Bloomberg Markets Special Simulcast Day One

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube search Bloomberg Clobal News. This is Bloomberg Market Special Markets coverage on this day, a special simulcast on Bloomberg Television and Radio. We're gonna be here with you every day all week, covering the market action throughout the day, and of course take a look back on the year

that was and look ahead. Of course, two Romaine Bostic alongside Kritty Gupta and Tim Stanovic, who normally joins me for Beyond the Bell. And I'm told Tim that every day is going to be beyond the Bill. Yeah, it really is. And hey, look we're off to a pretty strong start. You know, people have been throwing around the term Santa Claus Rally for a few days now, in a few weeks, but this is the official start of what could be considered a Santa Claus rally. And are

we off to the races? Yeah, Tim, it'll be this week and then a couple of days in January. The question is you starting to see that thin volume totally traditional from the Santa Rally, but liquidity still higher than something the levels you've seen even in October. Does that kind of thwart at the Santa Rally that everyone's really expecting traditionally a low volume week here, But I guess

at the end of the day it doesn't matter. An SP five hundred right now at and change, that's right around the highs of the day, and yes, that is going to be a record high. You're looking at the NASDAC composite there just a few points away from a record high as well, the NAZAC one about twenty three points away from its record high. Bitcoin getting slight bit here on this day, and the Lira We're not gonna talk about it too much today, but certainly something to

keep an eye on right now. Back at eleven and of course, not as bad as what we saw a week ago Monday, when you're paying about eighteen lyra per dollar. Here, let's bring in Abigail to do a little right now to give us a little bit more perspective on what's going on here in the US markets, A market that started the year where a lot of people thought we

would rally, but not necessarily this much. It's pretty amazing what we have going on here because at this point remain as we go into the end of the year. The SMP five hundred up about twenty six percent, the seventh double digit gain for the SMP five hundred over the last ten years. So big, big rally. Of course you've had fed support accommodation for much of that time period.

But it's all about these record highs. We have another record high for the SMP five hundred, sixty nine of the year, topped only when there were seventy seven for some of the other indexes, however, a little bit away from the record highs. But Creaty was making that point about thin volume. It is below the twenty day moving average.

It's so interesting though. I was just reading in email from Ben Emmons over at Medley Global and He was saying that for the official Santa Claus rally, these five days plus the first two days of the new year, when that gain is around four percent, it typically brings on a two percent gain in January. So perhaps we are looking at uh some sort of rally going right into in a year. Hard to know, especially given the fact that the Fed's gonna be stepping back a little bit.

But the bulls are out today for sure, absolutely right now, looking like it's going to book something like gain on SMP five D on a year to date basis there. Abigail do a little helping us break it all down, and we want to bring keep this conversation going right now and bringing Michael's any senior vice president and senior portfolio manager over at UBS Wealth Management, and Michael, I do want to start off with the seven percent number.

There's gonna be a lot of hay made out of some of these full year numbers that we see on the doubt, SMP and the NASTAC. Normally, I wouldn't ask anyone to look a gift horse in the mouth, but I want you to look a gift horse in the mouth and tell me does this concern you at all?

Heading into I think there was a lot of optimism about how the first half of twenty two was going to go, and a lot of managers had closed up their books already, uh, posting in towards the second half of December because they had had good years and didn't want exposure. And we're concerned about on the cron headlines and now I think they're being called a little clasod plate, you know, and and want to make sure they're not missing out on on any front running of the two

thousand and twenty two returns. So um no, I would say that we kind of eagerly participated um in uh, you know, as we anticipated this rally coming up, and we've been having good exposure, and you know, I think folks are still feeling pretty good about at least the first half of twenty two because the pace of earnings

revision is still pretty strong. Um So, you know, there are going to be some additional headwinds, maybe monetary policy, fiscal policy, but we think that's still earnings carries the day. And we're in this kind of pre earning season now, you know, before the big banks begin to print in mid January, and and typically the market has anticipated some pretty good earnings and and uh and and seeing the market rally ahead of those earning prints. But I do

wonder you mentioned this, Uh, Michael, you mentioned Amicron. We made about three minutes into the show without without mentioning it. And look, I have to ask if if the headlines are derailing any of your optimism at all. Certainly the market is not telling us that it is. But we have thousands of flights canceled. New York City is saying that it's running its subway at a at a different schedule because they're trying to deal with short fewer crew members.

How is this playing into the early part of two for you? Yeah, that's a great question. I mean, I think it speaks to what we saw for a lot of two thousand and twenty one, um, you know, which was this back and forth action between the kind of prociprocal reopening trade and the stay at home trade, the technology and healthcare kind of trade. And and I think that back and forth action is going to continue to be, you know, the order of the day in two thousand

and twenty two, um. And so you know, for us, it frankly helps maintain kind of a wall of worry about the market, because these headlines are concerning, and if we see a sufficient caseload to actually overwhelm the healthcare system, and I and I get particularly concerned about nursing homes and you know, we're seeing some elevating cases there, then obviously you could see you know, more of a lockdown

of economic activity. UM. But the reality is, in some ways, as often as been mentioned, you know, the market is not always the economy, and there are areas of the market that do perfectly fine um in a less high cyplical recovery environment. UM. And that's what we saw, you know, define kind of a lot of the characterists the market

in twenty one. And I think if if, unfortunately, if there was a more higher degree of severity that wouldn't in the coronavirus, I don't think it would necessarily derail large sectors of the market that aren't depending on resumption of the cycle. Michael, A staple of has, of course been the pretty fast and furious commodity rally that you've seen eating into the bottom line, eating into the margins of a good chunk of corporate America. How much of that is the story of two as well. That's a

