WEBVTT - Peak Everything with Gina Martin Adams 0:00:05.800 --> 0:00:11.760 Welcome to trainings. I'm Joel Webber and I'm Eric. Oh 0:00:11.800 --> 0:00:15.840 my god, we're looking at each other and not via zoom. Yeah. 0:00:16.000 --> 0:00:18.480 If you're listening and you've listened to once in the past, 0:00:18.560 --> 0:00:22.040 we probably sound really good for a change. And from 0:00:22.040 --> 0:00:25.560 my closet, it's like when back in Bloomberg where Manhattan, 0:00:25.800 --> 0:00:28.400 in the Bloomberg office with all the good stuff looking 0:00:28.440 --> 0:00:30.640 across the table at one another, just like old times. 0:00:31.080 --> 0:00:34.800 Is we have extra weight on each of our bodies. 0:00:34.840 --> 0:00:36.839 But that's okay, we'll lose it back. Yeah, I just 0:00:36.880 --> 0:00:40.360 need to start exercising again. Uh so, Eric, A lot 0:00:40.440 --> 0:00:45.840 has happened in the last year and a half. Um, 0:00:45.880 --> 0:00:48.080 I'm really glad that we can see each other across 0:00:48.120 --> 0:00:51.000 the table from now. But we're not alone either. We 0:00:51.040 --> 0:00:53.959 have a guest and I'm really excited to speak with her. 0:00:54.360 --> 0:00:57.680 She's also here in person. Yeah, we're all in person 0:00:57.760 --> 0:01:01.320 for a change, and it feels good. And this guest, Um, 0:01:01.360 --> 0:01:03.960 besides being my boss, by the way, Um is the 0:01:04.080 --> 0:01:08.840 chief macro strategist and equity strategist for Bloomberg Intelligence and 0:01:08.920 --> 0:01:12.520 so on our team. I always go to her listen 0:01:12.560 --> 0:01:15.080 to her about just what's going on. In the stock market, 0:01:15.720 --> 0:01:18.800 and not only that, what influences the stock market, things 0:01:18.800 --> 0:01:22.400 like inflation value versus growth. Um, how you know interest 0:01:22.480 --> 0:01:25.200 rates in the FED or are looking in earnings? Right, 0:01:25.240 --> 0:01:28.440 So I figured, given the markets had a long nice 0:01:28.560 --> 0:01:30.840 run since March, since the last time I saw you, 0:01:31.440 --> 0:01:34.959 we should check in on how everything's going from like 0:01:35.000 --> 0:01:38.360 a macro strategist point of view. And then obviously E 0:01:38.480 --> 0:01:41.240 T F s or are ways to play those opinions 0:01:41.319 --> 0:01:43.880 and views, but sometimes it's good to just talk about 0:01:43.959 --> 0:01:47.160 the yeah about you know, four thousand foot view of 0:01:47.160 --> 0:01:49.280 the whole thing, and and so to welcome her, I'm 0:01:49.280 --> 0:01:51.960 going to do a thing and I'm surprised. I'm gonna 0:01:51.960 --> 0:01:53.720 surprise you with this thing. It's it's gonna be my 0:01:53.760 --> 0:01:57.440 stadium voice. You ready for it? I don't. I don't know, 0:01:57.920 --> 0:02:06.880 Gina Martin them, that's terrifying. Thank you this time on 0:02:06.960 --> 0:02:12.680 Trillians Looking into the Crystal Ball with Gina Martin Adams. Gina, 0:02:12.760 --> 0:02:15.040 welcome back to Trillians. Thank you, thank you for having me. 0:02:15.200 --> 0:02:18.680 So good to see you in person. Yeah you, um so, 0:02:19.200 --> 0:02:22.120 I remember the last time we talked, and it was 0:02:22.200 --> 0:02:26.400 like you you went some places that I even you know, 0:02:26.680 --> 0:02:31.079 reading Bloomberg coverage all day every day you blew my mind. Well, 0:02:31.120 --> 0:02:33.960 thank you. So I want to talk about inflation. First, 0:02:34.280 --> 0:02:37.079 you do a webinar called Inflation Nation. It has been 0:02:37.160 --> 0:02:39.800 a thing that has been very spooky to the market 0:02:39.919 --> 0:02:44.160 of late um and will remain, I think a source 0:02:44.160 --> 0:02:45.959 of concern for a while. So, so break it down 0:02:46.000 --> 0:02:48.360 for us. What what what's your perspective on it? And 0:02:48.440 --> 0:02:51.160 what are people what should people be watching out for? Yeah, 0:02:51.320 --> 0:02:54.239 so the reason we called the webinar Inflation Nation is 0:02:54.360 --> 0:02:58.120 is because it's our US equity outlook. So just isolating 0:02:58.120 --> 0:03:01.760 the US in the global equity market. The US as 0:03:01.880 --> 0:03:05.600 inflation currently in the nineties percentile of history of the 0:03:05.800 --> 0:03:10.080 entire history, the biggest CPR or pp I print on record. 