the party. Yeah, But I think, 0:03:05.040 --> 0:03:07.239 all right, you're let's let's shift to your recipe for 0:03:07.280 --> 0:03:10.320 the markets. Though, I think, how's that sege? That's a 0:03:10.360 --> 0:03:12.720 really good segue. So on one of your LinkedIn posts, 0:03:12.720 --> 0:03:17.600 actually you said two was challenging, So I'm wondering what 0:03:17.680 --> 0:03:20.600 you foresee for three? And maybe if you don't want 0:03:20.600 --> 0:03:22.400 to give a full year outlook what you see for 0:03:22.440 --> 0:03:26.560 the next couple of months at least. So two was 0:03:26.760 --> 0:03:32.760 all about undoing the excesses in the markets stemming from 0:03:32.880 --> 0:03:36.760 the basically the over stimulated system following the COVID you 0:03:36.800 --> 0:03:40.200 know crash and the lockdowns um and you know that 0:03:40.280 --> 0:03:43.560 whole that whole story episode, which I hope is behind us, 0:03:43.640 --> 0:03:47.520 but you never know with with COVID UM. But you know, 0:03:47.640 --> 0:03:50.440 when the FED went, you know, on the on the 0:03:50.480 --> 0:03:53.080 gas pedal together with the Treasury, and we had that 0:03:53.160 --> 0:03:57.160 one to punch of fiscal monetary stimulus. Obviously it was 0:03:57.280 --> 0:03:59.680 needed at the time. It was a very timely, very 0:03:59.720 --> 0:04:03.119 active response. It certainly did what it was supposed to do, 0:04:03.640 --> 0:04:06.600 but I think we can probably all agree that there 0:04:06.760 --> 0:04:09.880 was maybe too much and it stayed around for too long. 0:04:10.400 --> 0:04:13.640 The FED appreciated the supply chain bottlenecks and the you know, 0:04:13.960 --> 0:04:17.520 the transitory nature of that. Obviously the FED could not 0:04:17.600 --> 0:04:22.159 see the Russia Ukraine war coming, But in retrospect, maybe 0:04:22.200 --> 0:04:25.480 there should have been more of an appreciation for the 0:04:25.560 --> 0:04:28.279 kind of the magnitude of the fiscal stimulus that happened 0:04:28.279 --> 0:04:31.760 that we haven't really seen since world War two, UM, 0:04:32.000 --> 0:04:36.800 and so was about taking that punch bowl away in 0:04:36.839 --> 0:04:40.560 a very big way. And it cost evaluation reset in 0:04:40.640 --> 0:04:43.080 all markets, right, the bond market, the stock market, the 0:04:43.120 --> 0:04:46.400 crypto market, the commodity markets, you name it. And so 0:04:46.520 --> 0:04:50.240 that was so it was a big valuation reset. Basically, 0:04:50.240 --> 0:04:54.280 the FED raised the cost of capital on everyone, homeowners, 0:04:54.360 --> 0:04:58.839 the government, corporations, consumers, um, and the bond market. You 0:04:58.839 --> 0:05:01.080 know you mentioned Tina early here. The bond market went 0:05:02.080 --> 0:05:05.600 back to being a viable competitive asset class, I mean 0:05:05.760 --> 0:05:10.039 positively correlated to the stock market. Unfortunately for anyone in 0:05:10.080 --> 0:05:14.480 a sixty forty type portfolio, which is really most of us, 0:05:14.520 --> 0:05:17.400 but that level the playing field that we now actually 0:05:17.400 --> 0:05:21.600 have a menu of asset classes that actually is more 0:05:21.640 --> 0:05:26.000 closely resembles what we have historically seen rather than you know, 0:05:26.080 --> 0:05:29.880 the last few years. So now we're in three and 0:05:29.960 --> 0:05:33.760 for me, the big question and for many investors of course, is, 0:05:34.320 --> 0:05:36.599 you know, will the FET be able to thread the 0:05:36.640 --> 0:05:41.359 needle by raising rates just high enough to tame the 0:05:41.400 --> 0:05:46.560 inflation monster, but without causing a severe recession, which would 0:05:46.600 --> 0:05:50.920 then mean an earnings contraction, which then would point to 0:05:50.960 --> 0:05:54.240 the risk of another leg down for the stock market. 