WEBVTT - Bloomberg Wall Street Week - October 27th, 2023 0:00:00.240 --> 0:00:02.440 This is Bloomberg Wall Street Week. 0:00:02.480 --> 0:00:04.400 And we may not have an overall recession, We're having 0:00:04.400 --> 0:00:06.720 a rolling recession. Econy of roll looks pretty strongly. It 0:00:06.760 --> 0:00:07.680 is when it comes to jobs. 0:00:07.720 --> 0:00:09.840 The financial stories that shape our world. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.480 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.000 generative AI. 0:00:16.920 --> 0:00:19.280 Through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 0:00:22.560 --> 0:00:25.279 deebro Lair of the Paulson Institute, well Then Hubbard of 0:00:25.280 --> 0:00:26.280 the Columbia Business School. 0:00:26.280 --> 0:00:30.120 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.280 --> 0:00:34.040 A war continues, a strike moves toward conclusion, and the 0:00:34.159 --> 0:00:37.680 US economy just keeps on keeping on. This is Bloomberg 0:00:37.720 --> 0:00:41.360 Wall Street Week. I'm David Weston this week. Roger Altman 0:00:41.440 --> 0:00:44.080 of Evercore on the financial world coming to terms with 0:00:44.200 --> 0:00:46.240 a world of higher bond yield. 0:00:46.200 --> 0:00:49.720 With the very long, roughly fifteen year period of ultra 0:00:49.880 --> 0:00:51.400 low interest rates is over. 0:00:51.680 --> 0:00:54.360 And Tom Knight's former US investor in Israel, on what 0:00:54.440 --> 0:00:57.440 the Israel war with Hamas means for the rest of us. 0:00:57.560 --> 0:00:59.720 We're not at war with the policity people quite the 0:00:59.760 --> 0:01:07.520 offer said, We're at war with Hamas. 0:01:14.680 --> 0:01:17.000 Global Wall Street spent the week dealing with a new 0:01:17.120 --> 0:01:20.039 version of the issues it faced last week, starting with 0:01:20.200 --> 0:01:24.080 Israeli military action against Hamas in Gaza, as diplomatic efforts 0:01:24.160 --> 0:01:26.840 continued to keep the war from spreading in the region. 0:01:27.520 --> 0:01:30.360 Israel has it right, and I would add a responsibility 0:01:30.880 --> 0:01:33.319 to respond to the slaughter of their people, and we 0:01:33.360 --> 0:01:36.200 will ensure Israel has what a need to defend itself 0:01:36.200 --> 0:01:37.280 against these terrorists. 0:01:37.319 --> 0:01:41.080 And humanitarian groups struggled to get food, medicine, and fuel 0:01:41.160 --> 0:01:42.880 to those in desperate need. 0:01:43.440 --> 0:01:46.880 We've seen this picture before and it doesn't look very good, 0:01:47.000 --> 0:01:49.960 particularly when you have so many civilians who are caught 0:01:50.000 --> 0:01:50.480 in the middle. 0:01:50.640 --> 0:01:53.240 Back in the United States, the UAW strike brought a 0:01:53.320 --> 0:01:54.960 tentative agreement with four. 0:01:55.200 --> 0:01:56.920 We reached a historic agreement. 0:01:57.280 --> 0:02:01.560 As you know, in our union, the members are the 0:02:01.640 --> 0:02:02.520 highest authority. 0:02:02.800 --> 0:02:05.040 And big tech earnings came in mixed. 0:02:05.400 --> 0:02:07.840 I think you know alls that and done Cloud is 0:02:07.880 --> 0:02:10.920 the major story here, But at the end of the day, 0:02:10.960 --> 0:02:11.799 it really is good. 0:02:11.720 --> 0:02:13.639 Numbers a front all their businesses. 0:02:13.880 --> 0:02:17.400 Alphabet, the parent company of Google, pretty much only missed 0:02:17.639 --> 0:02:19.920 in its Cloud division, sales of eight point four to 0:02:19.919 --> 0:02:23.000 one billion below street estimates of eight point six billion, 0:02:23.400 --> 0:02:26.600 also missing on the bottom line in that unit as well. 0:02:26.840 --> 0:02:30.080 Morgan Stanley named its new CEO, Ted Pick, taking over 0:02:30.160 --> 0:02:32.160 from James Gorman the first of the year. 0:02:32.440 --> 0:02:34.720 That next cycle is going to be investment banking led, 0:02:35.040 --> 0:02:36.280 and it means that inequities. 