March 25, 2025 • 43 mins
Watch Tom and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Surveillance hosted by Tom Keene & Paul Sweeney
March 25th, 2025
Featuring:
1) Sophia Drossos, Economist at Point72 Asset Management, discusses a cloudy market and compounding uncertainty and where the Fed goes from here. It comes as tariffs have been dominating the news flow this week, with US stocks soaring on Monday on signs that trade sanctions will be narrower than feared. However, signs of "secondary tariffs" could add another layer of uncertainty in markets.
2) Cam Dawson, CIO at NewEdge Wealth, on US equities and whether US exceptionalism is alive and well. It follows stocks having a strong session, with the Nasdaq 100 adding 2.2%, amid signs US trade sanctions will be narrower than feared.
3) Michael Darda, Chief Economist at Roth Capital Partners, joins for an extended discussion on US stagflation, productivity growth, and whether the Fed will have no choice but to cut rates. In a Bloomberg exclusive yesterday, Federal Reserve Bank of Atlanta President Raphael Bostic said he now sees just one interest-rate cut as likely this year, rather than two, with tariff hikes impeding progress on disinflation.
4) Phil Toews, CEO at Toews Asset Management, on his new book "The Behavioral Portfolio" and how portfolios have shifted as the US economy changes. Rising uncertainty on policy and geopolitics could lead traders to look for cheap assets and avoid expensive ones. It makes the future profits that contributed to the expensive stocks being expensive in the first place, look less certain.
5) Lisa Mateo joins with the latest headlines in newspapers across the US, including US retailers bulking up their inventories to get ahead of President Trump's new tariffs and British Airways launching a new first-class seat.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Surveillance Podcast. Catch us live weekdays at seven am Eastern
on Apple car Play or Android Auto with the Bloomberg
Business app. Listen on demand wherever you get your podcasts,
(00:25):
or watch us live on YouTube.
Speaker 2 (00:27):
This is really good. We got some precious timingre with
Sophia Drosi's working for point seventy two in New York.
But you know, we've we've got to do this. I mean,
it's one of the most fractious marriages out there, Steve Cohen.
Of course a point seven to two has a modest
New York Mets too. You have a Red Sox Mets marriage.
Speaker 3 (00:45):
Is that true?
Speaker 4 (00:47):
Yes, it's a mixed marriage LEAs.
Speaker 2 (00:51):
Yes.
Speaker 4 (00:52):
However, I did adopt the Patriots as my football team
because that was also, you know, the Michigan connection. So
for me, when my husband said I'm a Patriots fan,
that's a deal breaker for me. I was like Tom Brady,
I knew since he was number ten.
Speaker 2 (01:08):
How's your husband doing? I Soto in a Mets uniform
is un American? Is he holding up? I mean the meds?
Speaker 4 (01:17):
You know, you know, the Mets nation is very welcoming.
So when we do go to Cityfield, my husband will
wear his red Sox hat. The Mets nation super welcoming.
Speaker 2 (01:26):
Very a good update there, and of course we are
ready for the baseball season. We're also ready Sophia drosis
for an economy and your research note says it all.
I think you use the word uncertainty forty seven times.
What is the character of our economic and market uncertainty?
Speaker 4 (01:44):
Yes, well, uncertainty is something that we haven't had to
deal with until more recently on the policy front, So
last year was a year where there was fiscal spending,
there was a preemptive FED easing, It was very positive
tailwinds for the market, and we came into this year
with the markets I think for the first time in
(02:04):
a long time, investors were looking at the glasses half
full and taking kind of the upside on economic growth.
And the policy uncertainty I think has permeated that a bit.
So we came into the year with a lot of
expectations for deregulation and animal spirits, and the sequencing has
(02:25):
brought perhaps the more onerous parts of policy up first,
with the uncertainty over trade how it will end up
how will it affect the economy? And you know, we're
still looking at that April to deadline and not quite
sure exactly how things are going to pan out or
if that will be a clearing event.
Speaker 5 (02:46):
So one of the issues coming into this year for
the markets was the Fed's probably not going.
Speaker 6 (02:50):
To do a whole lot to help these markets. It's
going to be earnings driven.
Speaker 5 (02:53):
So therefore I need my economy to be shroun How
do you think about the economic outlook and how that
might be it challenge potentially for the earning story.
Speaker 4 (03:03):
Yes, well, on the on the earnings front, we are
coming off a period of time where corporate margins have
been at record highs and earnings have been quite strong.
And if we're coming into a period where economic growth
is expected to moderate and there is a lot of
uncertainty facing corporations with regard to tariffs, their input costs,
(03:24):
and the outlook for the US consumer, it seems more
likely that we're going to see a moderation in corporate profits.
And I think that this first batch of earnings reports
at the end of April will be very key for
the market. Directionally, I look.
Speaker 2 (03:41):
At what you just said, clearing events folks, this is
a Midwest agreed right here. Michigan and Anna Arbor was
basically East Chicago. It comes back to ninety and uncertainty
and the you know, it almost folds into what Friedrich
Kayak would say, which is, you've got these clearing events
where things clean out. So on April third, you suggest
(04:02):
we may have enough clarity to go along.
Speaker 4 (04:05):
Unfortunately, I don't think we'll have the clarity on April third.
So the issue has been on April second, we are
anticipating to get a sense of the blueprint on the
reciprocal tariffs, but the commentary from the White House has
been that there's likely to be ongoing tariff threats in
terms of specific industries and products. So April on April
(04:30):
two will know a bit about this reciprocity that will
be going on, but we won't know enough about what's
going to happen with specific sectors.
Speaker 2 (04:38):
Yeah, I'm not without giving away the point seven to
two cards. But the basic idea here is with this
colossal uncertainty is and then this is a bit off
your remit, but I'm going to ask anyways and be rude.
Is cash a preferred asset right now?
Speaker 4 (04:53):
Well? I've been looking at things like gold and cash.
Gold has been performing incredibly well, and so in an
environment where investors might see some risks, ask Thatt. Allocation
theory would suggest trying to increase some of your safer holdings.
And there are different views on treasuries and the fiscal trajectory.
(05:13):
So investors, I think have increasingly been looking at things
like cash and gold.
Speaker 2 (05:18):
Oh, I mean, I mean talk about gold. Crazy Wan
Sodo seventy five million dollars signing bonus for him seven
hundred and sixty five thousand guarantee. Excuse me, not off
seven hundred and sixty five million guaranteed and he's underpaid
fifty one million a year. Sure, he's got a base
of forty six.
Speaker 6 (05:38):
Large I can hit.
Speaker 2 (05:41):
I mean, Oh, it's correct. It's like there's a second
coming of way backs over a little more in Power City.
Speaker 6 (05:48):
Feel no questions, great, Sophia, what'll be different if.
Speaker 2 (05:51):
We talk enough about the Mets, can we get back?
Speaker 6 (05:53):
We'll get six seats?
Speaker 2 (05:55):
Well, one more question, get it in there quick?
Speaker 6 (05:57):
Fixed income? Do I take credit risk or not? Here?
Do you think?
Speaker 4 (06:01):
So it's an environment where I think we've started to
see a little bit of a pickup, I think in
the delinquencies and the like, but the types of credits
that are in public markets are typically relatively strong. I
think the bigger question is what's going to happen with
the outlook for the economy and what does that mean
for all us based risk assets.
Speaker 2 (06:22):
We go to Fenway just gaze out at the Ted
Williams reds yea Sophia drosis. Thank you so much, A
point as seven to just fabulous over the years with
the wonderful synthesis of economics and the impact on our investment.
Speaker 1 (06:37):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Just say Alexa Play Bloomberg eleven thirty joining.
Speaker 2 (06:55):
Us right now, you folks. It's like I'm a Choppoliver.
I mean, I mean, it's other is to it? Sweete
and Tom Keane and we are after her conversation with
the legend Kenny pulcarry over at the New York Stock Exchange.
That's trader talk. That was yesterday Kay, what do you
say to Ken Paul Caerry that you don't say to me.
I mean that's like like in and out of the market, right, Yeah.
Speaker 7 (07:17):
Look, it is a good reminder that there's all these
short term movements in markets that are driving the volatility
that we're experiencing. But you have to keep the long
term in mind, which is why we've been continuously saying
to clients it's not where the S and P five
hundred ends at the end of this year, it's what
you do with the volatility along the way.
Speaker 2 (07:35):
We traders getting slammed as a general statement, I mean
trying to gain this market right now, is anybody making money?
Speaker 7 (07:41):
Well, we've certainly seen traders move from being max long
equities at the beginning of this year ninety eighth percentile
kind of positioning to that's now fall into the twenty
six percentile, So there's probably been some pain along the way.
Speaker 2 (07:54):
Paul Cary looks like out of Central Casting, Game of
Thrones or Outlander or one of those things. I mean,
this is he retired.
Speaker 3 (08:02):
No, he's trucking, he's trunckling.
Speaker 2 (08:04):
Good morning to Ken punk Car and everybody down with
the New.
Speaker 5 (08:07):
York Salma bum this guy back in the day. Your
note is the end of US exceptionalism? Is it the
end of US exceptionalism? Or do we still have room
to grow?
Speaker 6 (08:15):
What do you think?
Speaker 7 (08:16):
So what we what we wrote about is this idea
is that it's very easy to ascribe a narrative to
price action. Everybody looks at the weakness in the US
dollar year to date, they look at the outperformance of
Europe versus the rest of the of the US, and
they say it must be the end of US exceptionalism.
But if you look it really is a function of
the fact that we started the year with a massive,
(08:37):
very very crowded dollar long position that has since been unwound.
Traders are now slightly short the dollar, and we actually
think that you could see some dollars stability here now
that you've burned off all of that crowded positioning.
Speaker 5 (08:50):
Interesting, So what do I mean when you talk to
your clients here again, we had that peaked to trough
draw down in the S and P five hundred of
about ten percent. Did they view that as a healthy
pullback in an otherwise positive market or is.
Speaker 6 (09:04):
It something else?
Speaker 7 (09:05):
We'd hope that we've talked to clients enough and set
up the potential for volatility that there is a degree
of calm when we see it. We often talk that
volatility is a feature of being an equity investor and
that we should see it as opportunity. Now we think
the other reason why there's been this calm is that
if you look at a seventy thirty portfolio for AQUI,
(09:25):
so that's an international balance portfolio including the US and
the AGG you're still.
Speaker 3 (09:31):
Up on the year.
Speaker 7 (09:32):
So, yes, we've seen the US stock market pull in,
but the end of the day, it's not been cataclysmic.