0:05:54.320 --> 0:05:58.480 So I think the bond market has largely reset itself. 0:05:58.560 --> 0:06:01.680 We went from one sent long yields to you know, 0:06:01.920 --> 0:06:04.719 over four point three were now at about three and 0:06:04.800 --> 0:06:07.599 three quarters or so. So I think that reset is 0:06:07.720 --> 0:06:10.040 behind us. But for the stock market, when you look 0:06:10.080 --> 0:06:14.400 at historical cycles, there are some cycles where all of 0:06:14.440 --> 0:06:16.719 the reset in the market, all of the bear market 0:06:16.760 --> 0:06:21.599 basically was evaluation component, and by the time earnings maybe 0:06:21.839 --> 0:06:24.919 did start to fall, enough of it was discounted that 0:06:25.000 --> 0:06:27.680 the market actually was able to rally because price generally 0:06:27.720 --> 0:06:31.720 bottoms before earnings. That certainly happened in two happened in 0:06:31.760 --> 0:06:36.279 twenty I should say happened in two thousand nine. But 0:06:36.560 --> 0:06:38.720 you know, when you look at the macro data and 0:06:38.760 --> 0:06:41.359 you look at the inversion in the yield curve, you know, 0:06:41.440 --> 0:06:44.040 we when the yield curve was the most inverted about 0:06:44.080 --> 0:06:47.440 a month ago, we were at the nine percent of 0:06:47.600 --> 0:06:50.800 most inversion of all time, you know, the most inverted 0:06:50.800 --> 0:06:54.080 since nineteen the early nineteen eighties. And you have a 0:06:54.120 --> 0:06:57.400 FED basically saying, as per the December f o MC 0:06:57.600 --> 0:07:00.400 meeting that you know, we're gonna go to five ish percent, 0:07:00.520 --> 0:07:04.640 which given where inflation expectations are now via the tips, 0:07:04.640 --> 0:07:07.640 market would be in a you know, at a significantly 0:07:07.760 --> 0:07:10.680 restrictive zone, and the Fed is saying, you know, we're 0:07:10.680 --> 0:07:13.240 going to kind of stay there for a while. And 0:07:13.320 --> 0:07:17.880 so if if when you combine that with the possibility 0:07:17.960 --> 0:07:20.440 or the likelihood of a recession maybe in the second 0:07:20.440 --> 0:07:23.680 half of the year, which would then cause an earnings contraction, 0:07:24.200 --> 0:07:26.920 you know, it's not unreasonable to worry that there was 0:07:26.960 --> 0:07:31.000 another shoe that's going to drop. But again, it's it's 0:07:31.040 --> 0:07:34.360 a very much a nonlinear type of thing because price 0:07:34.480 --> 0:07:37.040 does bottom before earnings. I don't know if you remember 0:07:37.440 --> 0:07:39.280 two and a half years ago. You know, in the 0:07:39.280 --> 0:07:43.840 summer of the market was roaring back, going to new 0:07:43.880 --> 0:07:48.520 all time highs fairly quickly after the crash in in 0:07:48.600 --> 0:07:51.800 February and March, and a lot of people were scratching 0:07:51.840 --> 0:07:54.200 their heads, saying, how how is this possible? The world 0:07:54.320 --> 0:07:56.560 is coming to an end, people are dying, the economy 0:07:56.640 --> 0:07:59.920 is lockdown. How can the market be justified by going 0:08:00.040 --> 0:08:02.840 to new highs? And in retrospect, the market was just 0:08:02.920 --> 0:08:06.920 feeling that that lead lag timeline between price and earning. 