KNOWN FOR THE 1,000-DOLLAR
WINTER PARK CANS.
IT IS $64 AFTER NEARLY DOUBLING
REVENUE.
IT IS LOOKING FOOD.
>>> MARKET REACTING TO TRADE AND
TRADE TARIFFS WAR.
PLATENNING TREASURY YIELD CURVE
THAT COULD INVERT.
BEFORE YOUR EYES START TO BLAZE
OVER.
WE CAN'T THROW THAT AT YOU.
WHY IT HAS MARKET WATCHERS VERY
CONCERNED.
KEVIN GIDDIS OF RAYMOND JAMES,
WHAT YOU START TO DO AS
SO-CALLED YIELD CURVE BEGINS TO
FLATTEN AND MAYBE INVERT, KEVIN.
EXPLAIN WHY SOMETHING LIKE THAT
MATTERS BETWEEN THE 10-YEAR, TWO
YEAR, 30-YEAR?
>> LIZ, HISTORICALLY AS WE
APPROACH A FLATTENING CURVE IT
DOESN'T MATTER UNTIL YOU
INVERTED THAT CURVE.
YOU WERE THEN WORRIED ABOUT A
COMPLETE RECESSION.
WE'RE NOT QUITE THERE YET.
OBVIOUSLY THE FED IS LOOKING AT
FLATTENING WITH THE CURVE.
WE'RE DOWN 36 BASIS POINTS, TWOS
TO TENS.
IT WILL BE A FACTOR AS WE GO ON
IF THE CURVE CONTINUES TO
TIGHTEN.
LIZ: CAN WE SHOW THE YIELDS ON
THE TWO, THE 10, FIVE, 20, GO
AHEAD, KEVIN.
>> 36, TWOS TO 10, PROBABLY 12
OR LESS BETWEEN FIVES AND TENS.
SO IF THE FED STAYS PLEDGED TO
RACING INTEREST RATES AND THE
MARKET DOESN'T FEEL THAT
INFLATION IS GOING TO BE A BIG
ENOUGH ISSUE TO CAUSE THEM TO
EXIT THEIR LONGS, PLUS THE OTHER
EXTERNAL FACTORS GOING ON THE
MARKET THAT FLATTENING WILL
OCCUR.
AT SOME POINT, THAT FLATTENING
WILL TURN INTO AN INVERSION.
THEN YOU HAVE TO WORRY ABOUT A
RECESSION.
BUT YOU KNOW, FOR THE NEXT FEW
MONTHS WE'LL WATCH IT CLOSELY.
THE FED IS WATCHING IT EVEN
MORE.
LIZ: TIM, YOU'VE BEEN WATCHING
THIS AS WELL.
WHERE DO YOU PUT MONEY FOR
EQUITIES KNOWING WE'RE GETTING
CLOSER 30 YEAR AT AT 3.05 AND 10
AT 2.95?
WHAT DO YOU THINK?
>> YOU NEED TO GO INTO PLACES
TRADING AT RELATIVELY LOWER
VALUATIONS.
THAT IS ONE OF THINGS TOUGH BE
CAREFUL FOR WHEN EQUITIES AND
OTHER ASSETS BECOME MORE
EXPENSIVE, THE SMALLEST,
UNEXPECTED EVENT CAN THROW THOSE
FOR A LOOP.
SO BUYING CHEAPER, WE THINK
MAKES MORE SENSE.
IN THAT CATEGORY, YOU HAVE TO
THROW IN SMALL CAPS, U.S. SMALL
CAPS WHICH WHEN YOU'RE DEALING
WITH NEWS ITEMS LIKE INVERTED
YIELD CURVE OR DOLLAR
STRENGTHENING OR TRADE ISSUES,
THOSE TEND TO BE MORE INSULATED.
THEY HAVE DONE BETTER IN RECENT
WEEKS.
LAST WEEK BEING AN EXCEPTION.
BUT SMALLER COMPANIES ARE
TRADING MUCH MORE ATTRACTIVELY
THAN LARGER COMPANIES.
WE WOULD EXPECT THEY WOULD DO
WELL MOVING FORWARD.