0:02:36.280 --> 0:02:38.280 You want to be one or two every quarter as 0:02:38.280 --> 0:02:40.840 we have in the last decade. We have fixed income business, 0:02:40.919 --> 0:02:42.919 we were structured. It's now a top. 0:02:42.720 --> 0:02:45.079 Five business, and investment banking is going to lead the 0:02:45.120 --> 0:02:45.639 next cycle. 0:02:45.919 --> 0:02:48.960 The House of Representatives, after three long weeks, finally came 0:02:49.040 --> 0:02:49.919 up with a speaker. 0:02:50.120 --> 0:02:52.600 The challenge before us is great, but the time for 0:02:52.720 --> 0:02:53.680 action is now. 0:02:53.919 --> 0:02:56.760 But through it all, the US economy continued to surprise 0:02:56.880 --> 0:03:00.600 in a good way, with GDP growth numbers way trend, 0:03:00.919 --> 0:03:04.240 with the third quarter growing by four point nine percent. 0:03:04.680 --> 0:03:07.680 It's a good strong number, and it chose an economy 0:03:07.800 --> 0:03:12.480 sixteen very well. Let's remember it is just one quarter's number. 0:03:14.120 --> 0:03:16.520 But as much as the economy soared this week, it 0:03:16.560 --> 0:03:18.600 did not bring the markets along with it. The S 0:03:18.639 --> 0:03:20.320 and P five hundred was down over two and a 0:03:20.360 --> 0:03:22.959 half percent for the week, falling to forty one seventeen. 0:03:23.000 --> 0:03:25.640 That is well below the median year end number projected 0:03:25.680 --> 0:03:27.840 by our Bloomberg Elves, which is up at forty four 0:03:27.840 --> 0:03:30.760 to thirty five. The NASAC was down just over two 0:03:30.840 --> 0:03:33.520 point six percent, and this week we can't blame the 0:03:33.560 --> 0:03:36.000 cell off in stocks on a similar move away from bonds, 0:03:36.200 --> 0:03:39.080 as the yield actually gave up nearly fifteen basis points 0:03:39.120 --> 0:03:41.200 on the week. Here to t help us sort it 0:03:41.240 --> 0:03:43.720 all out are Chris Harvey, Wells Fargo head of Equity 0:03:43.760 --> 0:03:48.320 Strategy and Kristin Bitterley City Global Wealth, head of Investment Solutions. 0:03:48.360 --> 0:03:51.920 By the way, congratulates on your big promotion titled yeah 0:03:51.920 --> 0:03:53.760 good for years, so much good for you. So Chris, 0:03:53.880 --> 0:03:55.200 let me start with you, what did we see in 0:03:55.200 --> 0:03:56.480 the markets this week? I mean, there were a lot 0:03:56.480 --> 0:03:58.840 of factors of play. We had the war in Israel, 0:03:58.880 --> 0:04:01.280 we had the GDP numbers. What do you think really 0:04:01.440 --> 0:04:02.560 is driving the market right now? 0:04:02.600 --> 0:04:05.840 So even though rates went down, it's still concern we 0:04:06.000 --> 0:04:08.640 don't know where the ceiling is on interest rates and 0:04:08.680 --> 0:04:10.960 so as a result, it's really hard to have an 0:04:11.000 --> 0:04:11.720 equity floor. 0:04:12.240 --> 0:04:13.040 You combine that. 0:04:13.080 --> 0:04:16.520 With geopolitical, which is just a complete Nutter wild card. 0:04:17.000 --> 0:04:18.600 And then the reaction to earnings. 0:04:18.839 --> 0:04:19.240 We had. 0:04:19.240 --> 0:04:22.240 The earnings overall were okay, you had some good, you 0:04:22.279 --> 0:04:25.360 had some bad, but the overall guidance the market really 0:04:25.360 --> 0:04:25.719 didn't like. 0:04:25.800 --> 0:04:27.599 And you throw that all together and it was a 0:04:27.640 --> 0:04:28.240 difficult week. 0:04:28.320 --> 0:04:30.120 We've got the FOMC next week. Is that going to 0:04:30.160 --> 0:04:31.680 help us? Because most people think we know what it's 0:04:31.680 --> 0:04:32.920 going to do, which is nothing. 