0:03:10.400 --> 0:03:12.960 Pp I was growing nine percent year over year as 0:03:13.000 --> 0:03:14.720 of the last print. We've never seen a number like 0:03:14.760 --> 0:03:18.120 that before. And everyone thinks that this is a one 0:03:18.160 --> 0:03:22.040 time deal. They think that because we're seeing inflation peak 0:03:22.160 --> 0:03:24.480 and it's going to come down, including the Federal Reserve. 0:03:25.600 --> 0:03:27.480 As long as inflation is peaking now, it's going to 0:03:27.560 --> 0:03:29.320 settle at a lower pace and all it's going to 0:03:29.400 --> 0:03:31.400 be fine into the future. There's a word that gets 0:03:31.639 --> 0:03:34.520 around a little bit transitory. Yeah, this transitory notion, So 0:03:34.520 --> 0:03:36.960 we wanted to explore that. We talked through you know, 0:03:37.000 --> 0:03:39.120 what do you do in an environment where inflation is 0:03:39.120 --> 0:03:42.880 peaking and coming lower. But also really I question this 0:03:42.960 --> 0:03:45.839 notion that we're going to settle at an inflation rate 0:03:45.840 --> 0:03:47.800 that looks like the last cycle for a lot of 0:03:47.880 --> 0:03:52.360 reasons um and most importantly in terms of implementing investment 0:03:52.400 --> 0:03:55.440 strategy around inflation. I think this is a critical turning 0:03:55.480 --> 0:04:00.560 point for cyclical sectors to continue to outperform defense sectors, 0:04:00.800 --> 0:04:04.800 for value sectors to really take the leadership baton over tech, 0:04:05.280 --> 0:04:09.560 consumer staples, large kept growth sectors. And it's because of 0:04:09.640 --> 0:04:12.760 our sort of secular inflation outlook. I don't think we're 0:04:12.760 --> 0:04:18.080 going back to experience at all. I think instead the 0:04:18.160 --> 0:04:20.800 experience that we've had over the last couple of years 0:04:20.880 --> 0:04:23.680 is setting us up for a much faster pace of 0:04:23.720 --> 0:04:27.480 inflation into the long term outlook. So this whole transitory 0:04:27.480 --> 0:04:31.560 discussion really takes away from the implementation of an adequate 0:04:31.680 --> 0:04:35.720 investment strategy that can continue to perform well in an 0:04:35.760 --> 0:04:39.960 environment where inflation is secularly shifting. It's not just about 0:04:39.960 --> 0:04:42.600 this transitory argument, which everyone's focusing on because of the 0:04:42.640 --> 0:04:46.839 short termism of markets in general. It's really about inflation 0:04:46.880 --> 0:04:48.800 is going to settle at a faster pace. What do 0:04:48.880 --> 0:04:52.280 you do because it's not the strategy that you had 0:04:52.440 --> 0:04:54.760 from two thousand nine to twenty or two thousand ten. 0:04:56.279 --> 0:04:59.480 And can you just explain why inflation being high would 0:04:59.520 --> 0:05:02.919 be good for those cyclical sectors? Um and you know 0:05:02.960 --> 0:05:06.760 you said value small cap national stocks. Why is it 0:05:06.760 --> 0:05:09.400 good for those? So for a lot of different reasons, 0:05:09.680 --> 0:05:13.720 it's better for cyclicals because higher inflation is probably going 0:05:13.760 --> 0:05:17.240 to be driven as much by a faster demand cycle 0:05:17.320 --> 0:05:19.279 than we've experienced in the past. Why are we going 0:05:19.360 --> 0:05:21.400 to have faster demand growth? Why are we gonna have 0:05:21.440 --> 0:05:24.440 faster GDP growth? In my mind, we're going to have 0:05:24.440 --> 0:05:28.120 faster GDP growth partly because the private sector in the 0:05:28.200 --> 0:05:31.880 United States is flush with cash. It's a completely polar 0:05:31.920 --> 0:05:34.159 opposite the experience we had coming about out of the 0:05:34.160 --> 0:05:37.719 Great Financial Crisis, when nobody had anything. Households were in 0:05:37.800 --> 0:05:41.360 complete disrepair, they had no cash, they were really struggling 0:05:41.400 --> 0:05:46.320 to get out