0:08:07.040 --> 0:08:10.080 So it is possible that the October lows were the 0:08:10.120 --> 0:08:13.280 lows um and that if we get a mild recession 0:08:13.400 --> 0:08:16.600 or a mild earnings contraction or only an earnings contraction 0:08:16.680 --> 0:08:20.440 in real terms but not in nominal terms, that we've 0:08:20.480 --> 0:08:23.320 seen the worst of it. But it is a risk 0:08:23.400 --> 0:08:26.880 that there is an earnings wave coming in uh let's 0:08:26.920 --> 0:08:30.920 say later, and that we're not out of the woods yet. 0:08:30.960 --> 0:08:36.480 So my very safe forecast is that is going to 0:08:36.559 --> 0:08:39.600 be kind of a choppy, sideways market where we're going 0:08:39.640 --> 0:08:42.679 to revisit the lows maybe once or twice as kind 0:08:42.679 --> 0:08:45.880 of the fear grows that there's an earnings wave coming. 0:08:46.280 --> 0:08:48.920 But at the same time, there's going to be opportunities. 0:08:49.240 --> 0:08:52.120 There's gonna be a lot of under the surface rotation. 0:08:52.240 --> 0:08:56.239 I think, like we saw in two, I think international 0:08:56.320 --> 0:08:59.360 markets are looking a lot more interesting. Value I think 0:08:59.360 --> 0:09:02.720 will continue to outperform growth. So I think it's going 0:09:02.760 --> 0:09:05.280 to be a very very bifurcated market where at the 0:09:05.360 --> 0:09:08.840 beta level not much is going to happen, but at 0:09:08.880 --> 0:09:12.280 the alpha level, at the second order asset allocation level, 0:09:12.440 --> 0:09:15.679 there will be opportunities. And I think the forty side 0:09:15.679 --> 0:09:18.960 of the sixty forty will be a port in the storm. 0:09:19.240 --> 0:09:23.040 Uh If if that's sixty side still has another down lick. 0:09:23.960 --> 0:09:26.960 It's interesting your and I are colleague Sam Potter in 0:09:27.040 --> 0:09:32.640 London put together this monster compilation of sort of every 0:09:32.960 --> 0:09:38.920 strategists or fund managers predictions for three and that notion 0:09:38.960 --> 0:09:41.760 that there's a lot of bullishness on bonds. Obviously some 0:09:41.920 --> 0:09:45.800 even saying well maybe you flip the sixty relationship and 0:09:45.840 --> 0:09:53.120 got bonds or even bonds thirty equities. But I feel 0:09:53.120 --> 0:09:57.080 like embedded in all this bond bullishness is this notion 0:09:57.480 --> 0:10:00.439 that inflation has peaked, might not get back down to 0:10:00.480 --> 0:10:02.960 that supercent level this year, but it's going to head 0:10:02.960 --> 0:10:05.560 in that direction. We've seen the worst of it. I 0:10:05.640 --> 0:10:08.520 just get nervous when I see a consensus like that 0:10:08.920 --> 0:10:11.920 where everyone's sort of thinking the same thing. It makes 0:10:11.960 --> 0:10:14.240 a lot of sense that that should happen. I think, 0:10:14.320 --> 0:10:16.560 you know, if you have, if you're forced in your 0:10:16.559 --> 0:10:18.920 career to make predictions for the coming year, that one 0:10:18.960 --> 0:10:21.080 makes tons of sense. But how big of a tail 0:10:21.200 --> 0:10:26.079 risk or regular risk is the idea that inflation isn't 0:10:26.160 --> 0:10:28.520 as under control as everyone hopes it is. You know, 0:10:28.960 --> 0:10:32.880 is there a risk there that's that's not really being appreciated? Yes, 