0:04:33.480 --> 0:04:36.120 It may help us. I have my fingers crossed. I'm 0:04:36.160 --> 0:04:38.520 hoping it will help us. There's really two things next week. 0:04:38.800 --> 0:04:42.360 It's the Treasury refunding announcement and it's FOMC. 0:04:42.920 --> 0:04:43.920 If the Treasury. 0:04:43.560 --> 0:04:47.960 Announces and they don't need as much paper as people suspect, 0:04:48.080 --> 0:04:50.680 or they come in line with expectations, that's a good thing. 0:04:51.120 --> 0:04:54.000 If the FOMC plays ball and says, okay, we're done, 0:04:54.040 --> 0:04:57.760 we're good here for now, that could stabilize the markets. 0:04:57.800 --> 0:04:59.719 But it's going to take a lot to really stabilize 0:04:59.720 --> 0:05:02.240 the market. It's they're very generate at this point in time. 0:05:02.279 --> 0:05:05.480 And again I don't want to overemphasize geopolitical, but it 0:05:05.560 --> 0:05:08.120 really adds a whole new dimension. 0:05:07.680 --> 0:05:09.719 To things Christian where are you do we have a 0:05:09.720 --> 0:05:11.520 sense of where the market is going, particularly when it 0:05:11.560 --> 0:05:12.839 comes to rates and yields. 0:05:13.200 --> 0:05:13.440 Yeah. 0:05:13.440 --> 0:05:17.040 So I think everyone was hopeful that during this earning 0:05:17.040 --> 0:05:19.000 season we would go back to fundamentals, it would be 0:05:19.000 --> 0:05:22.120 stories about companies, and I think what happened over the 0:05:22.160 --> 0:05:26.200 past couple of weeks, given geopolitics, given the rise in oil, 0:05:26.680 --> 0:05:28.640 and just given the fact that the tenure crossed over 0:05:28.720 --> 0:05:32.160 five percent, it became much more about these macro conditions. 0:05:32.200 --> 0:05:34.320 And when we look at the price action, yes, it's 0:05:34.360 --> 0:05:37.480 given back some of that increase, But when we look 0:05:37.480 --> 0:05:39.679 at the price action on the tenure and the effect 0:05:39.680 --> 0:05:43.400 of tightening that that implies. So we don't expect that 0:05:43.400 --> 0:05:46.359 the Fed's going to raise rates or do anything next week. 0:05:46.560 --> 0:05:48.720 But I think the big question here is, in this 0:05:48.880 --> 0:05:52.320 environment of rates being higher for longer and the market 0:05:52.360 --> 0:05:54.840 doing some of the financial tightening for the FED, what 0:05:55.000 --> 0:05:57.640 is really then the backdrop for corporate profitability and how 0:05:57.720 --> 0:05:58.120 much is it. 0:05:58.160 --> 0:05:59.359 Up to the Fed at this point? I mean, the 0:05:59.360 --> 0:06:02.080 Fed didn't rates that really drove those yields. The yields 0:06:02.120 --> 0:06:04.400 went up on their own, and Chris, you mentioned the 0:06:04.440 --> 0:06:06.200 auction coming up this week. Part of it is the 0:06:06.200 --> 0:06:07.080 supply of treasuries. 0:06:07.120 --> 0:06:07.480 Christmas. 0:06:07.520 --> 0:06:09.279 Part of it is the supply, so you have to 0:06:09.279 --> 0:06:11.359 look at supply, demand and balances when it comes to 0:06:11.400 --> 0:06:14.080 the tenure. So you have the supply, you have the 0:06:14.120 --> 0:06:16.560 increased issuance, and then you have the question around who 0:06:16.600 --> 0:06:18.880 is buying. And I think one of the things that 0:06:18.920 --> 0:06:21.960 we have seen from our investors is, yes, you have 0:06:22.000 --> 0:06:24.119 the attractiveness of the front part of the yield curve, 0:06:24.320 --> 0:06:26.440 but you also have even going out kind of two 0:06:26.520 --> 0:06:29.039 to five years, you have really attractive yields. You have 0:06:29.440 --> 0:06:32.359 corporate investment grade bonds that you know at five years 0:06:32.520 --> 0:06:34.480 five years are yielding around six to six and a 0:06:34.520 --> 0:06:38.159 half percent. So there are really really attractive parts within 0:06:38.200 --> 0:06:40.320 the fixed income market where you don't have to go 0:06:40.400 --> 0:06:41.880 out ten years. So we see a lot of the 0:06:41.920 --> 0:06:44.360 activity still concentrated on that front end. 0:06:44.320 --> 0:06:44.760 Of the curve. 