from under extraordinary debtloads. Corporates likewise really 0:05:46.320 --> 0:05:48.479 didn't have a tremendous amount of cash. They were able 0:05:48.520 --> 0:05:51.480 to continue borrowing to fund growth, but they didn't have 0:05:51.520 --> 0:05:54.280 all this cash stored up. As a function of the 0:05:54.320 --> 0:05:56.800 fact that we had the most extraordinary expansion in fiscal 0:05:56.920 --> 0:06:02.320 and monetary policy in US history, in households and corporates 0:06:02.360 --> 0:06:04.080 in the United States are sitting on more cash than 0:06:04.120 --> 0:06:07.039 they have ever had. The result of that, I think 0:06:07.400 --> 0:06:10.120 is a long term cycle of much faster demand growth. 0:06:10.120 --> 0:06:12.360 Everybody talks about the supply side. They talk about the 0:06:12.360 --> 0:06:14.640 fact that, oh, supply chains are in disrepair and they're 0:06:14.640 --> 0:06:17.080 going to get better. What nobody's talking about is the 0:06:17.120 --> 0:06:20.120 fact that we're going to have faster GDP growth, probably 0:06:20.160 --> 0:06:22.400 for a longer period of time than anyone is seen 0:06:22.480 --> 0:06:25.240 in a long time. That is going to fuel a 0:06:25.320 --> 0:06:30.479 much faster cycle, which generally benefits the faster earners. The 0:06:30.520 --> 0:06:33.600 cyclical though, those segments of the market that are exposed 0:06:34.080 --> 0:06:38.039 to the cycle, right, So that's part of it. Also, 0:06:38.120 --> 0:06:40.600 when you have faster inflation, you generally assume the commodity 0:06:40.600 --> 0:06:44.520 prices are on the up. Commodity sensitive sectors do particularly well. 0:06:45.040 --> 0:06:47.040 We've been through a period of time in which capital 0:06:47.080 --> 0:06:50.599 spending has been absolutely nothing. There's this coiled spring of 0:06:50.640 --> 0:06:54.400 pent up demand for capital spending. That should improve the 0:06:54.480 --> 0:06:58.120 outlook for industrial space. The big laggard in my mind 0:06:58.120 --> 0:07:01.200 and this kind of market is tech. Nobody wants to 0:07:01.200 --> 0:07:03.440 get out of their tech stocks. Everybody loves their tech stocks. 0:07:03.520 --> 0:07:07.320 But I think that that era is largely over environment. 0:07:08.240 --> 0:07:10.840 Part of it is because tech effectively operates as a 0:07:10.880 --> 0:07:14.440 defensive strategy. Tech had faster growth when growth was slow, 0:07:15.600 --> 0:07:18.240 all of the all of the growth sort of concentrated 0:07:18.320 --> 0:07:22.000 in that one segment, right, And now that growth is 0:07:22.040 --> 0:07:26.560 more equally distributed across segments, is more cyclically oriented, is 0:07:26.560 --> 0:07:32.800 more industrially oriented. You have growth opportunities emerge in other spaces. Also, 0:07:33.160 --> 0:07:35.320 when you have those sort of grower when you have 0:07:35.440 --> 0:07:38.760 a very very slow growth environment, you're much more sensitive 0:07:39.320 --> 0:07:45.320 two interest rates moving, You're much more sensitive to margins. Uh, 0:07:45.320 --> 0:07:49.440 and tech has ample amounts of ability to borrow. They 0:07:49.520 --> 0:07:53.040 also have higher margins. So they looked like the darlings 0:07:53.040 --> 0:07:55.400 of the last cycle from a secular perspective, I don't 0:07:55.400 --> 0:07:57.600 think they'll be the darlings of the next one. So 0:07:57.680 --> 0:08:02.840 that was a pretty um us central yes explanation. What 0:08:03.200 --> 0:08:07.240 about inflation elsewhere? Because um, you know, we won't be 0:08:07.320 --> 0:08:09.520 alone if that ends up being the case. Yeah, So 0:08:09.680 --> 0:08:13.000 what's fascinating right now is inflation really is almost a 0:08:13.080 --> 0:08:17.720 US centric phenomenon. It is not happening at an above 0:08:17.760 --> 0:08:21.720 average pace in roughly half of the globe. In much 0:08:21.800 --> 0:08:24.320 of the globe outside of the United States, there's still 0:08:24.360 --> 0:08:29.440 this UM really a significant struggle with rates of coronavirus 0:08:29.520 --> 0:08:34.040 infection via this now next delta variant, also