Speaker 2 (09:38):
Are we getting used asked Michael dart I alluded to
this with Michael Data more directly with Cam Dawson. Are
we needing to slot in the understanding that equities are
a single digit return in our double digit return addiction?
Speaker 7 (09:52):
Yeah, I think that that's very very likely. Is that
we've been in this world a very strong double digit
returns the last two years. Investors got conditioned to expecting that,
which is why you saw these estimates for seven thousand
plus in the S and P. Five hundred. That's very
hard to do when you start the year at twenty
two point six times forward earnings you start the year
(10:13):
at the ninetieth percent tile of positioning.
Speaker 3 (10:15):
So our best case.
Speaker 7 (10:16):
Scenario for twenty twenty five is that you get growth
upside that's equivalent to earnings growth. But that assumes that
multiple stay constant, and we're not sure if you get
multiple stay in constant in a world where you're cutting
earning sestaments and there's some risk off flavor.
Speaker 5 (10:33):
How about Europe's had a heck of a start to
the year here and that story we had heard kind
of last year where European and international money coming into
the US market had a little bit of a reversal
of that. How do you think about the performance of
European equities?
Speaker 7 (10:46):
We do think that the easy part is over for
European equities. You started at thirteen and a half times forward,
now you're training at fifteen times. Fifteen times doesn't seem
like a lot when you compare it to the twenty
times in the US, but it is the high of
the valuation range and the pre pandemic range for Europe.
So it really comes down to earnings delivering. Quite interestingly,
earnings for Europe have continuously been getting cut even as
(11:09):
we've been seeing this rally so interesting.
Speaker 3 (11:11):
It's a show me story right now.
Speaker 2 (11:13):
The show me story is Cameron Dawson with us this
morning with New Edge Wealthy. Welcome all of you in
your commute across the nation. Good morning, ninety two nine
FM in Boston, ninety nine one FM and Washington. Bloomberg
eleven three to zero in New York. An ample conversation
with Cam Dawson on YouTube. Subscribe to Bloomberg Podcast. Even
(11:33):
Cam Dawson subscribed.
Speaker 5 (11:35):
It's just like savvy put us up to forty two
is amazing exactly. You know, I'm looking at the relative
strength index, the RSI on the Bloomberg Criminal for the
S and P five hundred. Man, we kind of bottomed
back just like ten days ago, but now we're moving
higher here.
Speaker 6 (11:50):
I mean, how did these technicals feel? It feels like
is the sell off? Are we done with this cell
off here? Or how's that? How do you think about it?
Speaker 7 (11:57):
So we certainly got over sold enough to bounce, which
is why we think we're bouncing today and yesterday.
Speaker 3 (12:03):
What the question is what happens.
Speaker 7 (12:05):
When you hit resistance and are you having enough momentum
to break through that wall of resistance which we think
is around the fifty nine hundred and six thousand level
that you're downward sloping fifty day moving average. You have
been losing momentum in this market really for the last
nine months. If you look at things like a weekly MACD.
So we do think that this is an environment that
(12:27):
you could roll at resistance, you're going to.
Speaker 2 (12:29):
Go right there because I hate it. I hate I'm
not a MACD fan. Folks who won't go into the
nuances of it. Sixteen hundred Pennsylvania is not looking at
the weekly mac D. I mean they're not. The bottom
line is we can't lift until we get political clarity
right exactly.
Speaker 7 (12:47):
Why would we trade back up to all time highs
when we've cut earnings estimates since and we have valuations
that would have to go to new highs to get there,
Which is why we think this year at best is
that wide choppy rain. Because of the degree of uncertainty
and because of the potential downsides to growth, it's depressing.
Speaker 2 (13:05):
MAG seven. Are they still the MAG seven? Even ex Tesla.
Speaker 7 (13:08):
We've been raising the question if they're more like the
LAG seven we talked I think last week.
Speaker 2 (13:12):
Do you see a lessening of their cash flow free
cash flow.
Speaker 7 (13:16):
It is happening because of the big uptick within capex.
You are seeing free cash flow margins come in. Now,
these free cash flow margins are still so much better
than you can get in the rest of the market exactly.
So do they become a safe haven when people have
questions about growth o their places? Very possibly. The valuations
aren't in stretches. They are, but the market cares about
second derivatives. The market cares about the slow down in
(13:38):
earnings growth, which is inevitable when they had such massive
earnings growth over the past two years.
Speaker 2 (13:43):
But you said the free cash flow will sustain even
if earnings come down, But it is. I mean, Zuckerberg
is going to manage the P and L statement right.
Speaker 7 (13:51):
And they're sitting on massive, huge cash balances as well
that they could deploy to repurchase shares.
Speaker 2 (13:56):
So sore they the new Deminian Electric? You're too young
to know that? Would you get me someone in here
older that actually knows what D is? Are they the
new utility?
Speaker 3 (14:07):
That is an interesting question.
Speaker 7 (14:08):
If they become such monopolized businesses that they are effective utilities,
then it raises the question of do they get regulated
like utilities do, and do we see those free cashlow
margins compress over time because of the fact that they
act like utilities.
Speaker 2 (14:23):
I mean, Paul, you're the only one to extend in
this building that knows what Florida Power and Light is.
Speaker 5 (14:28):
Dominion Energy based in Richmond, Virginia.
Speaker 6 (14:29):
Home dividend grow exactly.
Speaker 5 (14:33):
Earnings are important for this market because I'm not sure
the FED is going to give us a whole lot
this year, maybe one, maybe two rate cuts, so that
puts more even more pressure on earning story. And you
mentioned that earnings estimates are coming down. How risk are
the numbers that are out there?
Speaker 6 (14:47):
Do you think so?
Speaker 7 (14:48):
We think the biggest risk is possibly within financials. You've
been seeing every sector get cut. Financials have seen less,
earnings revisions lower. But think about the setup for financials
coming out of the LI people said a steeper yield curve.
We're getting M and A, we're getting IPOs, we're getting deregulation.
Speaker 3 (15:05):
We've gotten none of that.
Speaker 7 (15:07):
So we do wonder if that's an area of risk
going into first quarter earning.
Speaker 2 (15:11):
Okay, Shanghai, good morning, good evening, I should say Shanghai,
China this morning listening in is China the opportunity, Sophia
Ross and Mike Darter, we're talking.
Speaker 7 (15:22):
About, well, China certainly has that valuation opportunity where it
still trades such a huge discount to the US.
Speaker 3 (15:28):
It's underloved, it's been called on you're going back.
Speaker 2 (15:31):
To a textbook eight nine, twelve ten percent allocation to international.
Speaker 7 (15:35):
So we are neutral international. We've said, you just can't
ignore the degree of outperformance in the US underperformance and international,
but we don't see signs yet that justifies going to
an overweight position.
Speaker 6 (15:47):
What are we doing in fixed income? Here?
Speaker 5 (15:49):
At my two year treasuries now back above four percent?
Speaker 6 (15:53):
Do I stay there? Do I take some credit risk?
Where do I go?
Speaker 7 (15:55):
So we don't think again that you're getting compensated for
mostly high yo credit risks. So we move to reduce
some positioning within high yield just to say, you know,
let's write out some of the equity volatility. But we
want to be able to take some risk out of
portfolios in the event that these growth fears do come
to pass.
Speaker 5 (16:14):
So in the equity space, what screens well for you
guys these days?
Speaker 7 (16:18):
So we are finding lots of opportunities within international markets,
but very selectively in that big, beautiful quality world. We're
finding opportunities within mid caps as well, and then value
lots of opportunities where you still see areas of the
market that create it, discounts that have good free cash flows,
have good balance sheets, and it's just maintaining that valuation discipline.
Speaker 3 (16:40):
Which we think is absolutely critical. At one point.
Speaker 2 (16:42):
What's the key attribute of those opportunities.
Speaker 7 (16:46):
The key attribute is that they are not trading at
stretch valuations, and they have stable learnings through cycles, and
they have good free cash flow that is potentially seeing
better free cash flow margins.
Speaker 3 (16:56):
So it's about being very picky.
Speaker 7 (16:58):
We think that there's a big divert between the winners
and the losers in this kind of environment.
Speaker 2 (17:02):
This guy in Shanghai, it's child abuse. He's got his
four year olds watching it. Look at that in Shanghai.
Can you see it, folks, that's cruel and unusual.
Speaker 5 (17:13):
Crash man blocking shalans in the morning.
Speaker 2 (17:15):
Full disclosure, folks, it's my grandchildren. We send good morning
to the rugrats in Shanghai this morning. But you know,
agatting back to the international and Pacific rim, I got
too much gloom out there. I got guest after guests
read me the uncertainty act. It clears at some point.
How do you prepare for the moment where the uncertainty
(17:37):
drifts away?
Speaker 7 (17:38):
Well, I don't think that you can wait for necessarily
confirmation from the data. The important things is that price
will lead the data, and so as we're starting to
see some of these turns and trends, we have to
be there, which is why we move to a neutral
position within international about a year ago, saying it's going.
Speaker 3 (17:55):
To happen, you know maybe this time.
Speaker 5 (17:58):
So is our federal reserve to help us this year?
Are you still kind of that's a question.
Speaker 6 (18:02):
A couple of cuts.
Speaker 2 (18:03):
All this talk, folks, Sweeny, just to ask the money.
Speaker 7 (18:06):
Question, we're not counting on the Fed for anything. We
don't think that the labor market is going to be
weak enough to justify them them cutting. We don't think
that inflation is going to move down fast enough to
give them the degrees of freedom to cut, which means
that you get used to these higher for longer rates.
And that's why we think that you have this continuous
pressure on weak balance sheet companies that you should fade
(18:29):
any strength.
Speaker 2 (18:30):
So what's your money unemployment rate?
Speaker 7 (18:33):
So we don't think that the FED will cut unless
we see mid fours on the unemployment rate four point four,
four four five.
Speaker 2 (18:42):
It's not that far away.
Speaker 3 (18:44):
It's not that far away.
Speaker 7 (18:45):
But we don't see this sharp deterioration in the labor
market happening at this point. Yes, we see the sentiment
around labor deteriorating, but we've not seen companies move to
full out, full force layoffs that you just to just
that there still is that underlying stability for now.
Speaker 6 (19:03):
Yeah, So, I mean it's interesting.
Speaker 5 (19:05):
I mean one of the questions is I think for
a lot of people is do I take this pullback
to buy stocks here or do I just more uncertainty
out there, because it's just one tweet away from another
pullback in the market.
Speaker 7 (19:19):
If you're buying stocks because you think it's going to
be a v shape recovery and is up into the
right with the volatility, it's the wrong move. But if
you're buying stocks to say I'm going to own this
for a long time, a step into volatility, we think
you can still buy weakness.