0:06:45.240 --> 0:06:47.440 So let me just play off that because I think 0:06:47.520 --> 0:06:48.680 Kristen hit onto something. 0:06:49.000 --> 0:06:50.200 It's really on a tenure. 0:06:50.480 --> 0:06:53.560 It's not so much about fundamentals, it's about technicals and 0:06:53.600 --> 0:06:57.360 it's about positioning. And the technicals aren't great, especially if 0:06:57.400 --> 0:07:01.279 the Treasury comes out with they need more paper. 0:07:01.000 --> 0:07:03.240 Than people expect. That's going to be a problem. 0:07:03.440 --> 0:07:06.520 The other issue is if you're long further out on 0:07:06.560 --> 0:07:09.680 the curve, right, if you're a long duration buyer, you're 0:07:09.720 --> 0:07:12.280 probably underwater at this point in time. You're trying to 0:07:12.320 --> 0:07:15.080 catch a falling knife. There's lots of disincentives at this 0:07:15.080 --> 0:07:17.760 point in time. And Chris and I were talking earlier, 0:07:18.000 --> 0:07:20.520 who's last who's that buyer of the treasury, who's that 0:07:20.600 --> 0:07:23.080 buyer of long duration assets? And it's really hard to 0:07:23.120 --> 0:07:25.440 find that person at this point in time, and everyone's 0:07:25.480 --> 0:07:28.320 waiting for somebody else to step up, And that's a problem. 0:07:28.160 --> 0:07:30.720 Maybe all long duration. But you can get real return 0:07:30.920 --> 0:07:33.040 on cash or close to cash about to two years 0:07:33.120 --> 0:07:35.160 or so. Like that Does that hurt equity sales because 0:07:35.240 --> 0:07:36.720 by the way, I can get some return by just 0:07:36.800 --> 0:07:37.840 keeping it in money markets. 0:07:38.000 --> 0:07:39.720 I think it hurts all risk product. 0:07:39.880 --> 0:07:42.080 So why go out on the curve when you can 0:07:42.160 --> 0:07:44.160 get a higher yield at the front end of the curve. 0:07:44.240 --> 0:07:46.720 I don't need to take that duration risk. And then 0:07:46.760 --> 0:07:49.760 for equities, hey, I have this stable earnings in a 0:07:49.800 --> 0:07:52.560 period where there's a lot of instability, maybe I'll just 0:07:52.600 --> 0:07:54.840 put a portion of it there. And so yes, to 0:07:54.880 --> 0:07:57.120 a certain degree, it is hurting equities. 0:07:56.840 --> 0:07:59.400 Kristin, what about that duration question, because do I want 0:07:59.440 --> 0:08:01.560 to keep it in case or near cash or at 0:08:01.600 --> 0:08:03.280 some point should I lock in some of those rates 0:08:03.320 --> 0:08:05.680 even on the fixed income because it may shift the 0:08:05.720 --> 0:08:06.080 other way. 0:08:06.280 --> 0:08:07.880 I think it's a balance. So when you look at 0:08:07.880 --> 0:08:10.200 it building an income portfolio, I think if there's one 0:08:10.240 --> 0:08:12.520 bright spot, it is the fact that you can build 0:08:12.680 --> 0:08:15.880 really attractive fixed income portfolios. A portion of that is 0:08:15.960 --> 0:08:18.160 going to be TVL. So the fact that you can 0:08:18.160 --> 0:08:20.720 get really high yields on the very very short end 0:08:20.720 --> 0:08:23.160 of the curve. We are encouraging our investors to take 0:08:23.200 --> 0:08:26.240 advantage of that. But remember you have real reinvestment risks, 0:08:26.280 --> 0:08:29.200 So depending upon what happens from here on out, you 0:08:29.240 --> 0:08:30.760 are going to have that moment in time where that 0:08:30.840 --> 0:08:33.200 yield is not going to be there. So the idea 0:08:33.200 --> 0:08:36.440 that you can get above five percent going out two 0:08:36.480 --> 0:08:38.599 to five years, you don't even have