very low 0:08:34.120 --> 0:08:38.360 vaccination rates. So the result is what happens in the 0:08:38.480 --> 0:08:41.199 US is we have much faster inflation because our demand 0:08:41.240 --> 0:08:44.200 growth is accelerating already. On top of that, you have 0:08:44.280 --> 0:08:46.600 much faster inflation because the rest of the world can't 0:08:46.640 --> 0:08:49.640 supply us with the goods that we've become so accustomed 0:08:49.640 --> 0:08:52.080 to getting from the rest of the world. So it 0:08:52.160 --> 0:08:55.520 amplifies the problem for the US. Really, the concentration of 0:08:55.600 --> 0:09:00.959 risk is in developed markets US, Canada, maybe Germany, where 0:09:01.080 --> 0:09:04.440 you have pretty strong rates of vaccination. You also have 0:09:05.240 --> 0:09:11.320 some import dependence, some goods price sensitivity still UM and 0:09:11.480 --> 0:09:14.520 it's very concentrated. It's definitely not a global phenomenon. Most 0:09:14.520 --> 0:09:17.360 of Asia, for instance, has below average inflation prints still. 0:09:18.080 --> 0:09:21.080 So you just talked about these areas that were cyclical 0:09:21.120 --> 0:09:24.320 and and i'll I call them the bench players, value, 0:09:24.360 --> 0:09:27.360 small caps and emerging markets. They've been bad for ten years. 0:09:27.920 --> 0:09:29.719 At the beginning of the year they started to break out. 0:09:30.200 --> 0:09:33.280 Your call was exactly right. In fact, listen this that 0:09:33.400 --> 0:09:36.760 those three areas and ETFs contributed about thirty three percent 0:09:36.800 --> 0:09:40.040 of the flows up through June, but since then only 0:09:40.040 --> 0:09:42.960 two the whole trade, all of those have just fallen 0:09:42.960 --> 0:09:46.000 off a cliff basically, and this sort of tech growth 0:09:46.040 --> 0:09:48.480 has re emerged, you know, ARC and that whole trade, 0:09:48.480 --> 0:09:51.480 the cues And that's been about six weeks now, right, 0:09:52.520 --> 0:09:55.199 You think that's just that's the head fake. It wasn't 0:09:55.200 --> 0:09:57.960 that the five months before was just another long head 0:09:57.960 --> 0:10:00.040 fake from value. Yep. I think that the head it 0:10:00.200 --> 0:10:01.679 is the last six d eight weeks, and it may 0:10:01.760 --> 0:10:03.920 last for another six day eight weeks. It may last 0:10:03.960 --> 0:10:07.040 even longer than that. But it ultimately to me is 0:10:07.200 --> 0:10:10.400 we probably got a little bit too over inflated in 0:10:10.400 --> 0:10:14.680 our expectations near term for inflation to really break out 0:10:14.679 --> 0:10:17.559 in the short term. Inflation indicators peaked in the short 0:10:17.679 --> 0:10:20.640 term as of May June, and that took some of 0:10:20.679 --> 0:10:23.360 the window of the sales of the cyclical value trade. 0:10:24.040 --> 0:10:28.920 That said, none of the long term charts have really crashed, 0:10:29.280 --> 0:10:32.920 especially for things like value and financials. Small caps is 0:10:32.960 --> 0:10:37.000 trading sideways. Emerging markets has been pretty poor, So it's 0:10:37.000 --> 0:10:39.599 the laggard in that grand scheme of things. But I 0:10:40.000 --> 0:10:42.599 attribute a lot of that to what's happening with vaccinations, 0:10:43.320 --> 0:10:46.640 and in my mind, the opportunity is still there. It's 0:10:46.679 --> 0:10:48.959 just a matter of time before the vaccination has become 0:10:49.000 --> 0:10:51.320 well distributed and those economies can start to make their 0:10:51.320 --> 0:10:54.240 way back. But and to that point, um, you know, 0:10:54.280 --> 0:10:56.280 when you think of inflation going up, I tend to 0:10:56.280 --> 0:10:59.760 think interest rates would be correlated with that. But the again, 0:10:59.800 --> 0:11:02.640 the past six weeks, rates have dropped and so we've 0:11:02.640 --> 0:11:05.560 had a Russianto Treasury e t f S. Again. You 0:11:05.600 --> 0:11:08.560 think that is a temporary Yeah, I think it's a 0:11:08.559 --> 0:11:11.000 function of the fact that inflation expectations peaked in the 0:11:11.000 --> 0:11:13.800 short term. Um, I think the Fed has