0:10:33.000 --> 0:10:35.959 I think that that is correct. And if you look 0:10:36.000 --> 0:10:38.760 at the tips market, uh, and the tips market is 0:10:38.760 --> 0:10:41.400 by no means always correct. No, no market is I mean, 0:10:41.480 --> 0:10:44.439 any market is just a subset of human behavior and 0:10:44.520 --> 0:10:48.960 human expectations, and so market signals are often wrong, which 0:10:48.960 --> 0:10:50.800 of course is a risk for the FED when they 0:10:50.840 --> 0:10:54.840 look at financial conditions. But that's another conversation. But it 0:10:54.880 --> 0:10:56.839 seems like a no brainer that if we're going to 0:10:56.920 --> 0:11:00.440 have economic weakness and now that inflation is going down, 0:11:00.440 --> 0:11:01.839 I mean it is right. I mean, the c p 0:11:01.960 --> 0:11:04.960 I piked at nine percent year over year in June, 0:11:05.000 --> 0:11:07.560 and it's you know, it's well off of those levels, 0:11:07.600 --> 0:11:11.200 and most economists that I follow, and even our in 0:11:11.280 --> 0:11:15.920 house economics team, it seems fairly likely that inflation will 0:11:15.920 --> 0:11:19.640 continue to come down at least still about four percent. 0:11:20.200 --> 0:11:22.680 But as you point out that, the risk is that 0:11:23.240 --> 0:11:25.400 it stops there or that it doesn't go all the 0:11:25.440 --> 0:11:28.280 way back back down to two. And one thing that 0:11:28.320 --> 0:11:31.360 the FED has been very clear about recently is that 0:11:31.400 --> 0:11:33.640 it's not enough just to see inflation come down. It 0:11:33.640 --> 0:11:36.080 has to come down to the FEDS target, which is 0:11:36.240 --> 0:11:40.959 two pc, which generally the CPI runs a little higher 0:11:41.000 --> 0:11:44.640 than that because of the different compositions. So basically two 0:11:44.640 --> 0:11:46.840 and a half percent on the c P I would 0:11:47.080 --> 0:11:50.320 is the Fed's target. And the risk is that, you know, 0:11:50.880 --> 0:11:53.280 the FED will go to around five percent in the 0:11:53.360 --> 0:11:55.520 next three months or so. I mean, the FED has 0:11:55.559 --> 0:11:58.640 been fairly clear about that. The dot plot suggests the 0:11:58.720 --> 0:12:01.800 same thing. Uh, But there's a disconnect between what the 0:12:01.880 --> 0:12:04.600 forward curve, you know, the SOFA curve or the FED 0:12:04.600 --> 0:12:07.880 funds curve is saying the FEED will do and what 0:12:08.000 --> 0:12:10.719 the FED is saying the FED will do. Right, if 0:12:10.720 --> 0:12:14.720 you look at the three dot plot, the median dot 0:12:14.840 --> 0:12:17.560 is like four and three eight or so, and the 0:12:17.559 --> 0:12:20.199 FED funds curve or the SOFA curve is at three. 0:12:20.640 --> 0:12:23.760 I mean, that's a big disconnect, right, And so I 0:12:23.800 --> 0:12:26.040 think the risk is that, and I think the FED 0:12:26.120 --> 0:12:30.319 sees this, is that the FED wants to contain inflation 0:12:30.400 --> 0:12:32.520 all the way back to its target because if it 0:12:32.559 --> 0:12:35.559 doesn't do it now, even at the risk of a recession, 0:12:36.280 --> 0:12:39.000 then it may never be able to do it unless, 0:12:39.160 --> 0:12:43.320 you know, unless much more severe measures are taken. And 0:12:43.360 --> 0:12:46.520 imagine we do go into a recession second half of 0:12:46.559 --> 0:12:49.280 this year and inflation goes all the way to four 0:12:49.360 --> 0:12:51.520 which is of course help of a lot better than 