to stretch in 0:08:38.679 --> 0:08:41.240 terms of credit quality. You can get this within investment 0:08:41.240 --> 0:08:44.480 grade corporates, you can stay within government bonds, and you 0:08:44.520 --> 0:08:48.560 can actually have this very diversified portfolio that's providing income 0:08:48.640 --> 0:08:51.400 within mid to high single digits. So your earlier question 0:08:51.880 --> 0:08:54.480 if you're an investor getting mid to high single digits 0:08:54.520 --> 0:08:58.400 without really stretching in credit quality. How attractive are equities 0:08:58.440 --> 0:08:59.840 at these levels? 0:09:00.160 --> 0:09:00.760 And that's the fight. 0:09:01.040 --> 0:09:03.720 Now, there is one thing that's going on, and I'm 0:09:03.720 --> 0:09:06.559 sure Christen has seen this and talked about it, is 0:09:06.880 --> 0:09:09.440 the negative carry. In other words, the Yal curve has 0:09:09.480 --> 0:09:12.560 been incredibly inverted for a long time. If we go 0:09:12.640 --> 0:09:14.800 back to July, it was over one hundred bases points 0:09:14.800 --> 0:09:17.680 of inversion. Now we're only looking at fifteen twenty. That 0:09:17.840 --> 0:09:19.960 was one of the reasons why the duration players weren't 0:09:20.000 --> 0:09:22.280 stepping up is because it didn't make any sense. 0:09:22.320 --> 0:09:23.880 There was a real negative carry there. 0:09:24.000 --> 0:09:26.560 But as that curve goes to zero, it looks like 0:09:26.600 --> 0:09:28.760 it's going to go to zero. Now you can start 0:09:28.840 --> 0:09:31.520 having people move out in the curve without being penalized. 0:09:31.800 --> 0:09:33.880 But we haven't seen that yet, and that's what we're 0:09:33.920 --> 0:09:37.840 looking for, and maybe that will also beside FOMC and 0:09:37.880 --> 0:09:39.440 Treasury help stabilize the bond. 0:09:39.559 --> 0:09:41.200 So help me on that. Understand it, because I've read 0:09:41.200 --> 0:09:43.920 about so called pancake Right, we visually have a flat curve, 0:09:43.960 --> 0:09:46.280 it's not tilted one way or the other. Let's assume 0:09:46.280 --> 0:09:48.679 the moment it goes and stays around a flat curve 0:09:48.679 --> 0:09:51.240 for a while, and how does that change my portfolio building? 0:09:51.400 --> 0:09:54.440 So what it does, it's not. It doesn't penalize you 0:09:54.520 --> 0:09:57.000 for going out on the curve. So when the curve 0:09:57.080 --> 0:10:00.280 is negative, right when it's inverted, you're giving up a 0:10:00.280 --> 0:10:01.920 lot of carrier, giving up a lot of yields. 0:10:01.960 --> 0:10:03.679 So you have to get duration right. 0:10:03.720 --> 0:10:05.760 In other words, you have to get it right when 0:10:05.880 --> 0:10:08.959 interest rates start to fall, otherwise it's going to be 0:10:08.960 --> 0:10:12.120 a very painful process. As the curve flattens out, we 0:10:12.200 --> 0:10:13.480 don't have to play around with that. 0:10:13.480 --> 0:10:14.840 That becomes less of an issue. 0:10:14.920 --> 0:10:17.360 And if you look at the macro, yes, the macro 0:10:17.480 --> 0:10:19.679 right here, right now is a little bit troubling. But 0:10:19.720 --> 0:10:22.480 an inflation has come down. The Fed looks like it's 0:10:22.520 --> 0:10:25.840 going to stop. And if you go back to six 0:10:25.920 --> 0:10:29.320 when the Fed stopped there tightening that four to six 0:10:29.360 --> 0:10:33.319 tightening cycle, real rates drop, nominal race drop once they stopped, 0:10:33.600 --> 0:10:38.120 And so there could be a catalyst here, a small one, 0:10:38.200 --> 0:10:40.480 albeit for duration buyers. 0:10:40.480 --> 0:10:41.320 But we'll see. 0:10:41.360 --> 0:10:43.520 Okay, Thank you so very much to Chris Harvey as 0:10:43.559 --> 0:10:49.959 wells Rogo and Kristin Bitterly of City coming up. Sky 0:10:50.120 --> 0:10:53.520 high federal deficits help drive borrowing costs up. We talk 0:10:53.559 --> 0:10:57.520 with Evercred Roger Altman about how Washington fiscal actions affect 0:10:57.520 --> 0:11:00.600 Wall Street. That's the next time Wall Street Week Bloomberg. 