played a 0:11:13.840 --> 0:11:15.880 little bit of a part in this as well, because 0:11:15.960 --> 0:11:19.040 the bond market is appears to be starting to get 0:11:19.040 --> 0:11:21.319 a little bit worried about the FED normalizing policy, and 0:11:21.360 --> 0:11:23.520 the bond market is doing what it does every time 0:11:23.640 --> 0:11:26.080 over the last ten years. Anytime the Fed's talked about 0:11:26.120 --> 0:11:28.720 normalizing policy, everybody ran into bonds. You know, there's just 0:11:28.760 --> 0:11:31.280 a big tantrum, and they they just think, oh my god, 0:11:31.520 --> 0:11:34.839 without the Fed, how can we possibly survive this? And 0:11:34.920 --> 0:11:37.920 so everyone rushes back into bonds. And then we realize, oh, 0:11:37.960 --> 0:11:40.360 actually the economy is still fine. It's just it's just 0:11:40.440 --> 0:11:43.000 a matter of time. In my mind, is there's just 0:11:43.040 --> 0:11:46.240 a little bit of a freak out in the short term. 0:11:46.280 --> 0:11:48.880 I think it's great, frankly for the longevity of the 0:11:48.920 --> 0:11:51.480 trade that folks are so paranoid that it was a 0:11:51.600 --> 0:11:54.000 short term blip. The value rally was such a short 0:11:54.120 --> 0:11:56.160 term blip, and when we look at the long term charts, 0:11:57.040 --> 0:12:02.120 it was barely even a recovery. Value factor is still 0:12:02.200 --> 0:12:06.000 extremely cheap relative to the rest of the factors, so 0:12:06.960 --> 0:12:08.880 I think, but you do have to have a view 0:12:08.920 --> 0:12:11.199 that you're going to settle into a longer term, a 0:12:11.280 --> 0:12:13.600 higher pace of inflation longer term, and that rates are 0:12:13.640 --> 0:12:15.720 ultimately going to go higher in order for the value 0:12:15.720 --> 0:12:17.440 trade to work. I think that the market is just 0:12:17.640 --> 0:12:20.240 sort of really struggling with that view right now. And 0:12:20.400 --> 0:12:22.920 in e. T. F Land, if you were gonna, you know, 0:12:23.320 --> 0:12:26.319 take that thesis and run with it. Who who potentially 0:12:26.320 --> 0:12:29.880 looks like the big winners and breakout stars. Yeah so again, 0:12:30.080 --> 0:12:33.360 value ets have taken in fifty four billion dollars through me. 0:12:33.520 --> 0:12:36.920 Their old annual record is thirty so they're through half 0:12:36.920 --> 0:12:40.160 a year. They've broken the annual record by almost That's 0:12:40.240 --> 0:12:44.000 the how crazy people got for value. I just worry, 0:12:44.080 --> 0:12:46.400 you know, in small caps too, although to a lesser extent, 0:12:46.440 --> 0:12:49.079 but value et f s in particular, a lot of 0:12:49.120 --> 0:12:50.840 the flows and e t F are off these models 0:12:50.880 --> 0:12:52.400 that have these signals, and a lot of them are 0:12:52.400 --> 0:12:54.800 technically driven. And I do wonder because I've seen a 0:12:54.840 --> 0:12:58.000 couple little it's almost like spring leaks and the dam 0:12:58.040 --> 0:12:59.959 of flows out of the value et F And I'm 0:13:00.000 --> 0:13:04.160 wondering if value crushes between some moving averages, do the 0:13:04.240 --> 0:13:06.640 models get triggered and all of a sudden it's this 0:13:06.720 --> 0:13:10.480 downward spiral. And it's worse because it seems to be 0:13:10.520 --> 0:13:12.600 six weeks you start to get to a point where 0:13:13.040 --> 0:13:15.920 the technicals break down though, yeah you do. And there's 0:13:15.920 --> 0:13:18.959 also this coincidence of value and momentum right now where 0:13:19.120 --> 0:13:22.720 if momentum breaks lower, it's going to be because value 0:13:22.760 --> 0:13:26.840 is breaking lower and vice versa. So there's some additional 0:13:26.960 --> 0:13:30.640 risk because value stocks became momentum stocks. In the short run, 0:13:31.320 --> 0:13:33.720 that's set. As long as they hold a long term trend, 0:13:34.320 --> 0:13:38.520 then the sky's the limit. There's so much head. But 0:13:38.760 --> 0:13:41.120 by the way, um there's an e t F called 0:13:41.200 --> 0:13:43.040 m t U M, which is the ires momentum. It's 0:13:43.040 --> 0:13:46.079 the biggest