WEBVTT - Laila Pence on the Markets (Audio)

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<v Speaker 1>Layla Pence is with us. Leila is a president at

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<v Speaker 1>Pence Wealth Management. She's on the line from Newport Beach, California. Glad,

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<v Speaker 1>I got your name right, Leila. Um. We got a

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<v Speaker 1>lot of earnings to deal with this week, particularly Microsoft

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<v Speaker 1>in alphabet tomorrow after the bell I'm trying to, in

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<v Speaker 1>terms of looking at the price action inequities, understand whether

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<v Speaker 1>this is mostly optimism cautious optimism about earnings, or whether

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<v Speaker 1>the market is really kind of focused on this idea

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<v Speaker 1>that the Fed is going to begin to adjust to

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<v Speaker 1>smaller sized rate hikes after the first of the year. Well,

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<v Speaker 1>I think it's both. I think that the you know,

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<v Speaker 1>the optimism about maybe going fifty basis point in December

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<v Speaker 1>and then twenty five business point in February that really

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<v Speaker 1>has since that was kind of leaked in by the

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<v Speaker 1>Wall Street Journal. Uh, that brought a lot of optimism

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<v Speaker 1>even for the earnings. And then so far the earnings

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<v Speaker 1>have really been holding up we a lot better than expected.

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<v Speaker 1>So it's a bit of both. And of course tomorrow

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<v Speaker 1>is a big day in the whole week is a

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<v Speaker 1>big day with all the text talks. But we do

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<v Speaker 1>think that they've already been discounted so much that they

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<v Speaker 1>could surprise to the upside. But I mean, how does

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<v Speaker 1>that You know, you may have positive surprise they're given

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<v Speaker 1>how ratcheted down we have in terms of expectations, But

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<v Speaker 1>how much again, do you think this is going to

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<v Speaker 1>matter in the overall wall of worry we have. It's

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<v Speaker 1>gonna matter if they if they actually the outlook, It's

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<v Speaker 1>not so much what past earnings. If they give us

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<v Speaker 1>a good outlook, like some of the banks give us

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<v Speaker 1>a good outlook. Some of the companies have given us

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<v Speaker 1>good outlook, and that is really what it matters. What

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<v Speaker 1>the actual earnings, you know, that's great. But if if

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<v Speaker 1>they have somehow knowing everything that we're going through, the

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<v Speaker 1>inflation numbers and the higher interest rates, if somehow they

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<v Speaker 1>can still have a good outlook, then those are the

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<v Speaker 1>companies are going to benefit and and they're coming in

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<v Speaker 1>actually surprisingly it's still may hear them very good outlook. Yeah.

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<v Speaker 1>But one of the things that we have heard from

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<v Speaker 1>a number of these companies I'm thinking Microsoft, is that

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<v Speaker 1>the strong dollar is really a significant head. When do

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<v Speaker 1>you think that's going to be the case for some time? Well,

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<v Speaker 1>I think once once the Federal Reserve starts actually reducing

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<v Speaker 1>the amount of interesting because right now the market is

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<v Speaker 1>already pricing in a very high terminal interest rate of

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<v Speaker 1>about four point seven five to five. So if somehow

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<v Speaker 1>they don't go that far, then that will affect the dollar,

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<v Speaker 1>and that will help the international sales LA just you know,

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<v Speaker 1>looking at what's going on with the treasury market now,

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<v Speaker 1>a price which I said, yield being a function of

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<v Speaker 1>price notwithstanding, is actually value in the short end of

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<v Speaker 1>the yield curve at the moment of what it represents value.

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<v Speaker 1>And does the price that you pay well be the

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<v Speaker 1>one which is the thing which is likely to move

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<v Speaker 1>the most of the downside arguably, Well, if you you know,

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<v Speaker 1>go with a two year treasuries or you know, really

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<v Speaker 1>short term even if the value, even if interest rate

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<v Speaker 1>which we know are going to continue to go up, uh,

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<v Speaker 1>you know, the whole maturity, you're pretty much gonna get

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<v Speaker 1>that return. So it is good value. Its value that

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<v Speaker 1>we haven't seen in fifteen years, we have not seen

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<v Speaker 1>interest rates, uh. And I believe that that is gonna

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<v Speaker 1>have more people go into more fixed income, which is

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<v Speaker 1>got to hurt the stock market a little bit because

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<v Speaker 1>they have competition now, So where are you in looking