Speaker 2 (19:31):
All of China's listening this morning to Cam Dawson. The
entire nation just went to cash. Cam Dawson. Thank you
so much, New Edge Wealth.
Speaker 1 (19:42):
This morning, you're listening to the Bloomberg Surveillance Podcast. Catch
us live weekday afternoons from seven to ten am Eastern
Listen on Applecarplay and Android Otto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 2 (20:00):
Michael Darta is with Roth Capital and years ago he
came out of the Wisconsin combine and got a job
with one of the rock stars of linking markets into economics,
Jude Waninski. And Darta just penetrated right through with brilliant
research notes melding investment into economics. Michael Darta, wonderful to
(20:22):
have you on the show today. I'm looking at Atlanta GDP.
Now I've got a real GDP estimate negative. Maybe it's
a little positive. I got PCE coming in with some
kind of disinflation. Are we in the middle of a
nominal GDP collapse?
Speaker 8 (20:41):
Thanks for having me on, Tom. I don't think nominal
GDP is collapsing. I think what we're facing here is
a series of adverse supply side shocks that will slow
real growth and temporarily raise inflation. And you know that
is unfavorable because for any nominal growth rate. You want
(21:04):
most of it to be real, not inflation. And you
can see that embedded in the Fed's forecasts with the
SEP last week, where they reduced their expectation for real
GDP for the year, but they increased their expectation for inflation.
Speaker 2 (21:21):
Yeah, saw that, and they reduced the.
Speaker 8 (21:23):
Real growth expectation about twice as much as they increased
the inflation expectation for the year. So nominal growth expectations
didn't collapse, but they have eased implicitly. That's looking for
about four point four percent nominal growth. That's certainly below
the five percent rates that we've been seeing recently, consistent
(21:45):
with the soft landing, and less of it's going to
be read so it's a bit of its bag inflationary
flavor there time.
Speaker 2 (21:52):
So Michael, bring it right over to the investment world.
Does that re mean reduced revenues where I've got operating
margins coming in and all of a sudden, Sweeney's getting
gray hair because earnings are coming in.
Speaker 9 (22:04):
Yeah, that's exactly what it means.
Speaker 8 (22:05):
So slower top line growth and higher costs, and you
know that is a risk to these very elevated expectations
for S and P five hundred earnings this year. At
the start of the year, analysts we're expecting more than
fourteen percent earnings growth. Our model that uses high yield
debt spreads in the new orders index from the ISM
(22:27):
data suggests that, you know, low single digits is more likely.
And you know, unfortunately, you have pretty high evaluation still
on those lofty expectations. So you know, we'll see if
markets can continue to look through this uncertainty. We've rallied
over the last few sessions, but you know, I think
we still might have some volatility ahead.
Speaker 5 (22:50):
So it seems like one of the key dates coming
up here, Michael, is April second, when we get I guess.
Speaker 6 (22:55):
A clear picture of some of these tariffs here.
Speaker 5 (22:58):
Just stepping back and thinking about tariffs, is it a
good thing to bring more manufacturing back to the US.
Is that a realistic and a meaningful goal of tariffs?
Speaker 6 (23:11):
Do you think?
Speaker 2 (23:13):
Well?
Speaker 8 (23:13):
The administration certainly thinks it, seems to think so. They
want to do it for so called critical industry of
the US as an emergency or goes to war. You know,
they want those critical industries here and able to fire
up at a moment's notice. But in economics, everything comes
with a trade off, and so if we're deploying capital
(23:36):
and labor into industries that were less efficient at than
they would be in other places, then those same resources
can't go into making other export goods. So there is
a second and third order drag on efficiency productivity. So
the question is, you know, is it worth it to
give that up? And that's what markets are grappling with now.
Speaker 5 (24:00):
One of the I guess the concerns here, I guess
the media concerns Michael, this marketplace is the thoughts of
stagflation where the growth is kind of slowing, inflation's kind
of creeping back up, maybe due to some.
Speaker 6 (24:13):
Of these tariffs. Who knows.
Speaker 5 (24:15):
Is stagflation something we should be worried about?
Speaker 8 (24:19):
Yeah, it certainly has that flavor because I think after
the election there was a lot of optimism that whatever
happened on trade would be offset by fiscal policy and deregulation,
and so far we don't really know. You know, the
deregulation piece is kind of a question mark. You know,
(24:40):
the administration's going very hard and fast with the tariffs,
a bit of an on again, off again, on again approach,
But I think that really challenges some of the assumptions
coming into the year, which were that the tears were
simply a bluff or that would be offset by deregulation
and potential tax reform. Very difficult to see any kind
(25:01):
of a big eating a physical policy considering the constraints
and deregulating crypto, I think is highly unlikely to offset
Moot Hawley two point zero.
Speaker 2 (25:12):
Torsten Slack apologlobal management channeling Paul Sweeney, I say puts
out a note moments ago stagflation risk rising. Michael Dharta
giving us some good knowledge and good morning. An extended
discussion with Michael Darda Jim Bianco coming up in at
nine o'clock. Our mister Darty, are on the markets, linking
in to our economy. And now, folks, the Darta rabbit
(25:35):
hole does M one M two m O money supply
monetorism Michael Darta doesn't matter anymore.
Speaker 8 (25:45):
Oh, I love that question, Tom. You know, I'm one
of the few that still watches those indicators, right, and
so we had a huge explosion in the monetary aggregates
going into the high inflation period in twenty twenty one.
Speaker 2 (25:57):
Twenty stimulus come on, we still you.
Speaker 9 (26:00):
Know, yeah, we did massive you.
Speaker 8 (26:02):
Know, stimula was plural, Okay, Yeah, So they were good
proxies for massive stimulus and a huge ramp and nominal
relative to the productive capacity of the economy, which was
constrained during the pandemic. Right, Productivity basically was frozen for
two years, and we had double digit increases in nominal
(26:23):
demand on the back of all that stimulus. So that's
your inflation story. And in the wake of the FED
tightening five hundred and thirty plus basis points, those aggregates
slowed very sharply. It turns out, you know, the FED
was able to preside over this once in a lifetime
soft landing. So nominal slowed, but it didn't crash. This
(26:44):
bly side of the economy picked up after twenty twenty two.
That's a critical piece of the soft landing and why
the slowdown in those aggregates I think did not foreshadow
or recession this time. And now we're putting that at
risk with apply side disturbances, which are frankly series of
self inflicted blows.
Speaker 5 (27:06):
Michael, you know we're going to get you miss sentiment data.
This fraudiya.
Speaker 6 (27:10):
A couple of weeks ago, the.
Speaker 5 (27:11):
University of Michigan data really suggested that people are concerned.
The current sentiments are really took a hit here. Inflation
expectations moved decidedly higher. When you see soft data like that,
does that get your attention?
Speaker 8 (27:27):
Yeah, it's you know, the survey data is really a
set of inauspicious recent outcomes, with confidence pulling back and
inflation expectations shooting up. So that's not really what you
want to see. Obviously, we're going to get some Conference
Board data today for March, and that data has also
been soft, not quite as you know weak as the
(27:49):
you mish data. But the key question is is this
soft data a harbinger of much weaker hard data coming
down the pike. And we just don't have the answer
to that yet, and we won't even this week. We've
got some February data coming up on Friday on personal
income and consumption and the deflators. The FED watch is
(28:10):
but still a little bit stable on some of this
hard data, and that's really the risk that markets face.
We know the soft data doesn't always translate one for
one into hard data, but obviously the risks of the
hard data rolling over with this hit to confidence that increased.
Speaker 2 (28:27):
I mean Michael. Right now we've cratered on the standard
and pours five hundred. I think're down seven percent or
some silly number like that. David Constant and the crew
at Gold and Sacks might just splash with some fancy
mathematics to put the regression trend of earnings down to
be polite low single digit. Do you have an almost
(28:49):
a data assumption of a single digit stock market forward
or do you maintain double digit growth with operating leverage?
Speaker 8 (28:59):
I think it's going to be really hard to maintain
that double digit growth. I mean, if you just do
a super basic Tom Keen scatterplot regression on forward pes
in ten year future returns, you know, coming into the
year with the forward pe twenty two x, you know,
typically that's a level where you see very weak, potentially
(29:22):
even negative ten year forward returns. So the higher the valuations,
the lower the longer term forward returns are. And you know,
that's a little bit of a different game than the
you know, than the chase that's been on with momentum.
And then more broadly, I do think that these disruptions
to the supply side eat away at the earnings expectations,
(29:44):
and so the high valuations are pricing in good you know,
good times continuing, and now we're starting to question that,
which is, you know, why we've seen more volatility in
this pullback, which frankly has been pretty minimal so far
in the s and P five hundred, Even at the
lows on the thirteen, the march was still above a
twenty forward multiple, and you know that's that's still ten
(30:07):
twelve percent above the ten year moving average, which you know,
I think is very generous because the tenure moving average
is well above longer term historical averages. So these this
is a high valuation market still, and I think investors
that are going to just jump right back in and
chase what was working for most of the last two
years could be a bit disappointed.
Speaker 5 (30:28):
We're hearing more and more potentially a better recession. Michael,
Is that kind of in your six and twelve month
forecast at all?
Speaker 8 (30:35):
Well, I mean, obviously, Paul, I think that the risks
have gone up, you know, relating to the soft data
really weakening. If that was not underway, then obviously the
risks would be lower. It's sort of a shame because
you know, the FED has been able to preside over
this immaculate disinflation and soft landing that's been underway for
(30:57):
you know, the greater part of nearly two years now,
and that is a very rare historical event against all odds.
And we've had, you know, we've had a lot of
excitement about the AI story. Productivity has been picking up
over the last two years. I don't think that's really AI,
but you know, the reversal of pandemic oriented diortions, all
of that could be put at risk now.
Speaker 2 (31:19):
So yeah, one final question, Michael, we're out of time.
Critical is Nantucket and Martha's Vineyard real estate gonna crack?
Speaker 8 (31:30):
It's softening. You know, a lot of these super hot
markets are softening. But the gains that were seen from
twenty twenty through twenty twenty two into twenty three we're historic.
So we do have an affordability problem, and not just
in those super hot markets.
Speaker 2 (31:47):
May or Man's not fall into the Atlantic Michael Darta,
thank you so much. With Roth greatly appreciate it. This
warning a terrific brief there.
Speaker 1 (31:55):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven Eastern on Applecarplay and Android Auto with
the Bloomberg Business app. You can also listen live on
Amazon Alexa from our flagship New York station. Just say Alexa,
play Bloomberg eleven thirty.