momentum ETF in the world. Really, it only 0:13:46.120 --> 0:13:49.199 rebounces once every six months. And it went from all 0:13:49.400 --> 0:13:54.120 these tech and growthy sectors into financials and sort of 0:13:54.120 --> 0:13:59.480 more defensive areas. On May thirty one, literally the day later, 0:13:59.760 --> 0:14:02.760 the whole thing reversed. It was like it might be 0:14:02.840 --> 0:14:07.040 the worst rebalance in history. Although if Gina's prophecy turns out, 0:14:07.200 --> 0:14:10.119 it'll all work out. But that's the thing about rebalances 0:14:10.160 --> 0:14:13.200 that every six you know, summer quarterly, summer monthly somewhere, 0:14:13.400 --> 0:14:16.320 but as semi annual, you're locked into those stocks. And 0:14:16.320 --> 0:14:18.559 you're right, momentum and value are kind of tied together 0:14:18.600 --> 0:14:20.560 for a while, right yeah, And and that's going to 0:14:20.720 --> 0:14:23.400 create that could create some turmoil short term, but it 0:14:23.440 --> 0:14:27.080 also could create a much longer term tailwind that everybody's ignoring, 0:14:27.360 --> 0:14:31.960 right momentum typically is a pretty good strategy. It just 0:14:32.040 --> 0:14:34.360 breaks every now and then. But longer term, if you're 0:14:34.360 --> 0:14:37.440 in if you're in the momentum stocks, you're generally outperforming. 0:14:38.160 --> 0:14:39.960 We've been it's been a long time since we've been 0:14:39.960 --> 0:14:43.160 in a market where momentum and value together worked as well. 0:14:43.200 --> 0:14:45.520 But if you look over the long term history, those 0:14:45.560 --> 0:14:48.240 are the magic. That's sort of the magic sauce, if 0:14:48.280 --> 0:14:50.560 you will, is to have some momentum and value exposure 0:14:50.560 --> 0:15:02.440 in your portfolio usually outperforms a broader market and momentum. 0:15:02.600 --> 0:15:05.440 When the academics and the practitioners do it, they usually 0:15:05.920 --> 0:15:08.480 don't use the last month, Yes, and it's for this 0:15:08.560 --> 0:15:12.400 reason because there's these noise and head fakes. Right, So 0:15:13.280 --> 0:15:15.600 again though we're now beyond a month, though, so we 0:15:15.640 --> 0:15:18.920 are getting into a point where it's possible he starts 0:15:18.960 --> 0:15:21.720 to show up. It does I you know, I think 0:15:21.720 --> 0:15:24.880 that it's it's a tricky market. Also because the delta 0:15:24.960 --> 0:15:26.760 variant has played a part of this. Right. We talk 0:15:26.800 --> 0:15:29.960 a lot about inflation expectations, but the fact that we 0:15:30.000 --> 0:15:34.640 saw infections rising around the world again did create a 0:15:34.800 --> 0:15:39.160 flight back into defensive strategies. But when you see things 0:15:39.240 --> 0:15:42.760 like the big famig stocks, the biggest stocks in the 0:15:42.840 --> 0:15:46.920 SMP five, all tech centrics still commanding an extraordinary premium 0:15:46.920 --> 0:15:48.520 over the rest of the index. When you see the 0:15:48.560 --> 0:15:51.800 US still expanding, commanding a premium of the rest of 0:15:51.800 --> 0:15:53.600 the world, even though earnings are not going to grow 0:15:53.640 --> 0:15:55.600 faster than the rest of the world over the next 0:15:55.640 --> 0:15:59.040 twelve months, you know that there's some imbalance, and ultimately 0:15:59.600 --> 0:16:04.320 these in balances reconcile themselves. Um. I think right now, 0:16:04.400 --> 0:16:06.480 you've gotta You're just at a point in time where 0:16:06.600 --> 0:16:10.640 very consistently, when infections are rising, US stocks outperform, and 0:16:10.640 --> 0:16:13.160 when infections are following, US stocks underperform. You gotta get 0:16:13.160 --> 0:16:16.200 to a point where infections peak again. It's so simplistic, 0:16:16.640 --> 0:16:20.640 but it just works, and people move defensively as infections 0:16:20.640 --> 0:16:23.320 are rising, and as soon as they peak, they start 0:16:23.320 --> 0:16:25.640 to move offensively again. And I just think that's played 0:16:25.640 --> 0:16:28.320 a huge part of the last month, probably six weeks, 0:16:28.320 --> 0:16:32.080 maybe even eight weeks, where folks get worried about this 0:16:32.160 --> 0:16:35.360 delta variant and they play that strategy. But it's very 0:16:35.360 --> 0:16:38.280 short term. I mean, longer term, I think many of 0:16:38.320 --> 0:16:41.320 us feel pretty optimistic that ultimately we're gonna get vaccinated. 