Sure, we came into today with more optimism from that PPC report is the
leading indicator to what could be another lower CPI print on the horizon.
What did you make of it? Yeah, I think that's exactly right.
I mean, what we're learning. Once again, I don't know how many times
do we have to learn this lesson is that the economic data occurs in arrears.
These Fed hikes are starting to take grip.
And we also learned today that the U.S. consumer typically doesn't stop
spending. They just shift their spending, which is
where we're going to see the sort of the winners and losers within the sectors,
some of the earnings in which we saw today.
Yeah, I'm curious about that. I mean, there is a sense here that
consumer spending, at least based on what we know right now with regards to
household balance sheets, certainly has plenty of capacity.
I guess to keep spending is just a matter of where that money goes.
Yeah, it's crucial. You know, 70 percent of GDP is
consumptive based in the United States and the consumer, you know, despite all
of the economic and political and now global political turmoil, you know, the
U.S. consumers really stayed focused on their
pocketbook, their balance sheets. And U.S.
companies are doing exactly what they should be doing regardless, which is
tightening their ships and controlling spending.
Talk about the political and the geopolitics, at least of today.
And I guess you can say really for the year when it comes to war in Ukraine,
our clients really paying attention to that from a financial management
perspective. Yes, you're absolutely paying attention
to it, particularly like my clients to sit in the baby boomer and above said
it's a real cause for worry. And I just really remind them in a very
disciplined way that geopolitical and policy
issues are our market disruptors. They're not dislocated necessarily,
which is why we see the markets turning positive today.
There's always a pocket of opportunity that a market presents to us at any
given moment of change. And right now, that pocket of
opportunity is very consistent around dividends, income, stabilizing cash
flows and segregating out good earners and good leadership within corporations.
Where's the pocket of opportunity in fixed income markets, which again are
showing us a little bit of a flight to quality and thinking about how we're
pricing in peak inflation? Yeah, I would say we want to have
pockets of tolerance. You know, the bond market, I don't know
if I'd characterize it as an opportunity set, but clearly,
clearly the front end of the curve is where, you know, investors should be
right now, largely because we've seen rates sort of peak and Morgan Stanley's
interest rate team. Our view is that the second half of next
year, we might actually see some rate cuts.
No. I'll take it long out on the yield
curve. Why is the front end an opportunity but
long and it's not? Well, because the expectation would be
that we're in a slowing economy with slow growth and that especially, I think
even given some of the geopolitics that we could see in the second half of the
year, rate cuts, and that could disproportionately impact the front of
the curve. And right now, that's where the cash
flow is. We've heard from a few Fed members, of
course, Lael Brainard. Yesterday, I think it was Harker a
little bit earlier today who seemed to be making the case publicly that the Fed
should maybe call the SEALs a little bit, not necessarily pivot, but
certainly not continue on this 75 basis point trajectory that we've been on
here. And when you look at the data as we know
it to be and you look at some of the commentary, do you think there's a
rational case to be made for doing that? Yeah, absolutely.
And I think the other thing that's interesting is that the Fed started this
rate hike cycle talking a lot about it, but not doing much about it and letting
the market sort of catch up to that. And it's interesting that we're starting
to see this now in the tail end as well. That would be something I would pay
attention to. But again, waiting for that to happen is
a past tense activity and investing is about forward opportunity.
And investors should be stuck stepping into obviously crushed areas of the
market that are presenting great value and great income opportunity.
Not waiting for that. We've talked to you in the past a lot
about consumer sentiment and technicals and how much that can also drive
fundamentals of the market. You look at an NAACP that's trying to
hold on to four thousand thirty nine eighty three.
We've talked a lot about round numbers in the technicals that 4000 represents.
How much of that is also a factor when you're thinking about the investment
opportunity? You know, it's a factor, but I think
right now it's about repositioning within this sector, within the S&P.
So you want to be moving from market way to equal weight type investing.
I'm not allowed to remain. This debate.
Well, you know, it's a much more tricky way to be investing.
But with the reality and the truth of it is that this is a market that the S&P is
very heavily weighted, you know, continues to be concentrated in these
top 10 positions. And so unpacking that, I think is, for
instance, a greater opportunity than necessarily trying to time in and out of
the market due to technical tops or bottoms.
But do you think this will sort of be a broad market trajectory, if you will,
that basically everyone is all going to basically participate in this more or
less or this is going to be a little bit more is, I guess, disjointed?
Well, you going to have certain sectors like we saw early this year where energy
just sort of outperformed everything. Yeah.
Is that going to be. Yes.
You know, it's it's a good question. It's a classic kind of winners become
losers. Losers become winners.
And yet the entire dataset of the market has a mean average return of 8 to 10
percent. And so clearly placing money within the
market from that perspective, I think is going to be a really it's really
important. It's a very subtle and nuanced market.
Want to be in the market. I did get 4 percent and in the Treasury
market gets 6 or 7 in credit and corporate bond.
You're going to see. Do you?
Right now you can make your fortunes. So I don't know.
Somebody told me I could lose my fortune.
I have to say, I think that, you know, it's so interesting.
All of these things are happening because, you know, we just go back to
how incredibly powerful for investors, transparent, liquid, dynamic and
supervised markets are for creating wealth.
No, no, no. It's hard, though.
And I hear when interest rates are zero, we've had these conversations.
Was hard. It's hard to not be in these speculative
assets. Now the yields are rising.
It's easy. Hindsight's 20 20 to realize that we're
all trying to figure out the value of something when rates aren't zero.
What are the conversations that you're having around crypto right now?
Well, I think it's pretty clear. And I've been talking about this over
the past year, that this is this is an unfolding technology and an asset class
yet to be proven or defined. And so my advice to clients has been to
take advantage of that consumer discretionary sector.
That's down 40 percent. Some of these companies are off, you
know, two thirds that are fantastic businesses that you can step in to to
get those double digit returns. And I think that that is an antidote to
Farmville. There's something much bigger going on
globally around this this issue of how we transact, communicate and define the
validity of financial markets. And I just want to say how nice it is
that these markets have been separated and not integrated, because the last
thing that we need right now is a nationalized bail out of crypto.
Gosh, just do that from your lips to God's.