Speaker 2 (32:12):
Today we celebrate Phil Tazuou come in here and we
would talk to him about the market, and he would
mention the word uncertainty fourteen times Tay's Asset Management. Today
we celebrate a really challenging book, and it's a particularly
important book if you're missing the retirement Ballet, The Behavioral Portfolio,
(32:34):
Managing portfolios and investor behavior given a complex economy. Congratulations
on well timing here to have the amount of uncertainty
we have. On the release of the Behavioral Portfolio, You've
got a whole section on the great dilemma of a
retirement undershoot. Are we investing too cautiously because we're scared stiff? Yeah?
Speaker 10 (33:00):
So what we're doing is we're ignoring a significant chunk
of history, Tom. I mean the two episodes I point out,
number one, the thirty six year bond bear market that
happened between forty five and eighty one. It's completely not
excluded from people's planning when they're planning for portfolios. But
obviously the big one is the Great Depression. And what
I do in the book is I do a visual
(33:20):
is what I call it visualization of what a balanced
portfolio would look like during the Great Depression. In the
first three years, it's down seventy two percent. If you're
taking distributions, then we have a five year bowl market,
but then another five year bear market.
Speaker 9 (33:35):
It's unnavigable.
Speaker 10 (33:37):
So what the entire investment community is doing, as brilliant
as it is, and it is brilliant, is deciding we're
going to look back fifty years and we're going to
base all of our planning based on that, and we're
going to exclude anything before that that looks like it
might be a nuclear.
Speaker 2 (33:50):
My mother and my father classic depression babies kept waiting
every five years for the next depression. That's, as a
general sense, say it didn't come because of credit expansion,
whatever the reason. Maybe World War two. Who knows? Are
you predicting a nineteen thirties We're not predicting it.
Speaker 10 (34:11):
But the one thing I'll say is that if you
look at certain elements, so for example, when's the last
time we had one hundred percent death of the GDP
and every developed nation in the world. Essentially, when's the
last time we had a declining demographic population in every
developed country in the world. And also, you know when
we've been at sort of record price to book like
(34:31):
we were in the Internet bubble burst. So I think
what you need to do is like say, look, we're
going to go ahead and include this history, and instead
of making a prediction for down markets, we're going to
say this could happen again. And by the way, based
on where all the data is right now, it might
actually be more probable than not.
Speaker 5 (34:48):
Talk to us about the sixty forty portfolio.
Speaker 6 (34:51):
I'm teeing up here, bro.
Speaker 10 (34:55):
Well, so you know the sixty forty portfolio is in
historical accident. Bonds were created to fund governments and later
fund companies. Stocks were created to share ownership. At some
point someone came along and said, let's put these two
things together. And sometimes it's an effective diversifier. Sometimes it's not.
But I think what's interesting is that, you know, Warren
Buffett said derivatives were a weapon of mass financial destruction.
(35:18):
Actually you can use derivatives, option contracts and things like
that to create real negative diversification. So our strategy is
what we call a behavioral portfolio. It's what I lay
out in the book. And what it does is it says,
take half of your equities and put it into hedge
equity strategies so that it can uncorrelate from negative economic
activity like the Great Depression. Yeah, and for the fixed
(35:39):
income side, be adaptive.
Speaker 2 (35:41):
Everyone listening worldwide is saying, okay, So this is the
fill T's gold exercise where I got right now a
linear extrapolation and gold, which is eighty ish nineteen eighty ish,
is gold part of the behavioral portfolio. It's not.
Speaker 9 (35:58):
You know, gold can be a great diverse fire.
Speaker 10 (36:00):
The problem is over the very long term it just
produces uh, you know CPI right, So you can have
moments in time when you get some appreciation, but if
what you need to have are instruments in the portfolio
that can produce verifiable, reliable, long term above inflation.
Speaker 2 (36:17):
Is that Apple? Is that Apple? I mean I got
a use of cash and free cash flow with Apple
that at least x X depression. I mean, Paul, if
we have a depression, we're still buying six toys a year.
But our big free cash flow quality stocks appropriate and
in a portfolio of gloom yeah.
Speaker 9 (36:38):
Absolutely, so I by the way, I'm not a doom
in gloomer.
Speaker 10 (36:41):
I'm a boom boom kaboomer. So you got to embrace
the boom A boom boom kaboomer. You embrace the boom,
you acknowledge the possibility of the kaboom.
Speaker 9 (36:48):
I want to create a kaboomometer boometer.
Speaker 10 (36:51):
But look, half of the equity's portfolio needs to be
in conventional stuff, and so the things that have done
so well, if you're positioned in that, plus your position
in it hedges on the other side too, you've still
got your sixty percent equity allocation just half of its
hedge in case.
Speaker 9 (37:05):
Things move down. But absolutely you need companies like Apple.
Speaker 6 (37:09):
How about alternatives?
Speaker 5 (37:11):
Where does where do alternatives fit into an investor's SPORTFOLI
is so one.
Speaker 10 (37:15):
Of the criteria in the book that I lay out
is what I said before. It needs to be a
reliable provider of growth or inflation. So think about one alternative,
which is managed futures. Managed futures is essentially just a
zero less than zero sum game with a group potentially
really good manager. So I would say that would not qualify.
So if you look under the hood and see what's
the engine of growth. If it could be something like
(37:37):
stocks or some other source of reliable growth, then you
go there, Phil.
Speaker 2 (37:41):
Thank you so much. Congratulations Phil, Tas there a lot
of work Tas asset management, the behavioral portfolio. I'll put
it out on Twitter and LinkedIn a very nice concise
read on something that I've talked about enough, which is
what if.
Speaker 1 (38:02):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple, Cocklay and Android
Auto with the Bloomberg Business app. You can also watch
us live every weekday on YouTube and always on the
Bloomberg terminal.
Speaker 2 (38:16):
The newspapers this morning just too much. What can we
say here? It goes on and on. What's going to
be a twenty five minute block, but we'll do it
right now, too quick. Lisa Manteo, what do you have?
Speaker 11 (38:26):
We have the condensed version for you. Okay, We've been
talking about retailers right bulking up their inventory so to
get ahead of President Trump's tariffs. So imagine companies like
Mike Beloved, Costco, Yes, Williams Sonoma. They are stockpiling goods.
But here's the difference to Wall Street Journal talk to
a couple experts, and they're saying, you know what, this
is risky because consumer spending has slowed, and now your
(38:46):
risk getting stuck with a ton of goods that are
just stocking up in an inventory. The ports in Los Angeles,
Long Beach, California. They're starting to see the influx already
from this. But the thing is, it's not just the tariffs.
They were all ready stocking up on the merchandise because
you had them, you know, worrying about the strike at
the at the port. Yes, and they were also worried about,
(39:06):
you know, trying to get ahead of the lunar New
Year before the factories closed across aged for like two weeks.
So it's this continuing like stockpile of things.
Speaker 2 (39:14):
See uncertainty to April second. I mean that's all those
Curt correct Sophie, who was stuck.
Speaker 6 (39:19):
So that inventory risk.
Speaker 11 (39:20):
Okay, So they're saying, you know what, it's not the
best idea. You know, they're taking a risk when they're
doing this, But I couldn't imagine stockpiling Costco goods. That's
a lot of stockpile.
Speaker 2 (39:31):
The eggs. Is the egg thing solved?
Speaker 11 (39:35):
Yeah, the prices are starting to go down, so that
is the good news.
Speaker 2 (39:38):
So, yeah, I paid twelve dollars. Everything was gone, Yeah,
sold except for the twelve dollar eggs.
Speaker 11 (39:46):
I'll give you the update. I'm heading to Costco.
Speaker 5 (39:49):
In the US D a large eggs prices paid to
producers Midwest. So we've had a big, big pullback.
Speaker 2 (39:56):
Here do you do this at home?
Speaker 6 (39:57):
I've got it here.
Speaker 2 (39:58):
You look the.
Speaker 5 (40:00):
It's down fifty five percent, just in like in the
last month.
Speaker 6 (40:04):
So we're down.
Speaker 2 (40:05):
You have a can of Budweiser in your head and
you're on the deck watching the tournamental on the deck.
It's waterproof.
Speaker 1 (40:12):
Next.
Speaker 11 (40:13):
Okay, I'm not sure what everyone at home with their
high schoolers are doing for spring break. My daughter is
playing softball. That's got she's spending her spring break. But
last week, hundreds of wealthy New York City high schoolers,
a dozen private elite schools, they had their annual retreat.
And their annual retreat is Paradise Island in the Bahamas. Yes,
you know, the luxury Atlantis resort. Yes, I've been there once.
Speaker 4 (40:36):
It's amazing.
Speaker 11 (40:38):
Gambling drinking age is eighteen also good. But they dined
it like they have no Boo restaurant, thirty four dollars,
shashimi sixty five dollars lobster salad. They get these networking
opportunities right, and the parents are dishing out nearly three
thousand dollars for five days networking opportunity. Because of the
(40:58):
alumni who went to the school, they get to intermingle
with them.
Speaker 2 (41:03):
This came up at the dining room tables.
Speaker 11 (41:06):
I did not know this existed because.
Speaker 2 (41:08):
We're not doing this. We had to get our hair rainbow.
You don't get your hair diet anymore. You get it
rainbow rainbow.
Speaker 11 (41:15):
Do you do the nose ring too?
Speaker 2 (41:17):
I wasn't allowed to see what it costs next. It's
a lot.
Speaker 11 (41:21):
It's a lot. Yeah, so okay, so we'll stick with luxury.
Here we go to more airlines. We talked about Air
France last week, like beefing up their new first class
we let premiere. So now we have British airlines joining
in the financial time say they're trying to regain like
the status, so they want to put in more than
seven billion dollars they're investing in this program. So they
(41:41):
have this commitment to luxury. Now first class passengers, they
have this suite that they can go to more than
six foot long bed. They enjoying the six foot long bed.
You can certainly fit in that stretch out. Enjoy the
trip from New York to London.
Speaker 5 (41:59):
How does that sound?
Speaker 2 (42:00):
It's a short trip though.
Speaker 7 (42:01):
The thing they don't.
Speaker 6 (42:02):
Get you get the way behind you.
Speaker 2 (42:04):
I can get, you know, your roll in the Singapore
or whatever. It's like five hours if the winds right,
It's like yeah, it's like it feels like, I mean,
do you want to spend that kind of money? I
read the premiere to Paris. I'm sorry, it's ten eleven
twelve grand round trip. That's a lot of that. You
get a next hour to Paris.