0:11:02.400 --> 0:11:06.640 This is Bloomberg Wall Street Week with David Weston from 0:11:06.760 --> 0:11:10.199 Bloomberg Radio. 0:11:13.760 --> 0:11:15.800 This is Wall Street Week. I'm David Weston. This week 0:11:15.840 --> 0:11:18.480 brought a tentative settlement between the UAW and Ford, with 0:11:18.679 --> 0:11:21.560 reports that GM instillances may not be too far behind, 0:11:21.800 --> 0:11:24.760 but it comes with a price of substantially higher wages. 0:11:24.880 --> 0:11:27.440 So Christen, let me start with you. We do have 0:11:27.480 --> 0:11:30.000 the settlement. We do see labor costs going up. Ups 0:11:30.000 --> 0:11:32.920 reported it. You saw it affected their earnings. Are we 0:11:33.000 --> 0:11:35.560 seeing much margin pressure such so far because of labor 0:11:35.559 --> 0:11:36.079 as far as you can. 0:11:36.040 --> 0:11:37.240 Tell from the earning seats, You know what I would 0:11:37.240 --> 0:11:39.199 say this earning season, I actually think we continue to 0:11:39.240 --> 0:11:42.600 see some resiliency within earnings and there's actually potentially a 0:11:42.679 --> 0:11:45.640 path to seeing positive earnings growth, which has not been 0:11:45.640 --> 0:11:48.640 the case for the past three quarters. I would say though, 0:11:48.640 --> 0:11:50.880 in terms of the market reaction and what we're seeing 0:11:50.880 --> 0:11:54.200 around earnings, it's much more of a macro picture rates 0:11:54.200 --> 0:11:56.400 are still in the driver's seat, But the other part 0:11:56.440 --> 0:11:58.480 that's in the driver's seat is tech. And so you've 0:11:58.480 --> 0:12:01.280 seen some pretty binary react in terms of not only 0:12:01.360 --> 0:12:05.280 the earnings but also forward guidance in terms of their expectations, 0:12:05.559 --> 0:12:07.720 and the market is heavily reacting to that. And if 0:12:07.760 --> 0:12:10.440 you look at volatility around earnings, we are seeing a 0:12:10.480 --> 0:12:13.040 wider spread in terms of some of those movements than 0:12:13.080 --> 0:12:15.000 we have seen in prior earning seasons. 0:12:15.040 --> 0:12:17.679 So, Chris, when I hear tech, I think about magnificent seven, right, 0:12:17.720 --> 0:12:19.319 isn't that we call it these days? That's what we 0:12:19.480 --> 0:12:21.400 are they holding up? Because we saw a little bit 0:12:21.400 --> 0:12:24.040 of shakiness in some of those magnificent seven this week. 0:12:24.200 --> 0:12:27.080 So the answer to that is the stocks aren't holding 0:12:27.160 --> 0:12:27.880 up that well. 0:12:28.520 --> 0:12:30.720 What it is is some good, some bad. 0:12:31.000 --> 0:12:35.480 The underlying fundamentals fine, right, the reaction function. 0:12:35.600 --> 0:12:36.280 Not so fine. 0:12:36.280 --> 0:12:39.560 In some cases that's part of guidance. But here's a 0:12:39.600 --> 0:12:43.000 funny thing. If you're a company, your stock's up one 0:12:43.040 --> 0:12:46.600 hundred percent, you're looking forward, you might want to manage 0:12:46.640 --> 0:12:49.760 expectations bring things down, so your stock goes down five 0:12:50.280 --> 0:12:52.880 ten percent. You're already up one hundred You want to 0:12:52.920 --> 0:12:55.720 load those expectations for next year. You want to set 0:12:55.760 --> 0:12:58.360 things up for next year. And so it's not quite 0:12:58.360 --> 0:13:01.719 clear to me if it's a man of expectations or 0:13:01.800 --> 0:13:04.600 they're really saying something that we're not seeing, because the 0:13:04.679 --> 0:13:07.080 results for some of the companies are actually quite good. 0:13:07.200 --> 0:13:08.760 Well, what are the patterns that you're seeing so far, 0:13:08.840 --> 0:13:10.040 Chris in this earning season. 