0:12:51.600 --> 0:12:54.959 nine um. But that's then the trough. And let's say 0:12:54.960 --> 0:12:58.720 inflation then accelerates in the following expansion off of a 0:12:58.760 --> 0:13:00.960 base of three or four instead of you know what 0:13:01.080 --> 0:13:03.720 normally would be zero or one, right, because the pendulum 0:13:03.760 --> 0:13:08.240 is always swinging through that average target. And I think, 0:13:08.360 --> 0:13:11.400 you know, I mean, it's a conversation for another time, 0:13:11.480 --> 0:13:14.840 because we're very far from that happening. But that would 0:13:14.920 --> 0:13:18.959 create the risk that bonds are indeed no longer support 0:13:19.040 --> 0:13:21.280 in the storm because if you think about where the 0:13:21.400 --> 0:13:24.760 term premium is, which is around zero or so. Uh. 0:13:24.800 --> 0:13:27.840 And let's say that inflation does become more embedded at 0:13:27.920 --> 0:13:30.800 a higher rate, even if it's only three or four, 0:13:31.200 --> 0:13:33.680 it's still you know, almost double what the FED would 0:13:33.720 --> 0:13:36.280 like to see. Then you could see a period of 0:13:36.320 --> 0:13:39.600 structurally higher real rates and nominal rates. But I think 0:13:39.640 --> 0:13:44.520 for the focus will be more on recession risk and 0:13:44.960 --> 0:13:49.880 the forty starting to negatively correlate again against the sixty, 0:13:49.960 --> 0:13:52.920 which is what has happened in the last few months. Again, 0:13:53.000 --> 0:13:55.439 although it's only a few nts, do you just want 0:13:55.480 --> 0:13:58.640 to pause and say it's the year finally people are 0:13:58.640 --> 0:14:02.680 talking about SOFA it's taken a while. Finally the secured 0:14:02.720 --> 0:14:06.760 overnight financing rate that replaced library Are you impressed with 0:14:06.760 --> 0:14:09.880 You're not as impressed as I am. Not just you know, 0:14:09.920 --> 0:14:12.040 because I bug you with these topics all the time, 0:14:12.040 --> 0:14:15.160 where I email I'm like, what does this mean? All 0:14:15.160 --> 0:14:18.160 the time? So first, huge, Now going forward, we were 0:14:18.200 --> 0:14:20.360 finally out from under the shadow of live work. We've 0:14:20.400 --> 0:14:29.640 been talking about it for years. Yeah, well you're in. 0:14:29.920 --> 0:14:31.680 I wanted to ask you if you feel that we've 0:14:31.720 --> 0:14:35.160 definitively made the switch from worrying about inflation to worrying 0:14:35.200 --> 0:14:38.120 about growth and what it is in terms of economic 0:14:38.200 --> 0:14:42.080 signals that you're tracking that might sort of give you 0:14:42.120 --> 0:14:44.080 clues in terms of whether or not or how severe 0:14:44.160 --> 0:14:48.080 of a recession. We get, Yes, I think for that 0:14:48.200 --> 0:14:53.400 is correct. Maybe we'll be worrying again again about inflation, 0:14:53.440 --> 0:14:57.520 but for now, clearly inflation is on a decelerating track. 0:14:57.680 --> 0:15:01.880 We see this in your w prices, used car prices, 0:15:02.000 --> 0:15:05.120 I mean, you know, price of energy commodities, uh that, 0:15:05.320 --> 0:15:07.800 and you know the p M I price is paid, 0:15:08.320 --> 0:15:11.240 So all of those numbers are heading in the right direction. 