0:16:41.320 --> 0:16:43.280 We're going to figure this out and things are going 0:16:43.320 --> 0:16:46.120 to change. At the same time, you cannot ignore the 0:16:46.160 --> 0:16:49.840 fact that policymakers are completely on your side. You know, 0:16:50.360 --> 0:16:53.400 there's just it kind of blows my mind, frankly, that 0:16:53.440 --> 0:16:56.480 we're this far into recovery and the FEED is still 0:16:56.520 --> 0:17:00.600 operating a crisis era monetary policy. We're still talking about 0:17:00.640 --> 0:17:03.920 spending more money out of fiscal policy, despite the fact 0:17:04.000 --> 0:17:06.080 that we're at all time high share of GDP in 0:17:06.119 --> 0:17:09.679 fiscal spending. Now, you know, I could go into my 0:17:09.800 --> 0:17:12.640 Boomarati theory right now, but why don't you ask about 0:17:12.640 --> 0:17:20.240 the FED? Bomerti is so tempting, But I mean, listen 0:17:20.240 --> 0:17:21.480 to that. We're just gonna put it on a show. 0:17:22.280 --> 0:17:24.040 I'm trying to make this a thing. Yeah, we're gonna 0:17:24.080 --> 0:17:28.119 come right back to it. Okay. So, so the FED 0:17:28.400 --> 0:17:33.280 Chairman j Pal going to be probably uh at the 0:17:33.280 --> 0:17:35.840 FED a little bit longer, although you know, maybe maybe 0:17:35.920 --> 0:17:37.840 jury is still out just a little bit longer on that, 0:17:37.920 --> 0:17:40.040 But that will be a topic of conversation in the 0:17:40.040 --> 0:17:43.800 coming weeks. What do we expect um from the FED 0:17:43.880 --> 0:17:46.080 and and like there will be some shake up, like 0:17:46.119 --> 0:17:47.800 not everybody in in the FED will be in the 0:17:47.840 --> 0:17:50.680 same places when they get done playing musical chairs, right, 0:17:50.920 --> 0:17:53.640 So so what can we expect. I mean, obviously, as 0:17:53.680 --> 0:17:57.879 you just said, we've had a really devish run. Is 0:17:57.880 --> 0:18:01.840 there any reason to believe that turns hawkish really quickly 0:18:02.080 --> 0:18:06.040 with inflation on the rise? No, you know, I think 0:18:06.080 --> 0:18:08.480 that the FETE has made it really clear. They've they've 0:18:08.520 --> 0:18:11.040 started to move the needle on what will make them 0:18:11.240 --> 0:18:15.840 change policy as well, and they've started to basically guide 0:18:15.880 --> 0:18:18.880 the market to say, look, we're willing to tolerate much 0:18:18.920 --> 0:18:22.879 faster inflation than we have in the past. We want 0:18:22.960 --> 0:18:27.200 to resolve social inequities. This is not language that we've 0:18:27.240 --> 0:18:30.440 typically heard from the FED, maybe even since the nineteen sixties. 0:18:30.440 --> 0:18:34.399 This has not been a huge portion of of monetary 0:18:34.440 --> 0:18:40.199 policy making. We're gonna use average inflation prints. Um, you know, 0:18:40.320 --> 0:18:43.639 the standard inflation measures are inadequate. So this is a 0:18:43.640 --> 0:18:46.399 lot to all of this to me, says this FETE 0:18:46.480 --> 0:18:49.119 is going to remain easy to force the hand of 0:18:49.160 --> 0:18:52.280 inflation to be higher than it has been in a 0:18:52.400 --> 0:18:55.520 very long time. And the FETE is very supportive of 0:18:55.520 --> 0:18:58.760 inflation strategies. Now, will they ultimately have to catch up 0:18:58.800 --> 0:19:04.040 and probably create a slightly more painful environment for risk taking. Yes, 0:19:05.160 --> 0:19:07.440 but is it going to be within the near term. No, because, 0:19:07.560 --> 0:19:09.800 especially if you think about what's going to happen next week, 0:19:10.200 --> 0:19:12.760 what's your immediate thing to say. If you're a Federal 0:19:12.800 --> 0:19:15.080 Reserve chairman that wants to air on the side of dubblishness, 0:19:15.200 --> 0:19:18.879 you talk about the