Speaker 6 (42:25):
Okay, it's not like going.
Speaker 2 (42:27):
You know, it's not like going to New York to
you knows.
Speaker 5 (42:31):
I can get the doubling faster exactly.
Speaker 2 (42:34):
Like your lingus is like you and over there, you're there.
Speaker 6 (42:37):
You love me?
Speaker 2 (42:38):
Okay, Lisa Mateo, thank you so much on the newspapers.
We'll see you in the Bahamas.
Speaker 1 (42:44):
This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live each
weekday seven to ten am. Easter and on Bloomberg dot com,
the iHeartRadio app tune In, and the Bloomberg Business app.
You can also watch us live every weekday on YouTube
(43:04):
and always on the Bloomberg terminal
Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Surveillance Podcast. Catch us live weekdays at seven am Eastern
on Apple car Play or Android Auto with the Bloomberg
Business app. Listen on demand wherever you get your podcasts,
(00:25):
or watch us live on YouTube.
Speaker 2 (00:27):
This is really good. We got some precious timingre with
Sophia Drosi's working for point seventy two in New York.
But you know, we've we've got to do this. I mean,
it's one of the most fractious marriages out there, Steve Cohen.
Of course a point seven to two has a modest
New York Mets too. You have a Red Sox Mets marriage.
Speaker 3 (00:45):
Is that true?
Speaker 4 (00:47):
Yes, it's a mixed marriage LEAs.
Speaker 2 (00:51):
Yes.
Speaker 4 (00:52):
However, I did adopt the Patriots as my football team
because that was also, you know, the Michigan connection. So
for me, when my husband said I'm a Patriots fan,
that's a deal breaker for me. I was like Tom Brady,
I knew since he was number ten.
Speaker 2 (01:08):
How's your husband doing? I Soto in a Mets uniform
is un American? Is he holding up? I mean the meds?
Speaker 4 (01:17):
You know, you know, the Mets nation is very welcoming.
So when we do go to Cityfield, my husband will
wear his red Sox hat. The Mets nation super welcoming.
Speaker 2 (01:26):
Very a good update there, and of course we are
ready for the baseball season. We're also ready Sophia drosis
for an economy and your research note says it all.
I think you use the word uncertainty forty seven times.
What is the character of our economic and market uncertainty?
Speaker 4 (01:44):
Yes, well, uncertainty is something that we haven't had to
deal with until more recently on the policy front, So
last year was a year where there was fiscal spending,
there was a preemptive FED easing, It was very positive
tailwinds for the market, and we came into this year
with the markets I think for the first time in
(02:04):
a long time, investors were looking at the glasses half
full and taking kind of the upside on economic growth.
And the policy uncertainty I think has permeated that a bit.
So we came into the year with a lot of
expectations for deregulation and animal spirits, and the sequencing has
(02:25):
brought perhaps the more onerous parts of policy up first,
with the uncertainty over trade how it will end up
how will it affect the economy? And you know, we're
still looking at that April to deadline and not quite
sure exactly how things are going to pan out or
if that will be a clearing event.
Speaker 5 (02:46):
So one of the issues coming into this year for
the markets was the Fed's probably not going.
Speaker 6 (02:50):
To do a whole lot to help these markets. It's
going to be earnings driven.
Speaker 5 (02:53):
So therefore I need my economy to be shroun How
do you think about the economic outlook and how that
might be it challenge potentially for the earning story.
Speaker 4 (03:03):
Yes, well, on the on the earnings front, we are
coming off a period of time where corporate margins have
been at record highs and earnings have been quite strong.
And if we're coming into a period where economic growth
is expected to moderate and there is a lot of
uncertainty facing corporations with regard to tariffs, their input costs,
(03:24):
and the outlook for the US consumer, it seems more
likely that we're going to see a moderation in corporate profits.
And I think that this first batch of earnings reports
at the end of April will be very key for
the market. Directionally, I look.
Speaker 2 (03:41):
At what you just said, clearing events folks, this is
a Midwest agreed right here. Michigan and Anna Arbor was
basically East Chicago. It comes back to ninety and uncertainty
and the you know, it almost folds into what Friedrich
Kayak would say, which is, you've got these clearing events
where things clean out. So on April third, you suggest
(04:02):
we may have enough clarity to go along.
Speaker 4 (04:05):
Unfortunately, I don't think we'll have the clarity on April third.
So the issue has been on April second, we are
anticipating to get a sense of the blueprint on the
reciprocal tariffs, but the commentary from the White House has
been that there's likely to be ongoing tariff threats in
terms of specific industries and products. So April on April
(04:30):
two will know a bit about this reciprocity that will
be going on, but we won't know enough about what's
going to happen with specific sectors.
Speaker 2 (04:38):
Yeah, I'm not without giving away the point seven to
two cards. But the basic idea here is with this
colossal uncertainty is and then this is a bit off
your remit, but I'm going to ask anyways and be rude.
Is cash a preferred asset right now?
Speaker 4 (04:53):
Well? I've been looking at things like gold and cash.
Gold has been performing incredibly well, and so in an
environment where investors might see some risks, ask Thatt. Allocation
theory would suggest trying to increase some of your safer holdings.
And there are different views on treasuries and the fiscal trajectory.
(05:13):
So investors, I think have increasingly been looking at things
like cash and gold.
Speaker 2 (05:18):
Oh, I mean, I mean talk about gold. Crazy Wan
Sodo seventy five million dollars signing bonus for him seven
hundred and sixty five thousand guarantee. Excuse me, not off
seven hundred and sixty five million guaranteed and he's underpaid
fifty one million a year. Sure, he's got a base
of forty six.
Speaker 6 (05:38):
Large I can hit.
Speaker 2 (05:41):
I mean, Oh, it's correct. It's like there's a second
coming of way backs over a little more in Power City.
Speaker 6 (05:48):
Feel no questions, great, Sophia, what'll be different if.
Speaker 2 (05:51):
We talk enough about the Mets, can we get back?
Speaker 6 (05:53):
We'll get six seats?
Speaker 2 (05:55):
Well, one more question, get it in there quick?
Speaker 6 (05:57):
Fixed income? Do I take credit risk or not? Here?
Do you think?
Speaker 4 (06:01):
So it's an environment where I think we've started to
see a little bit of a pickup, I think in
the delinquencies and the like, but the types of credits
that are in public markets are typically relatively strong. I
think the bigger question is what's going to happen with
the outlook for the economy and what does that mean
for all us based risk assets.
Speaker 2 (06:22):
We go to Fenway just gaze out at the Ted
Williams reds yea Sophia drosis. Thank you so much, A
point as seven to just fabulous over the years with
the wonderful synthesis of economics and the impact on our investment.
Speaker 1 (06:37):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Corplay and Android
Auto with the Bloomberg Business app. You can also listen
live on Amazon Alexa from our flagship New York station,
Just say Alexa Play Bloomberg eleven thirty joining.
Speaker 2 (06:55):
Us right now, you folks. It's like I'm a Choppoliver.
I mean, I mean, it's other is to it? Sweete
and Tom Keane and we are after her conversation with
the legend Kenny pulcarry over at the New York Stock Exchange.
That's trader talk. That was yesterday Kay, what do you
say to Ken Paul Caerry that you don't say to me.
I mean that's like like in and out of the market, right, Yeah.
Speaker 7 (07:17):
Look, it is a good reminder that there's all these
short term movements in markets that are driving the volatility
that we're experiencing. But you have to keep the long
term in mind, which is why we've been continuously saying
to clients it's not where the S and P five
hundred ends at the end of this year, it's what
you do with the volatility along the way.
Speaker 2 (07:35):
We traders getting slammed as a general statement, I mean
trying to gain this market right now, is anybody making money?
Speaker 7 (07:41):
Well, we've certainly seen traders move from being max long
equities at the beginning of this year ninety eighth percentile
kind of positioning to that's now fall into the twenty
six percentile, So there's probably been some pain along the way.
Speaker 2 (07:54):
Paul Cary looks like out of Central Casting, Game of
Thrones or Outlander or one of those things. I mean,
this is he retired.
Speaker 3 (08:02):
No, he's trucking, he's trunckling.
Speaker 2 (08:04):
Good morning to Ken punk Car and everybody down with
the New.
Speaker 5 (08:07):
York Salma bum this guy back in the day. Your
note is the end of US exceptionalism? Is it the
end of US exceptionalism? Or do we still have room
to grow?
Speaker 6 (08:15):
What do you think?
Speaker 7 (08:16):
So what we what we wrote about is this idea
is that it's very easy to ascribe a narrative to
price action. Everybody looks at the weakness in the US
dollar year to date, they look at the outperformance of
Europe versus the rest of the of the US, and
they say it must be the end of US exceptionalism.
But if you look it really is a function of
the fact that we started the year with a massive,
(08:37):
very very crowded dollar long position that has since been unwound.
Traders are now slightly short the dollar, and we actually
think that you could see some dollars stability here now
that you've burned off all of that crowded positioning.
Speaker 5 (08:50):
Interesting, So what do I mean when you talk to
your clients here again, we had that peaked to trough
draw down in the S and P five hundred of
about ten percent. Did they view that as a healthy
pullback in an otherwise positive market or is.
Speaker 6 (09:04):
It something else?
Speaker 7 (09:05):
We'd hope that we've talked to clients enough and set
up the potential for volatility that there is a degree
of calm when we see it. We often talk that
volatility is a feature of being an equity investor and
that we should see it as opportunity. Now we think
the other reason why there's been this calm is that
if you look at a seventy thirty portfolio for AQUI,
(09:25):
so that's an international balance portfolio including the US and
the AGG you're still.
Speaker 3 (09:31):
Up on the year.
Speaker 7 (09:32):
So, yes, we've seen the US stock market pull in,
but the end of the day, it's not been cataclysmic.
Speaker 2 (09:38):
Are we getting used asked Michael dart I alluded to
this with Michael Data more directly with Cam Dawson. Are
we needing to slot in the understanding that equities are
a single digit return in our double digit return addiction?
Speaker 7 (09:52):
Yeah, I think that that's very very likely. Is that
we've been in this world a very strong double digit
returns the last two years. Investors got conditioned to expecting that,
which is why you saw these estimates for seven thousand
plus in the S and P. Five hundred. That's very
hard to do when you start the year at twenty
two point six times forward earnings you start the year
(10:13):
at the ninetieth percent tile of positioning.
Speaker 3 (10:15):
So our best case.
Speaker 7 (10:16):
Scenario for twenty twenty five is that you get growth
upside that's equivalent to earnings growth. But that assumes that
multiple stay constant, and we're not sure if you get
multiple stay in constant in a world where you're cutting
earning sestaments and there's some risk off flavor.