0:13:10.440 --> 0:13:14.080 So surprisingly, what we're seeing is margins are holding up well, 0:13:14.800 --> 0:13:16.120 we're seeing top line beats. 0:13:16.559 --> 0:13:18.320 But the issue is, or the rub. 0:13:18.200 --> 0:13:20.680 Is, guidance hasn't been as good as it has been 0:13:20.679 --> 0:13:23.800 in the past, and companies are being taken down a 0:13:23.880 --> 0:13:24.800 notch due to that. 0:13:25.120 --> 0:13:26.439 Whether that's because they're. 0:13:26.280 --> 0:13:28.760 Again they're seeing something that we're not seeing, they're being 0:13:28.760 --> 0:13:32.920 more conservative, they're managing expectations unclear, But the underlying fundamentals 0:13:33.000 --> 0:13:35.200 in the here and the now are fine. The last 0:13:35.240 --> 0:13:37.840 thing I'd say is that when we look at earnings 0:13:37.840 --> 0:13:41.959 and we go through transcripts, assuming we go through transcripts 0:13:41.960 --> 0:13:43.480 and we look at what the c suite is saying, 0:13:43.800 --> 0:13:46.640 we are seeing things that tone chains get a little 0:13:46.679 --> 0:13:49.600 bit darker around the consumer, which isn't a surprise, but 0:13:49.640 --> 0:13:51.439 it's something we're watching very closely. 0:13:51.120 --> 0:13:53.280 Which is something you mentioned earlier, Kristen exactly. 0:13:53.320 --> 0:13:54.760 I think the other thing, too is when you look 0:13:54.760 --> 0:13:56.760 at going back to this conversation around Tech and the 0:13:56.760 --> 0:14:00.440 Magnificent seven, those stocks are priced for perfection, right, So 0:14:00.520 --> 0:14:01.920 of course there's going to be a little bit of 0:14:01.960 --> 0:14:05.640 an overreaction to and giving back some of the gains 0:14:05.640 --> 0:14:08.040 that we've experienced here to date because as we all know, 0:14:08.520 --> 0:14:11.640 the market has been so concentrated in those seven stocks. 0:14:11.880 --> 0:14:14.320 So I think what is interesting is as we're kind 0:14:14.320 --> 0:14:18.560 of if we've seen the bottoming of corporate earnings and 0:14:18.600 --> 0:14:20.920 now we're kind of pivoting into modest growth. I do 0:14:21.040 --> 0:14:23.480 think twenty twenty four, Chris, I'm not sure about your 0:14:23.560 --> 0:14:25.400 view on this, but I think twenty twenty four the 0:14:25.440 --> 0:14:27.400 outlook is a little bit too rosy, especially if you're 0:14:27.600 --> 0:14:28.840 higher for longer rates. 0:14:28.920 --> 0:14:29.600 I think that's right. 0:14:29.640 --> 0:14:32.880 But within that there are opportunities in some of these 0:14:32.880 --> 0:14:33.760 sectors and some. 0:14:33.680 --> 0:14:37.200 Of the price effect. Yeah, we'll talk about defensive stocks. 0:14:37.280 --> 0:14:39.680 Let's talk about small and mid caps, because yeah, those 0:14:39.720 --> 0:14:40.880 are not I don't think price. 0:14:40.760 --> 0:14:41.320 Perfection, no. 0:14:41.360 --> 0:14:42.840 If you look at small and mid caps, I think 0:14:42.880 --> 0:14:44.880 the interesting thing is, of course, if you're in a 0:14:44.920 --> 0:14:47.840 higher interest rate environment. This idea that are their balance 0:14:47.880 --> 0:14:50.840 sheets clean? Are they exposed to floating rate debt? But 0:14:50.920 --> 0:14:53.880 within let's take like midcaps. Within mid caps, you have 0:14:54.000 --> 0:14:56.760 parts of that market that actually are profitable. Let's take 0:14:56.800 --> 0:14:59.640 like industrials. Right, So if we're looking at industrials, you're 0:14:59.640 --> 0:15:03.440 looking at infrastructure, defense. Industrials are only like ten percent 0:15:03.480 --> 0:15:05.800 of large cap, but like twenty percent of mid cap. 0:15:06.080 --> 0:15:09.360 Are there opportunities within there to have exposure that makes 0:15:09.360 --> 0:15:13.080 sense from a valuation perspective as as well as a 0:15:13.160 --> 0:15:14.480 go forward perspective? 