0:15:11.280 --> 0:15:13.760 Of course, the FED is focused on the labor market, 0:15:13.760 --> 0:15:18.400 which remains very tight. But um, I think for three, 0:15:18.840 --> 0:15:21.680 the big question is, you know, last year the first 0:15:21.760 --> 0:15:25.880 shoe dropped, which was the valuation reset driven by the FED, 0:15:26.360 --> 0:15:30.080 driving the cost of capital higher for everything. And remember 0:15:30.480 --> 0:15:33.480 all assets are are really just the present value of 0:15:33.520 --> 0:15:36.000 future cash flows, whether it's a bond or you know, 0:15:36.280 --> 0:15:39.800 a rental property or a stock. And so when when 0:15:39.840 --> 0:15:43.800 the discount rate in that discounted cash flow model goes up, 0:15:44.280 --> 0:15:47.520 the present value of those cash flows goes down, even 0:15:47.600 --> 0:15:51.440 if the cash flows themselves are still growing. And that, really, 0:15:51.520 --> 0:15:54.840 in a nutshell, is what explains what happened last year. 0:15:55.360 --> 0:15:57.840 So that that I think is largely in the rear 0:15:57.920 --> 0:16:00.680 view mirror. When you look at past economic cycles or 0:16:00.800 --> 0:16:04.480 past bear markets, even the really really bad ones like 0:16:04.520 --> 0:16:09.120 the financial crisis, the dot com bubble four, all of 0:16:09.160 --> 0:16:13.400 those rarely produced a rate of change in the PE 0:16:13.560 --> 0:16:17.479 ratio that was more negative than what we've seen in two. 0:16:17.560 --> 0:16:20.320 So it's really it's it's it's a stretch to me 0:16:20.400 --> 0:16:23.560 to argue that the PE ratio is going to go 0:16:23.760 --> 0:16:26.240 down even more than it already has. Right, it went 0:16:26.280 --> 0:16:31.120 from the twenties mid twenties to fifteen, but the PE 0:16:31.200 --> 0:16:33.040 is only as good as the E, of course, and 0:16:33.080 --> 0:16:36.960 so the E is what the question is, fore will 0:16:37.040 --> 0:16:40.640 that E hold up? And maybe it holds up in 0:16:40.720 --> 0:16:44.160 nominal terms because of inflation, but not in real terms. 0:16:44.200 --> 0:16:47.280 Maybe it doesn't hold up in either. But when you 0:16:47.320 --> 0:16:51.640 think about disconnects, and you mentioned, you know earlier about 0:16:51.760 --> 0:16:55.200 the bond market where everyone seems to be bullish, you know, 0:16:55.280 --> 0:16:57.440 another disconnect is that it seems like a lot of 0:16:57.440 --> 0:17:00.240 people are worried about the recession. But you look at 0:17:00.240 --> 0:17:03.080 the earnings estimates, the aggregated estimates, and I get mine 0:17:03.120 --> 0:17:06.959 from from my Bloomberg terminal every Friday. It still points 0:17:06.960 --> 0:17:11.640 to positive expected growth in and you know, I would 0:17:11.680 --> 0:17:16.840 be a lot happier. It sounds silly, but uh, you know, 0:17:17.359 --> 0:17:20.800 sort of wearing my contrarian hat if the earnings estimates 0:17:20.800 --> 0:17:24.040 were really bad right now, because then you have a sense, okay, 0:17:24.160 --> 0:17:28.240 investors are under paying for you know, what could be 0:17:28.680 --> 0:17:31.240 a positive surprise if we end up getting either no 0:17:31.359 --> 0:17:34.720 recession or a mild recession. And that's one of the 0:17:34.760 --> 0:17:37.920 disconnects that kind of worries me a little bit. That uh, 0:17:37.920 --> 0:17:41.480 that the that you know, that's something that's not apparently 0:17:41.560 --> 0:17:44.080 in the price that the p is, but the E 0:17:44.359 --> 0:17:47.080 still is kind of hanging in there, and that I 0:17:47.119 --> 0:17:50.679 think is what in a nutshell is going to be about, 0:17:50.800 --> 0:17:53.080 is will the E hold up