delta variant threatening growth, and you 0:19:18.920 --> 0:19:21.520 talk about how we're you know, we're not a certain 0:19:21.560 --> 0:19:22.960 that things are going to be better, so we don't 0:19:23.000 --> 0:19:26.920 need to worry about easing policy. Um. So I think 0:19:26.920 --> 0:19:29.000 that the excuse wagon can go on for a very 0:19:29.040 --> 0:19:31.439 long time, especially if inflation rates are peaking in the 0:19:31.440 --> 0:19:34.520 near term. As long as those inflation rates are coming down, 0:19:34.560 --> 0:19:38.080 there's just no reason for them to get two concerned 0:19:38.240 --> 0:19:40.199 and and they've told us they're not going to be 0:19:40.359 --> 0:19:42.800 so there's no reason to air on, you know, any 0:19:42.800 --> 0:19:45.800 other way. Now. Personally, I think they should be tightening 0:19:45.840 --> 0:19:48.520 like crazy already, because I think that the economy is 0:19:48.560 --> 0:19:52.280 absolutely on fire and no one wants to acknowledge it. 0:19:52.359 --> 0:19:56.560 For whatever reason. It's very unpopular to do. Um. But 0:19:56.800 --> 0:19:59.240 they're not going to well what okay, so let me 0:19:59.320 --> 0:20:02.359 drop the theory on you, okay, because are you going? 0:20:04.760 --> 0:20:08.600 I am so okay? The U S stock market is 0:20:08.640 --> 0:20:12.120 the since we went to four one K plans, all 0:20:12.160 --> 0:20:14.800 of our money is now in this in the stock market. 0:20:14.840 --> 0:20:18.200 That's we don't have pensions anymore. And so isn't there 0:20:18.240 --> 0:20:20.120 a theory that the FED can't let it go down? 0:20:20.160 --> 0:20:21.919 And then if you think who owns the U. S 0:20:21.920 --> 0:20:25.320 Stock market? I don't know, number I think of. It 0:20:25.400 --> 0:20:28.600 is owned by boomers. First of all, only percent of 0:20:28.600 --> 0:20:31.399 the country owned stocks. So by the FED pumping up stocks, 0:20:31.440 --> 0:20:34.800 you are leaving behind. That's a whole another story, that's 0:20:34.840 --> 0:20:38.399 the wealth gap. But by keeping that, yeah, and by 0:20:38.480 --> 0:20:42.439 keeping the fifty up, you certainly are allowing the retirement 0:20:42.520 --> 0:20:46.600 funds of America to be cool. And since the boomers 0:20:46.640 --> 0:20:49.320 have almost all of that money, and the boomers are 0:20:49.359 --> 0:20:52.120 totally in power, whether it's Trump or Biden, they're both boomers, 0:20:52.359 --> 0:20:54.840 whether it's Pal, whether it's the people leading the big 0:20:54.880 --> 0:20:57.720 asset managers, and a lot of them go and work 0:20:57.720 --> 0:20:59.800 with each other, like one person will leave the FED 0:20:59.840 --> 0:21:03.080 and go work at black Rock and vice versa. Is 0:21:03.119 --> 0:21:06.320 there what about this theory that I called the boomarati? 0:21:06.359 --> 0:21:08.760 Maybe there's a better word for it, that that class 0:21:08.800 --> 0:21:11.960 of people in power will never let the stock market 0:21:11.960 --> 0:21:18.080 go down. They can't. It's their retirement money. Well, Mike dropped. 0:21:18.080 --> 0:21:20.640 I stumped her. She never thought of it's that crazy 0:21:21.240 --> 0:21:25.960 the mic has made of tinfoil um. So I don't 0:21:26.119 --> 0:21:30.560 think that that it's possible to never let the stock 0:21:30.600 --> 0:21:34.320 market go down. Right, the stock market crash and three 0:21:34.320 --> 0:21:38.560 weeks last year it crashed more times in the last 0:21:38.600 --> 0:21:41.040 ten year. We had more corrections in the last ten 0:21:41.119 --> 0:21:43.360 years than in any ten years in history. Well, when 0:21:43.359 --> 0:21:45.960 I say crash, I mean like a real, a real 0:21:46.040 --> 0:21:48.159 good one, a one that rips your face off, Like 0:21:48.359 --> 0:21:51.040 we had a fifty percent crash in two thousand eight, 0:21:51.080 --> 0:21:54.520 another fifty percent crash in two thousand, two thousands. These 0:21:54.560 --> 0:21:58.080 have we have actually been through over the last twenty years. 0:21:58.080 --> 0:22:01.240 The reality of the situations were not the FED was 0:22:01.280 --> 0:22:04.800