Speaker 5 (10:33):
How about Europe's had a heck of a start to
the year here and that story we had heard kind
of last year where European and international money coming into
the US market had a little bit of a reversal
of that. How do you think about the performance of
European equities?
Speaker 7 (10:46):
We do think that the easy part is over for
European equities. You started at thirteen and a half times forward,
now you're training at fifteen times. Fifteen times doesn't seem
like a lot when you compare it to the twenty
times in the US, but it is the high of
the valuation range and the pre pandemic range for Europe.
So it really comes down to earnings delivering. Quite interestingly,
earnings for Europe have continuously been getting cut even as
(11:09):
we've been seeing this rally so interesting.
Speaker 3 (11:11):
It's a show me story right now.
Speaker 2 (11:13):
The show me story is Cameron Dawson with us this
morning with New Edge Wealthy. Welcome all of you in
your commute across the nation. Good morning, ninety two nine
FM in Boston, ninety nine one FM and Washington. Bloomberg
eleven three to zero in New York. An ample conversation
with Cam Dawson on YouTube. Subscribe to Bloomberg Podcast. Even
(11:33):
Cam Dawson subscribed.
Speaker 5 (11:35):
It's just like savvy put us up to forty two
is amazing exactly. You know, I'm looking at the relative
strength index, the RSI on the Bloomberg Criminal for the
S and P five hundred. Man, we kind of bottomed
back just like ten days ago, but now we're moving
higher here.
Speaker 6 (11:50):
I mean, how did these technicals feel? It feels like
is the sell off? Are we done with this cell
off here? Or how's that? How do you think about it?
Speaker 7 (11:57):
So we certainly got over sold enough to bounce, which
is why we think we're bouncing today and yesterday.
Speaker 3 (12:03):
What the question is what happens.
Speaker 7 (12:05):
When you hit resistance and are you having enough momentum
to break through that wall of resistance which we think
is around the fifty nine hundred and six thousand level
that you're downward sloping fifty day moving average. You have
been losing momentum in this market really for the last
nine months. If you look at things like a weekly MACD.
So we do think that this is an environment that
(12:27):
you could roll at resistance, you're going to.
Speaker 2 (12:29):
Go right there because I hate it. I hate I'm
not a MACD fan. Folks who won't go into the
nuances of it. Sixteen hundred Pennsylvania is not looking at
the weekly mac D. I mean they're not. The bottom
line is we can't lift until we get political clarity
right exactly.
Speaker 7 (12:47):
Why would we trade back up to all time highs
when we've cut earnings estimates since and we have valuations
that would have to go to new highs to get there,
Which is why we think this year at best is
that wide choppy rain. Because of the degree of uncertainty
and because of the potential downsides to growth, it's depressing.
Speaker 2 (13:05):
MAG seven. Are they still the MAG seven? Even ex Tesla.
Speaker 7 (13:08):
We've been raising the question if they're more like the
LAG seven we talked I think last week.
Speaker 2 (13:12):
Do you see a lessening of their cash flow free
cash flow.
Speaker 7 (13:16):
It is happening because of the big uptick within capex.
You are seeing free cash flow margins come in. Now,
these free cash flow margins are still so much better
than you can get in the rest of the market exactly.
So do they become a safe haven when people have
questions about growth o their places? Very possibly. The valuations
aren't in stretches. They are, but the market cares about
second derivatives. The market cares about the slow down in
(13:38):
earnings growth, which is inevitable when they had such massive
earnings growth over the past two years.
Speaker 2 (13:43):
But you said the free cash flow will sustain even
if earnings come down, But it is. I mean, Zuckerberg
is going to manage the P and L statement right.
Speaker 7 (13:51):
And they're sitting on massive, huge cash balances as well
that they could deploy to repurchase shares.
Speaker 2 (13:56):
So sore they the new Deminian Electric? You're too young
to know that? Would you get me someone in here
older that actually knows what D is? Are they the
new utility?
Speaker 3 (14:07):
That is an interesting question.
Speaker 7 (14:08):
If they become such monopolized businesses that they are effective utilities,
then it raises the question of do they get regulated
like utilities do, and do we see those free cashlow
margins compress over time because of the fact that they
act like utilities.
Speaker 2 (14:23):
I mean, Paul, you're the only one to extend in
this building that knows what Florida Power and Light is.
Speaker 5 (14:28):
Dominion Energy based in Richmond, Virginia.
Speaker 6 (14:29):
Home dividend grow exactly.
Speaker 5 (14:33):
Earnings are important for this market because I'm not sure
the FED is going to give us a whole lot
this year, maybe one, maybe two rate cuts, so that
puts more even more pressure on earning story. And you
mentioned that earnings estimates are coming down. How risk are
the numbers that are out there?
Speaker 6 (14:47):
Do you think so?
Speaker 7 (14:48):
We think the biggest risk is possibly within financials. You've
been seeing every sector get cut. Financials have seen less,
earnings revisions lower. But think about the setup for financials
coming out of the LI people said a steeper yield curve.
We're getting M and A, we're getting IPOs, we're getting deregulation.
Speaker 3 (15:05):
We've gotten none of that.
Speaker 7 (15:07):
So we do wonder if that's an area of risk
going into first quarter earning.
Speaker 2 (15:11):
Okay, Shanghai, good morning, good evening, I should say Shanghai,
China this morning listening in is China the opportunity, Sophia
Ross and Mike Darter, we're talking.
Speaker 7 (15:22):
About, well, China certainly has that valuation opportunity where it
still trades such a huge discount to the US.
Speaker 3 (15:28):
It's underloved, it's been called on you're going back.
Speaker 2 (15:31):
To a textbook eight nine, twelve ten percent allocation to international.
Speaker 7 (15:35):
So we are neutral international. We've said, you just can't
ignore the degree of outperformance in the US underperformance and international,
but we don't see signs yet that justifies going to
an overweight position.
Speaker 6 (15:47):
What are we doing in fixed income? Here?
Speaker 5 (15:49):
At my two year treasuries now back above four percent?
Speaker 6 (15:53):
Do I stay there? Do I take some credit risk?
Where do I go?
Speaker 7 (15:55):
So we don't think again that you're getting compensated for
mostly high yo credit risks. So we move to reduce
some positioning within high yield just to say, you know,
let's write out some of the equity volatility. But we
want to be able to take some risk out of
portfolios in the event that these growth fears do come
to pass.
Speaker 5 (16:14):
So in the equity space, what screens well for you
guys these days?
Speaker 7 (16:18):
So we are finding lots of opportunities within international markets,
but very selectively in that big, beautiful quality world. We're
finding opportunities within mid caps as well, and then value
lots of opportunities where you still see areas of the
market that create it, discounts that have good free cash flows,
have good balance sheets, and it's just maintaining that valuation discipline.
Speaker 3 (16:40):
Which we think is absolutely critical. At one point.
Speaker 2 (16:42):
What's the key attribute of those opportunities.
Speaker 7 (16:46):
The key attribute is that they are not trading at
stretch valuations, and they have stable learnings through cycles, and
they have good free cash flow that is potentially seeing
better free cash flow margins.
Speaker 3 (16:56):
So it's about being very picky.
Speaker 7 (16:58):
We think that there's a big divert between the winners
and the losers in this kind of environment.
Speaker 2 (17:02):
This guy in Shanghai, it's child abuse. He's got his
four year olds watching it. Look at that in Shanghai.
Can you see it, folks, that's cruel and unusual.
Speaker 5 (17:13):
Crash man blocking shalans in the morning.
Speaker 2 (17:15):
Full disclosure, folks, it's my grandchildren. We send good morning
to the rugrats in Shanghai this morning. But you know,
agatting back to the international and Pacific rim, I got
too much gloom out there. I got guest after guests
read me the uncertainty act. It clears at some point.
How do you prepare for the moment where the uncertainty
(17:37):
drifts away?
Speaker 7 (17:38):
Well, I don't think that you can wait for necessarily
confirmation from the data. The important things is that price
will lead the data, and so as we're starting to
see some of these turns and trends, we have to
be there, which is why we move to a neutral
position within international about a year ago, saying it's going.
Speaker 3 (17:55):
To happen, you know maybe this time.
Speaker 5 (17:58):
So is our federal reserve to help us this year?
Are you still kind of that's a question.
Speaker 6 (18:02):
A couple of cuts.
Speaker 2 (18:03):
All this talk, folks, Sweeny, just to ask the money.
Speaker 7 (18:06):
Question, we're not counting on the Fed for anything. We
don't think that the labor market is going to be
weak enough to justify them them cutting. We don't think
that inflation is going to move down fast enough to
give them the degrees of freedom to cut, which means
that you get used to these higher for longer rates.
And that's why we think that you have this continuous
pressure on weak balance sheet companies that you should fade
(18:29):
any strength.
Speaker 2 (18:30):
So what's your money unemployment rate?
Speaker 7 (18:33):
So we don't think that the FED will cut unless
we see mid fours on the unemployment rate four point four,
four four five.
Speaker 2 (18:42):
It's not that far away.
Speaker 3 (18:44):
It's not that far away.
Speaker 7 (18:45):
But we don't see this sharp deterioration in the labor
market happening at this point. Yes, we see the sentiment
around labor deteriorating, but we've not seen companies move to
full out, full force layoffs that you just to just
that there still is that underlying stability for now.
Speaker 6 (19:03):
Yeah, So, I mean it's interesting.
Speaker 5 (19:05):
I mean one of the questions is I think for
a lot of people is do I take this pullback
to buy stocks here or do I just more uncertainty
out there, because it's just one tweet away from another
pullback in the market.
Speaker 7 (19:19):
If you're buying stocks because you think it's going to
be a v shape recovery and is up into the
right with the volatility, it's the wrong move. But if
you're buying stocks to say I'm going to own this
for a long time, a step into volatility, we think
you can still buy weakness.
Speaker 2 (19:31):
All of China's listening this morning to Cam Dawson. The
entire nation just went to cash. Cam Dawson. Thank you
so much, New Edge Wealth.
Speaker 1 (19:42):
This morning, you're listening to the Bloomberg Surveillance Podcast. Catch
us live weekday afternoons from seven to ten am Eastern
Listen on Applecarplay and Android Otto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 2 (20:00):
Michael Darta is with Roth Capital and years ago he
came out of the Wisconsin combine and got a job
with one of the rock stars of linking markets into economics,
Jude Waninski. And Darta just penetrated right through with brilliant
research notes melding investment into economics. Michael Darta, wonderful to
(20:22):
have you on the show today. I'm looking at Atlanta GDP.