right, especially in those 0:17:53.119 --> 0:17:54.840 further out quarters in the year. You know, it seems 0:17:54.880 --> 0:17:57.800 like everyone seems to backload the growth for an EPs 0:17:57.840 --> 0:18:00.000 towards the end of the year, and slowly that gets 0:18:00.320 --> 0:18:03.560 whittled down perhaps, but you're in One post of yours 0:18:03.600 --> 0:18:07.600 really caught my attention because it talked about both the 0:18:07.600 --> 0:18:10.679 two day moving average in the SMP five and just 0:18:10.800 --> 0:18:14.800 the basic trend line. And for listeners who who aren't aware, basically, 0:18:15.280 --> 0:18:17.679 if you take a chart of the SMP five hundred 0:18:18.119 --> 0:18:21.560 uh and you start at the record last about a 0:18:21.960 --> 0:18:25.600 year ago, almost exactly last January, and just connect the 0:18:25.640 --> 0:18:28.600 top of the chart going down, it's just a straight 0:18:28.640 --> 0:18:31.399 trend line down. And what's really been fascinating is that 0:18:31.480 --> 0:18:35.760 any sort of rebound in the market over the past 0:18:35.840 --> 0:18:38.919 year has failed right at that trend line, and if not, 0:18:38.960 --> 0:18:41.880 the two day moving average a similar trend line, though 0:18:41.960 --> 0:18:47.560 not as straight. For a lot of fundamentally investors minded investors, 0:18:47.680 --> 0:18:50.879 um that's a hard thing to to swallow, you know, 0:18:51.160 --> 0:18:53.919 How can you draw a simple trend line and have 0:18:54.080 --> 0:18:56.800 it work. You know, is is it really that simple? Something? 0:18:56.840 --> 0:19:00.560 I'm curious, you know, how important are the technical goals 0:19:00.800 --> 0:19:03.959 these days, specifically that trend line? Is it really that simple? 0:19:04.480 --> 0:19:08.320 And do we need sort of some big fundamental change 0:19:08.320 --> 0:19:11.440 of tides to break that trend line? Well you ask 0:19:11.560 --> 0:19:13.960 a great question, and it actually it brings me back, 0:19:14.040 --> 0:19:16.399 and I hope you don't mind me digressing for a moment, 0:19:16.440 --> 0:19:19.280 but it brings me back to the start of my career, 0:19:19.400 --> 0:19:24.719 which is like almost uh just years ago, thirty eight 0:19:24.840 --> 0:19:28.320 years ago. I started in the business working at a 0:19:28.359 --> 0:19:31.119 bond desk of a Dutch bank in New York, a 0:19:31.240 --> 0:19:34.320 b N bank which became a ban Emero. Then I 0:19:34.400 --> 0:19:37.520 ended up running that small bond desk. So my history 0:19:37.600 --> 0:19:40.399 starts as a bond geek, but I got really into 0:19:40.480 --> 0:19:43.520 charting and technical analysis and that still is in my 0:19:43.640 --> 0:19:46.280 d n A today. But you know, then ten years later, 0:19:46.400 --> 0:19:50.320 so so almost twenty eight years ago, I was hired 0:19:50.359 --> 0:19:52.879 by Fidelity as a chartist. I like it, like we 0:19:52.960 --> 0:19:56.119 have a chart room. Tom Keane always speaks very highly 0:19:56.160 --> 0:19:59.720 of of that, of that whole history and legacy. But 0:19:59.800 --> 0:20:03.200 I was hired as a technical analyst, and I quickly 0:20:03.800 --> 0:20:07.280 found out the hard way. I guess that I was 0:20:07.359 --> 0:20:11.840 catering to an audience of mostly fundamentally oriented portfolio managers, 0:20:11.880 --> 0:20:14.040 and they all look at charts, or at least many 0:20:14.080 --> 0:20:16.479 of them do. But if I you know, you know, 0:20:16.680 --> 