0:15:14.480 --> 0:15:15.000 Absolutely? 0:15:15.120 --> 0:15:17.280 Okay, thank you so very much to Chris Harvey as 0:15:17.280 --> 0:15:20.840 well as Fargo and Kristen's Bitterly of a City. Israel's 0:15:20.840 --> 0:15:23.520 war with Hamas is entering its fourth week now, with 0:15:23.640 --> 0:15:27.320 continued strikes and counter strikes on Gaza and israel efforts 0:15:27.320 --> 0:15:31.040 to get humanitarian aid into the territory and feverish diplomatic 0:15:31.040 --> 0:15:34.760 efforts to contain the conflicts. Welcome now, Tom Nydes He's 0:15:34.760 --> 0:15:38.280 a former Morgan Stanley COO, former Deputy Secretary of State, 0:15:38.520 --> 0:15:41.200 and he also just stepped down as US ambassador Israel 0:15:41.440 --> 0:15:43.920 last month. So Tom, thank you so much for joining us. 0:15:44.080 --> 0:15:46.400 Good to have you here. We all see the consequences 0:15:46.400 --> 0:15:49.720 for people living in Israel and in Gaza every day 0:15:50.040 --> 0:15:52.240 in video, but for many of the rest of us, 0:15:52.280 --> 0:15:55.400 particularly in the business world, the consequences made determined and 0:15:55.680 --> 0:15:59.480 determined by whether or not this conflict spreads beyond Israel 0:15:59.520 --> 0:16:01.360 and Amas. What are the factors from your point of 0:16:01.440 --> 0:16:03.480 view that will determine whether it does spread? 0:16:03.800 --> 0:16:05.880 Well? Listen, David, First, I appreciate you having me. 0:16:07.360 --> 0:16:10.120 This is the question because ultimately one of the things 0:16:10.160 --> 0:16:13.760 that the present has been very clear about, regardless of 0:16:13.840 --> 0:16:16.800 you you love him or hate him, the reality has 0:16:16.840 --> 0:16:21.320 been very clear to the Iranians because the Iranian proxies 0:16:21.320 --> 0:16:25.720 we're really talking about hesbl in particular, as he likes 0:16:25.760 --> 0:16:28.880 to say, superpowers don't bluff. And it's also helped that 0:16:28.920 --> 0:16:31.960 they move to some very large ships into the Mediterranean 0:16:32.520 --> 0:16:36.760 every day. This White House is working to put pressure 0:16:36.920 --> 0:16:41.480 on those proxies, those in Lebanon and yes, in Syria, 0:16:41.520 --> 0:16:45.200 but more really, the Iranians don't do it. Don't do 0:16:45.240 --> 0:16:48.240 it because the Two Front war. Who's that question, will 0:16:48.240 --> 0:16:51.200 have the enormous consequences in the state of Israel, and 0:16:51.280 --> 0:16:54.640 to be clear, will have enormous consequences to Lebanon and Iran. 0:16:54.800 --> 0:16:57.080 So I think when they're sitting around thinking about this 0:16:57.200 --> 0:17:01.160 in Tehran, I think thinking long and hard about what 0:17:01.200 --> 0:17:02.720 the consequences. 0:17:02.040 --> 0:17:04.000 Could be of them getting involved. But it certainly is 0:17:04.040 --> 0:17:04.360 a risk. 0:17:04.880 --> 0:17:07.520 Sometime we see, for example, sexual a state blink and 0:17:07.600 --> 0:17:10.960 going to the region, we see various activities. I'm sure 0:17:11.160 --> 0:17:13.480 nine tenths of what's going on we never see and 0:17:13.520 --> 0:17:16.280 we're not meant to see without revealing anything you shouldn't 0:17:16.280 --> 0:17:18.840 reveal that's confidential. What sorts of things do you expect 0:17:19.040 --> 0:17:20.760 is going on behind the scenes. 0:17:21.280 --> 0:17:26.440 Well, first of all, they're pushing the Israelis very strongly 0:17:26.440 --> 0:17:30.800 about getting humanitarian aid into Gaza. Listen, Hamas is doing 0:17:30.880 --> 0:17:32.879 exactly what they want to do. They want to create 0:17:33.000 --> 0:17:36.960