LIZ: RUSSELL IS AT THE HIGHS OF
THE SESSION BUT IF YOU STRETCH
THAT OUT TO ONE-MONTH OR EVEN
SIX-MONTH CHART, KEVIN I THINK
HE IS ABSOLUTELY RIGHT.
WE'VE BEEN VERY GOOD.
IT HAS BEEN A NICE COUPLE MONTHS
FOR THE RUSSELL 2000.
THEY HAVE LESS EXPOSURE.
THEY DON'T DO MUCH INTERNATIONAL
STUFF SO THEY'RE NOT EXPOSED TO
TARIFF WARS.
YOU'RE LOOKING AT CORPORATE
BONDS OF SOME OF THE RUSSELL,
RIGHT?
>> CORPORATE BOND SPREADS HAVE
BEEN TIGHT FOR THE LAST TWO OR
THREE YEARS AND CONTINUE TO GET
TIGHTER.
AT SOME POINT THERE IS CROSSOVER
WHERE VALUE DOESN'T PRESENT
ITSELF LIKE IT DID, ARE YOU, DO
YOU WANT DOUBLE As AT 15 TO 20
BASIS POINTS OVER TREASURYS?
ARE YOU GETTING PAID FOR THAT
RISK?
SAME THING GOING ON HAPPENING IN
THE EMERGING MARKET AND HIGH
YIELD DEBT MARKET.
HAPPENING INTO THE IG AS WELL.
THOSE SPREADS AT SOME POINT WILL
GET SO TIGHT THAT INVESTORS WILL
SEEK OTHER ALTERNATIVES.
LIZ: ONCE AGAIN WE SEE
FLATTENING OF CURVES AND MAYBE
INVERSION WHICH IS A PRECURSOR,
TIM, TO A RECESSION.
IF KEVIN DOESN'T SEE IT ON THE
HORIZON, DO YOU?
>> I DON'T THINK SO.
THE YIELD CURVE IS ONE
INDICATOR.
IT IS FLASHING A WARNING SIGN
BUT OTHER INDICATORS SHOWING
GOOD STRENGTH.
I THINK THE OTHER THING YOU NEED
TO KNOW ABOUT THE YIELD CURVE,
WE HAVEN'T INVERTED AT THIS LOW
RATE.
THE PAST SEVEN TIMES WE INVERTED
WERE AT MUCH HIGHER LEVELS.
SO IT IS UNCLEAR WHAT WILL
HAPPEN IF WE INVERT AT THE LOW
LEVELS.
IF THE FED RAISES RATES TO SAY
THREE, IS THAT HIGH ENOUGH TO
REALLY CAUSE A RECESSION, CAUSE
A CUTBACK?
WE'RE NOT SURE.
SO, I WOULD TAKE IT WITH A GRAIN
OF SALT AND WATCH AND.
DAVID: 10-YEAR VERSUS TWO YEAR,
YOU CAN SEE BEFORE 2007 WAS FLAT
THERE AND THAT WAS PRECURSOR FOR
A BIG RECESSION.
TIM JUST MENTIONED WHEN HE SEES
AS A WILD CARD, THAT COULD BE
THE FEDERAL RESERVE.
WHAT ABOUT YOU, COVE VIN.
WHAT IS THE WILD CARD THAT COULD
AFFECT THESE MARKETS AND PEOPLE
AFFECT RIGHT NOW BUYING STOCKS
ON REGULAR BASIS, HAVE A
401(k) AND A PENSION?
>> THE FED THEMSELVES HAVE
REMAINED PRETTY STEADFAST IN
THEIR DESIRE TO RAISE RATES AT
LEAST ONE OR TWO MORE TIMES IN
2018.
AT SOME POINT THEY WILL NEED TO
STOP THAT, BECAUSE THE EFFECT OF
ECONOMIC GROWTH, AND IF THEY
DON'T GET INFLATION
FOLLOW-THROUGH IS WHERE THE
POTENTIAL FOR A RECESSION COULD
OCCUR.
THEY COULD OVERCOOK THIS, IF
THEY DON'T WATCH IT.
I DON'T HAVE THEIR INFLATION