0:20:18.879 back in the day, I was an analyst on knocking 0:20:18.880 --> 0:20:21.600 on doors, you know, trying to trying to you know, 0:20:21.880 --> 0:20:25.479 show you know, ideas to people like Bob Stansky and 0:20:25.720 --> 0:20:29.280 George van der Hyden and you know, people running the 0:20:29.359 --> 0:20:32.520 really big funds. And you know, when you're a one 0:20:32.520 --> 0:20:34.879 trick pony and you just have a chart with some 0:20:35.040 --> 0:20:37.959 lines drawn on it, the conversation is going to end 0:20:38.000 --> 0:20:41.959 pretty quickly. So I realized that, um, that technical analysis 0:20:42.080 --> 0:20:47.640 is important. It's a very important compliment to other analysis. 0:20:47.680 --> 0:20:50.280 But you need to have you still, you know, like 0:20:50.320 --> 0:20:53.480 the technical analyst to me is the is the when 0:20:53.960 --> 0:20:57.280 and how much part of the question, But the fundamental 0:20:57.359 --> 0:21:01.280 side is the what and why right and so UM, 0:21:01.359 --> 0:21:04.400 I think to your specific question about the SMP peaking 0:21:04.720 --> 0:21:10.240 your right January four two at eighteen on the SMP 0:21:11.200 --> 0:21:15.480 UM from that peak until the low UM in October, 0:21:16.680 --> 0:21:20.560 you look at all the little counter trend highs you 0:21:20.640 --> 0:21:23.400 draw a trend line, and the last one held perfectly, 0:21:23.520 --> 0:21:25.920 and that was also at the two day moving average. 0:21:26.320 --> 0:21:28.280 And by the way, if you look at a chart 0:21:28.320 --> 0:21:31.320 of kind of the overall liquidity in the market, it's 0:21:31.359 --> 0:21:33.720 not a chart that I created, I've seen it elsewhere. 0:21:34.119 --> 0:21:37.000 But you take the FATS balance sheet minus reverse repose 0:21:37.200 --> 0:21:40.719 minus the t g E the Traadury general account, and 0:21:40.760 --> 0:21:44.560 it's that same line, right. So, um, I think technical 0:21:44.560 --> 0:21:48.160 analysis is used by a lot of people either as 0:21:48.600 --> 0:21:52.560 something to confirm or deny a thesis, but for instance, 0:21:52.600 --> 0:21:55.040 for the c T a crowd which had a banner 0:21:55.160 --> 0:21:59.000 year last year, I think it actually provides actual signals. 0:21:59.000 --> 0:22:01.280 You say, Okay, you know, I'm long. I'm going to 0:22:01.400 --> 0:22:04.560 sell at the declining two hund day moving average, especially 0:22:04.600 --> 0:22:08.119 if there are other technical features that complement that. And 0:22:08.160 --> 0:22:10.920 so I do think that there is a cohort of 0:22:11.119 --> 0:22:15.800 traders and investors who actually will use those indicators as 0:22:15.960 --> 0:22:19.320 as ways to execute trades. And the nice thing is, 0:22:19.520 --> 0:22:22.080 you know, if if a moving average is kind of 0:22:22.320 --> 0:22:26.960 a confirmed resistance point or a down trend line, and 0:22:27.080 --> 0:22:30.800 you sell against that trend line, you know very quickly 0:22:30.840 --> 0:22:32.720 if you're wrong and right for and for c t 0:22:32.880 --> 0:22:35.760 as or hedge funds. Uh, that's the name of the game. 0:22:35.760 --> 0:22:39.480 It's risk management. So if you sell at four thousand 0:22:39.840 --> 0:22:43.360 and it goes to well, then you're out, and then 0:22:43.400 --> 0:22:46.600 you'll you'll wait and see what happens next. And so 0:22:46.800 --> 0:22:49.920 I think in that sense, these technical tools are still 0:22:50.080 --> 0:22:54.280