Now I've got a real GDP estimate negative. Maybe it's
a little positive. I got PCE coming in with some
kind of disinflation. Are we in the middle of a
nominal GDP collapse?
Speaker 8 (20:41):
Thanks for having me on, Tom. I don't think nominal
GDP is collapsing. I think what we're facing here is
a series of adverse supply side shocks that will slow
real growth and temporarily raise inflation. And you know that
is unfavorable because for any nominal growth rate. You want
(21:04):
most of it to be real, not inflation. And you
can see that embedded in the Fed's forecasts with the
SEP last week, where they reduced their expectation for real
GDP for the year, but they increased their expectation for inflation.
Speaker 2 (21:21):
Yeah, saw that, and they reduced the.
Speaker 8 (21:23):
Real growth expectation about twice as much as they increased
the inflation expectation for the year. So nominal growth expectations
didn't collapse, but they have eased implicitly. That's looking for
about four point four percent nominal growth. That's certainly below
the five percent rates that we've been seeing recently, consistent
(21:45):
with the soft landing, and less of it's going to
be read so it's a bit of its bag inflationary
flavor there time.
Speaker 2 (21:52):
So Michael, bring it right over to the investment world.
Does that re mean reduced revenues where I've got operating
margins coming in and all of a sudden, Sweeney's getting
gray hair because earnings are coming in.
Speaker 9 (22:04):
Yeah, that's exactly what it means.
Speaker 8 (22:05):
So slower top line growth and higher costs, and you
know that is a risk to these very elevated expectations
for S and P five hundred earnings this year. At
the start of the year, analysts we're expecting more than
fourteen percent earnings growth. Our model that uses high yield
debt spreads in the new orders index from the ISM
(22:27):
data suggests that, you know, low single digits is more likely.
And you know, unfortunately, you have pretty high evaluation still
on those lofty expectations. So you know, we'll see if
markets can continue to look through this uncertainty. We've rallied
over the last few sessions, but you know, I think
we still might have some volatility ahead.
Speaker 5 (22:50):
So it seems like one of the key dates coming
up here, Michael, is April second, when we get I guess.
Speaker 6 (22:55):
A clear picture of some of these tariffs here.
Speaker 5 (22:58):
Just stepping back and thinking about tariffs, is it a
good thing to bring more manufacturing back to the US.
Is that a realistic and a meaningful goal of tariffs?
Speaker 6 (23:11):
Do you think?
Speaker 2 (23:13):
Well?
Speaker 8 (23:13):
The administration certainly thinks it, seems to think so. They
want to do it for so called critical industry of
the US as an emergency or goes to war. You know,
they want those critical industries here and able to fire
up at a moment's notice. But in economics, everything comes
with a trade off, and so if we're deploying capital
(23:36):
and labor into industries that were less efficient at than
they would be in other places, then those same resources
can't go into making other export goods. So there is
a second and third order drag on efficiency productivity. So
the question is, you know, is it worth it to
give that up? And that's what markets are grappling with now.
Speaker 5 (24:00):
One of the I guess the concerns here, I guess
the media concerns Michael, this marketplace is the thoughts of
stagflation where the growth is kind of slowing, inflation's kind
of creeping back up, maybe due to some.
Speaker 6 (24:13):
Of these tariffs. Who knows.
Speaker 5 (24:15):
Is stagflation something we should be worried about?
Speaker 8 (24:19):
Yeah, it certainly has that flavor because I think after
the election there was a lot of optimism that whatever
happened on trade would be offset by fiscal policy and deregulation,
and so far we don't really know. You know, the
deregulation piece is kind of a question mark. You know,
(24:40):
the administration's going very hard and fast with the tariffs,
a bit of an on again, off again, on again approach,
But I think that really challenges some of the assumptions
coming into the year, which were that the tears were
simply a bluff or that would be offset by deregulation
and potential tax reform. Very difficult to see any kind
(25:01):
of a big eating a physical policy considering the constraints
and deregulating crypto, I think is highly unlikely to offset
Moot Hawley two point zero.
Speaker 2 (25:12):
Torsten Slack apologlobal management channeling Paul Sweeney, I say puts
out a note moments ago stagflation risk rising. Michael Dharta
giving us some good knowledge and good morning. An extended
discussion with Michael Darda Jim Bianco coming up in at
nine o'clock. Our mister Darty, are on the markets, linking
in to our economy. And now, folks, the Darta rabbit
(25:35):
hole does M one M two m O money supply
monetorism Michael Darta doesn't matter anymore.
Speaker 8 (25:45):
Oh, I love that question, Tom. You know, I'm one
of the few that still watches those indicators, right, and
so we had a huge explosion in the monetary aggregates
going into the high inflation period in twenty twenty one.
Speaker 2 (25:57):
Twenty stimulus come on, we still you.
Speaker 9 (26:00):
Know, yeah, we did massive you.
Speaker 8 (26:02):
Know, stimula was plural, Okay, Yeah, So they were good
proxies for massive stimulus and a huge ramp and nominal
relative to the productive capacity of the economy, which was
constrained during the pandemic. Right, Productivity basically was frozen for
two years, and we had double digit increases in nominal
(26:23):
demand on the back of all that stimulus. So that's
your inflation story. And in the wake of the FED
tightening five hundred and thirty plus basis points, those aggregates
slowed very sharply. It turns out, you know, the FED
was able to preside over this once in a lifetime
soft landing. So nominal slowed, but it didn't crash. This
(26:44):
bly side of the economy picked up after twenty twenty two.
That's a critical piece of the soft landing and why
the slowdown in those aggregates I think did not foreshadow
or recession this time. And now we're putting that at
risk with apply side disturbances, which are frankly series of
self inflicted blows.
Speaker 5 (27:06):
Michael, you know we're going to get you miss sentiment data.
This fraudiya.
Speaker 6 (27:10):
A couple of weeks ago, the.
Speaker 5 (27:11):
University of Michigan data really suggested that people are concerned.
The current sentiments are really took a hit here. Inflation
expectations moved decidedly higher. When you see soft data like that,
does that get your attention?
Speaker 8 (27:27):
Yeah, it's you know, the survey data is really a
set of inauspicious recent outcomes, with confidence pulling back and
inflation expectations shooting up. So that's not really what you
want to see. Obviously, we're going to get some Conference
Board data today for March, and that data has also
been soft, not quite as you know weak as the
(27:49):
you mish data. But the key question is is this
soft data a harbinger of much weaker hard data coming
down the pike. And we just don't have the answer
to that yet, and we won't even this week. We've
got some February data coming up on Friday on personal
income and consumption and the deflators. The FED watch is
(28:10):
but still a little bit stable on some of this
hard data, and that's really the risk that markets face.
We know the soft data doesn't always translate one for
one into hard data, but obviously the risks of the
hard data rolling over with this hit to confidence that increased.
Speaker 2 (28:27):
I mean Michael. Right now we've cratered on the standard
and pours five hundred. I think're down seven percent or
some silly number like that. David Constant and the crew
at Gold and Sacks might just splash with some fancy
mathematics to put the regression trend of earnings down to
be polite low single digit. Do you have an almost
(28:49):
a data assumption of a single digit stock market forward
or do you maintain double digit growth with operating leverage?
Speaker 8 (28:59):
I think it's going to be really hard to maintain
that double digit growth. I mean, if you just do
a super basic Tom Keen scatterplot regression on forward pes
in ten year future returns, you know, coming into the
year with the forward pe twenty two x, you know,
typically that's a level where you see very weak, potentially
(29:22):
even negative ten year forward returns. So the higher the valuations,
the lower the longer term forward returns are. And you know,
that's a little bit of a different game than the
you know, than the chase that's been on with momentum.
And then more broadly, I do think that these disruptions
to the supply side eat away at the earnings expectations,
(29:44):
and so the high valuations are pricing in good you know,
good times continuing, and now we're starting to question that,
which is, you know, why we've seen more volatility in
this pullback, which frankly has been pretty minimal so far
in the s and P five hundred, Even at the
lows on the thirteen, the march was still above a
twenty forward multiple, and you know that's that's still ten
(30:07):
twelve percent above the ten year moving average, which you know,
I think is very generous because the tenure moving average
is well above longer term historical averages. So these this
is a high valuation market still, and I think investors
that are going to just jump right back in and
chase what was working for most of the last two
years could be a bit disappointed.
Speaker 5 (30:28):
We're hearing more and more potentially a better recession. Michael,
Is that kind of in your six and twelve month
forecast at all?
Speaker 8 (30:35):
Well, I mean, obviously, Paul, I think that the risks
have gone up, you know, relating to the soft data
really weakening. If that was not underway, then obviously the
risks would be lower. It's sort of a shame because
you know, the FED has been able to preside over
this immaculate disinflation and soft landing that's been underway for
(30:57):
you know, the greater part of nearly two years now,
and that is a very rare historical event against all odds.
And we've had, you know, we've had a lot of
excitement about the AI story. Productivity has been picking up
over the last two years. I don't think that's really AI,
but you know, the reversal of pandemic oriented diortions, all
of that could be put at risk now.
Speaker 2 (31:19):
So yeah, one final question, Michael, we're out of time.
Critical is Nantucket and Martha's Vineyard real estate gonna crack?
Speaker 8 (31:30):
It's softening. You know, a lot of these super hot
markets are softening. But the gains that were seen from
twenty twenty through twenty twenty two into twenty three we're historic.
So we do have an affordability problem, and not just
in those super hot markets.
Speaker 2 (31:47):
May or Man's not fall into the Atlantic Michael Darta,
thank you so much. With Roth greatly appreciate it. This
warning a terrific brief there.
Speaker 1 (31:55):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven Eastern on Applecarplay and Android Auto with
the Bloomberg Business app. You can also listen live on
Amazon Alexa from our flagship New York station. Just say Alexa,
play Bloomberg eleven thirty.
Speaker 2 (32:12):
Today we celebrate Phil Tazuou come in here and we
would talk to him about the market, and he would
mention the word uncertainty fourteen times Tay's Asset Management. Today
we celebrate a really challenging book, and it's a particularly
important book if you're missing the retirement Ballet, The Behavioral Portfolio,
(32:34):
Managing portfolios and investor behavior given a complex economy. Congratulations
on well timing here to have the amount of uncertainty
we have. On the release of the Behavioral Portfolio, You've
got a whole section on the great dilemma of a
retirement undershoot. Are we investing too cautiously because we're scared stiff? Yeah?