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<v Speaker 1>at opportunities offshore? We've been talking a lot about the

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<v Speaker 1>US here, and we had quite the sell off, not

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<v Speaker 1>just in the Chinese A d R S, but yesterday

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<v Speaker 1>in Hong Kong the market was very hard yet the

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<v Speaker 1>tech index down another ten percent. Are you tempted to

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<v Speaker 1>nibble when you look at the situations like that, No,

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<v Speaker 1>unfortunately not I really, you know, there's just so much

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<v Speaker 1>risk outside, especially in the Chinese market. We have and

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<v Speaker 1>out of that market for some time now, especially of

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<v Speaker 1>course after today, there's so much opportunity in the US.

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<v Speaker 1>We have many companies here are down, you know, and

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<v Speaker 1>they have much more of an upside potential. So when

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<v Speaker 1>you're looking at risk reward, you know, we don't see. Yes,

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<v Speaker 1>there could be opportunities in the Chinese, but that's not

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<v Speaker 1>something we look at because we see opportunities here in

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<v Speaker 1>the US, which is a lot more predictable. Knowing that

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<v Speaker 1>potentially inflation is going to come under control and the

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<v Speaker 1>Federal Reserve will pause and then eventually maybe a couple

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<v Speaker 1>of years from now, we'll start reducing interest rate. We

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<v Speaker 1>have a lot more predictable way to recover in this market.

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<v Speaker 1>We don't know really in China and Hong Kong, you know,

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<v Speaker 1>with the government, what is the outlook things are you know,

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<v Speaker 1>this are very low, but they can go lower. Okay,

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<v Speaker 1>you've got three conviction cools. One of them was quite

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<v Speaker 1>interested in, and that's a payment processes. Yes, we really

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<v Speaker 1>think that that is a great option, uh, and a

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<v Speaker 1>great area of the markets because as you know, as

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<v Speaker 1>you know, products of course are all costing more money. Travel. Uh,

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<v Speaker 1>anything we buyas costing more money. And these payment companies

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<v Speaker 1>they make a percentage of the transactions, so as these

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<v Speaker 1>transactions are more expensive, they're automatically make higher profits. And

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<v Speaker 1>they don't have uh it's not a business that has products,

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<v Speaker 1>of course or a lot of employees, so their overhead

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<v Speaker 1>costs is somewhat limited comparing to other companies. And they

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<v Speaker 1>are just we think they're going to continue to make

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<v Speaker 1>more money. Inflation is there are benefactors of inflation. So

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<v Speaker 1>when you when you make a call like this, are

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<v Speaker 1>you looking at the relative strength or health of the

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<v Speaker 1>American consumer. And I'm curious to get your take. How

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<v Speaker 1>do you think the consumer is holding up? The consumer?

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<v Speaker 1>All the data says they're holding up pretty good because

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<v Speaker 1>they're all getting increases and wages, you know, and the

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<v Speaker 1>you know, the lower income consumer, they all the minimum

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<v Speaker 1>wage here have gone up. The higher income consumer, they've

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<v Speaker 1>gotten increases. We've seen source security benefits of here there

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<v Speaker 1>are going up by eight point seven percent. Next year

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<v Speaker 1>they're gone. They've gone up by five nine percent. These

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<v Speaker 1>are numbers aren't heard of. So the consumer actually has

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<v Speaker 1>more money, and they're spending, and they're gonna spend because

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<v Speaker 1>that's what they do, and and these payment companies are

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<v Speaker 1>going to benefit from it. Greig word reasonable banks really

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<v Speaker 1>like regional banks. They don't have the foreign exposure. They

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<v Speaker 1>are making um then to continue to make a net

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<v Speaker 1>interest income. Basically, they're paying out a lot less interest

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<v Speaker 1>than what they're getting in and and there's a lot

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<v Speaker 1>of people that are still putting just money in the

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<v Speaker 1>you know, saving account or checking account and earning a

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<v Speaker 1>lot less with or somewhere else. And the banks, the

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<v Speaker 1>original banks are going to make that and they don't

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<v Speaker 1>have a lot of risk of currencies and loans and

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<v Speaker 1>things outside the United States. So we're really staying with

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<v Speaker 1>the regional banks. We think that's a safer bed for us.

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<v Speaker 1>Later Pence thank you so much for joining. Is the

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<v Speaker 1>President and Pence Wealth Management getting her take on the

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<v Speaker 1>market action