Speaker 10 (33:00):
So what we're doing is we're ignoring a significant chunk
of history, Tom. I mean the two episodes I point out,
number one, the thirty six year bond bear market that
happened between forty five and eighty one. It's completely not
excluded from people's planning when they're planning for portfolios. But
obviously the big one is the Great Depression. And what
I do in the book is I do a visual
(33:20):
is what I call it visualization of what a balanced
portfolio would look like during the Great Depression. In the
first three years, it's down seventy two percent. If you're
taking distributions, then we have a five year bowl market,
but then another five year bear market.
Speaker 9 (33:35):
It's unnavigable.
Speaker 10 (33:37):
So what the entire investment community is doing, as brilliant
as it is, and it is brilliant, is deciding we're
going to look back fifty years and we're going to
base all of our planning based on that, and we're
going to exclude anything before that that looks like it
might be a nuclear.
Speaker 2 (33:50):
My mother and my father classic depression babies kept waiting
every five years for the next depression. That's, as a
general sense, say it didn't come because of credit expansion,
whatever the reason. Maybe World War two. Who knows? Are
you predicting a nineteen thirties We're not predicting it.
Speaker 10 (34:11):
But the one thing I'll say is that if you
look at certain elements, so for example, when's the last
time we had one hundred percent death of the GDP
and every developed nation in the world. Essentially, when's the
last time we had a declining demographic population in every
developed country in the world. And also, you know when
we've been at sort of record price to book like
(34:31):
we were in the Internet bubble burst. So I think
what you need to do is like say, look, we're
going to go ahead and include this history, and instead
of making a prediction for down markets, we're going to
say this could happen again. And by the way, based
on where all the data is right now, it might
actually be more probable than not.
Speaker 5 (34:48):
Talk to us about the sixty forty portfolio.
Speaker 6 (34:51):
I'm teeing up here, bro.
Speaker 10 (34:55):
Well, so you know the sixty forty portfolio is in
historical accident. Bonds were created to fund governments and later
fund companies. Stocks were created to share ownership. At some
point someone came along and said, let's put these two
things together. And sometimes it's an effective diversifier. Sometimes it's not.
But I think what's interesting is that, you know, Warren
Buffett said derivatives were a weapon of mass financial destruction.
(35:18):
Actually you can use derivatives, option contracts and things like
that to create real negative diversification. So our strategy is
what we call a behavioral portfolio. It's what I lay
out in the book. And what it does is it says,
take half of your equities and put it into hedge
equity strategies so that it can uncorrelate from negative economic
activity like the Great Depression. Yeah, and for the fixed
(35:39):
income side, be adaptive.
Speaker 2 (35:41):
Everyone listening worldwide is saying, okay, So this is the
fill T's gold exercise where I got right now a
linear extrapolation and gold, which is eighty ish nineteen eighty ish,
is gold part of the behavioral portfolio. It's not.
Speaker 9 (35:58):
You know, gold can be a great diverse fire.
Speaker 10 (36:00):
The problem is over the very long term it just
produces uh, you know CPI right, So you can have
moments in time when you get some appreciation, but if
what you need to have are instruments in the portfolio
that can produce verifiable, reliable, long term above inflation.
Speaker 2 (36:17):
Is that Apple? Is that Apple? I mean I got
a use of cash and free cash flow with Apple
that at least x X depression. I mean, Paul, if
we have a depression, we're still buying six toys a year.
But our big free cash flow quality stocks appropriate and
in a portfolio of gloom yeah.
Speaker 9 (36:38):
Absolutely, so I by the way, I'm not a doom
in gloomer.
Speaker 10 (36:41):
I'm a boom boom kaboomer. So you got to embrace
the boom A boom boom kaboomer. You embrace the boom,
you acknowledge the possibility of the kaboom.
Speaker 9 (36:48):
I want to create a kaboomometer boometer.
Speaker 10 (36:51):
But look, half of the equity's portfolio needs to be
in conventional stuff, and so the things that have done
so well, if you're positioned in that, plus your position
in it hedges on the other side too, you've still
got your sixty percent equity allocation just half of its
hedge in case.
Speaker 9 (37:05):
Things move down. But absolutely you need companies like Apple.
Speaker 6 (37:09):
How about alternatives?
Speaker 5 (37:11):
Where does where do alternatives fit into an investor's SPORTFOLI
is so one.
Speaker 10 (37:15):
Of the criteria in the book that I lay out
is what I said before. It needs to be a
reliable provider of growth or inflation. So think about one alternative,
which is managed futures. Managed futures is essentially just a
zero less than zero sum game with a group potentially
really good manager. So I would say that would not qualify.
So if you look under the hood and see what's
the engine of growth. If it could be something like
(37:37):
stocks or some other source of reliable growth, then you
go there, Phil.
Speaker 2 (37:41):
Thank you so much. Congratulations Phil, Tas there a lot
of work Tas asset management, the behavioral portfolio. I'll put
it out on Twitter and LinkedIn a very nice concise
read on something that I've talked about enough, which is
what if.
Speaker 1 (38:02):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple, Cocklay and Android
Auto with the Bloomberg Business app. You can also watch
us live every weekday on YouTube and always on the
Bloomberg terminal.
Speaker 2 (38:16):
The newspapers this morning just too much. What can we
say here? It goes on and on. What's going to
be a twenty five minute block, but we'll do it
right now, too quick. Lisa Manteo, what do you have?
Speaker 11 (38:26):
We have the condensed version for you. Okay, We've been
talking about retailers right bulking up their inventory so to
get ahead of President Trump's tariffs. So imagine companies like
Mike Beloved, Costco, Yes, Williams Sonoma. They are stockpiling goods.
But here's the difference to Wall Street Journal talk to
a couple experts, and they're saying, you know what, this
is risky because consumer spending has slowed, and now your
(38:46):
risk getting stuck with a ton of goods that are
just stocking up in an inventory. The ports in Los Angeles,
Long Beach, California. They're starting to see the influx already
from this. But the thing is, it's not just the tariffs.
They were all ready stocking up on the merchandise because
you had them, you know, worrying about the strike at
the at the port. Yes, and they were also worried about,
(39:06):
you know, trying to get ahead of the lunar New
Year before the factories closed across aged for like two weeks.
So it's this continuing like stockpile of things.
Speaker 2 (39:14):
See uncertainty to April second. I mean that's all those
Curt correct Sophie, who was stuck.
Speaker 6 (39:19):
So that inventory risk.
Speaker 11 (39:20):
Okay, So they're saying, you know what, it's not the
best idea. You know, they're taking a risk when they're
doing this, But I couldn't imagine stockpiling Costco goods. That's
a lot of stockpile.
Speaker 2 (39:31):
The eggs. Is the egg thing solved?
Speaker 11 (39:35):
Yeah, the prices are starting to go down, so that
is the good news.
Speaker 2 (39:38):
So, yeah, I paid twelve dollars. Everything was gone, Yeah,
sold except for the twelve dollar eggs.
Speaker 11 (39:46):
I'll give you the update. I'm heading to Costco.
Speaker 5 (39:49):
In the US D a large eggs prices paid to
producers Midwest. So we've had a big, big pullback.
Speaker 2 (39:56):
Here do you do this at home?
Speaker 6 (39:57):
I've got it here.
Speaker 2 (39:58):
You look the.
Speaker 5 (40:00):
It's down fifty five percent, just in like in the
last month.
Speaker 6 (40:04):
So we're down.
Speaker 2 (40:05):
You have a can of Budweiser in your head and
you're on the deck watching the tournamental on the deck.
It's waterproof.
Speaker 1 (40:12):
Next.
Speaker 11 (40:13):
Okay, I'm not sure what everyone at home with their
high schoolers are doing for spring break. My daughter is
playing softball. That's got she's spending her spring break. But
last week, hundreds of wealthy New York City high schoolers,
a dozen private elite schools, they had their annual retreat.
And their annual retreat is Paradise Island in the Bahamas. Yes,
you know, the luxury Atlantis resort. Yes, I've been there once.
Speaker 4 (40:36):
It's amazing.
Speaker 11 (40:38):
Gambling drinking age is eighteen also good. But they dined
it like they have no Boo restaurant, thirty four dollars,
shashimi sixty five dollars lobster salad. They get these networking
opportunities right, and the parents are dishing out nearly three
thousand dollars for five days networking opportunity. Because of the
(40:58):
alumni who went to the school, they get to intermingle
with them.
Speaker 2 (41:03):
This came up at the dining room tables.
Speaker 11 (41:06):
I did not know this existed because.
Speaker 2 (41:08):
We're not doing this. We had to get our hair rainbow.
You don't get your hair diet anymore. You get it
rainbow rainbow.
Speaker 11 (41:15):
Do you do the nose ring too?
Speaker 2 (41:17):
I wasn't allowed to see what it costs next. It's
a lot.
Speaker 11 (41:21):
It's a lot. Yeah, so okay, so we'll stick with luxury.
Here we go to more airlines. We talked about Air
France last week, like beefing up their new first class
we let premiere. So now we have British airlines joining
in the financial time say they're trying to regain like
the status, so they want to put in more than
seven billion dollars they're investing in this program. So they
(41:41):
have this commitment to luxury. Now first class passengers, they
have this suite that they can go to more than
six foot long bed. They enjoying the six foot long bed.
You can certainly fit in that stretch out. Enjoy the
trip from New York to London.
Speaker 5 (41:59):
How does that sound?
Speaker 2 (42:00):
It's a short trip though.
Speaker 7 (42:01):
The thing they don't.
Speaker 6 (42:02):
Get you get the way behind you.
Speaker 2 (42:04):
I can get, you know, your roll in the Singapore
or whatever. It's like five hours if the winds right,
It's like yeah, it's like it feels like, I mean,
do you want to spend that kind of money? I
read the premiere to Paris. I'm sorry, it's ten eleven
twelve grand round trip. That's a lot of that. You
get a next hour to Paris.
Speaker 6 (42:25):
Okay, it's not like going.
Speaker 2 (42:27):
You know, it's not like going to New York to
you knows.
Speaker 5 (42:31):
I can get the doubling faster exactly.
Speaker 2 (42:34):
Like your lingus is like you and over there, you're there.
Speaker 6 (42:37):
You love me?
Speaker 2 (42:38):
Okay, Lisa Mateo, thank you so much on the newspapers.
We'll see you in the Bahamas.
Speaker 1 (42:44):
This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live each
weekday seven to ten am. Easter and on Bloomberg dot com,
the iHeartRadio app tune In, and the Bloomberg Business app.
You can also watch us live every weekday on YouTube
(43:04):
and always on the Bloomberg terminal
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