great question. Um. Now, we have seen a lot of corporate pricing power, I have to say, Um, so we're not overly concerned about margin deterioration in two thousand, in twenty two, we're mostly seeing um decent ability to pass along higher prices, which of course will attract the attention of the FED. But um, we're we're not seeing in most of the areas we're looking at huge margin compression based on those higher prices. And in some areas we are you know, and and and and to the earlier point,

you know, in in the airline industry. I mean, that's a real it's a real concern, um. But in many areas where there's sufficient pricing power with corporations, we're not seeing a lot of margin compression. Yet. Do you worry at all about some of the concentration and gains that we've been seeing in the equity market? Yeah, I mean it is amazing. I mean, we're we're here printing strongly new highs in the market. What do we have the

sixty eight or sixty ninth of the year. If you look at the New York struct Exchange New High New Low List, and the number of new highs is super small, you know, and even the number of stocks about the two hundred days for a high such as this are super small. So you have had a lot of concentration and you have had very very narrow breath in the market. And you can interpret that in one of two ways.

I think you know, you can interpret that that you know someday the generals will fall and nothing will keep the indexes up. Or I think you can also interpret it as a lot of the majority of the market has corrected already and you're beginning to see actually UM some signs that they're coming off of their bases and looking to kind of recapture their highs earlier in the year.

And and and something we've been focusing on a lot is, you know, the sensitivity of some of the more cypical plays, particularly things like financials or the Russell two thousand, which has a lot of financials in it, and how they're reacting to upward movements in the tenure treasury rate and in increasing expectations for FED hikes UM. And what you're seeing is you really won't see those kind of sectors move along too well unless you see both short and

long long rates pick up. UM and it's not clear that they are yet, but I think that those are the ingredients for an upward move for some of those kind of more interest sensitive sectors. Michael's In, senior vice president and senior portfolio manager for UBS Wealth Management, Thank you so much for joining us on Bloomberg TV, Bloomberg Radio,

and of course our YouTube simulcast Roman and Create. Reminds me of the note that we got earlier today from JP Morgan about concentration not being a sign of any sort of market top, any sort of risk. Yeah, I mean the concentration. I mean, frankly, if you want to be fair about it, has been there now for I don't know, eight nine years, So so I guess they have a point, you know, if you've gotten this far, um, maybe you stick with it. Yeah, and absolutely. Here's the

question is does that continue into two? Of course, that's whatever on everyone's minds. Yeah, all right, Well we gotta talk travel, right Tim, Yeah, I'm ready, get me on a plane, get one. This is special markets coverage simulcast on Bloomberg Television, radio and YouTube. US travel stocks are retreating after hundreds of flights were canceled over Christmas due to a spike in COVID nineteen cases. Abigail Doolittle has

more well. Tim It is interesting because we do have, course have record highs for most of the market, I should say, the SMP five hundred and big games for the major averages, but for these travel stocks not so much. That said, it's not truly fearful. At this point. You have American Airlines down a little bit less than one percent, you have the SMP five hundred Hotel index down about six tenths of one percent. Uh, and the bigger gains or excuse me losses that's in the casino section, down

one point six percent. As for those cancelations, of course, having to do with O Macron yesterday more than undred flights were canceled today apparently so far nine so really this disruption if we put this into the context though, of early at that point, these stocks, though down double did its day after day, So today's declines of let's call it one percent or so not stacking up in

such an equal way to that earlier time period. On on the year mix action, you have the likes of American Airlines and United higher, but Win resorts and some of the cruise operators not so much that SMP Airline Index overall down just about two percent. All right, Abagail doo little, thank you so much for that update. For more in the travel sector, let's bring in j Stein, the CEO of Dream Hotel Group. The Dream Hotel Group,

it's a hotel brand and management company. It manages a handful of hotels, including the chat Wall here in New York on Scripted and Durham. You guys also have Margaritaville resort in Times Square and then of course the Dream Hotels around the world, here in the US and in Thailand. So give us an update, j because you have a good pulse on what exactly is going on with reservations. How are you seeing cancelations right now due to omicron And thanks for having me on. I appreciate it. Um. Yeah,

I'm a crom has has taken his tone on us. Uh, but you know, nothing like what we saw a back uh, you know, almost two years ago now at this point. So we've seen some dropping reservations over the last ten days leading into the holidays. You know, there's a very soft time usually for us around Christmas and then it starts to build again towards New Year's. We're still holding on pretty decently for New Year's. Um, So all in all,

it's not it's not that stating. Yeah, talk a little bit more about I mean, because you're not really I guess, uh what I would consider to be a traditional hotel in addition to sort of the overnight stays. I mean, most of your hotels have restaurants and nightlife attached to it. That certainly draws a much, uh, I guess hipper audience there, I say here, And I'm curious as to when we see it get back I guess to some of those

pre pandemic levels when you walk by. For example, I frequently walked by your your property that you have down on sixteen Street here in New York City. I remember before the pandemic that place was was hopping like none other. And I'm wondering, when do we get back to that stage here? Do you have any real insight into when

we get there now? So on the food and beverage side, and and then and the venues in the nightlife, we're getting back to regular levels, but primarily more on the Thursday, Friday, Saturday nights. Whereas, as you know, New York's really a seven seven night operation. And and so the Sunday through Wednesdays are are slow and some of the venues haven't reopened yet, but the weekends were almost as busy as

we were a pre pandemic. So on the food and beverage, we're also running with smaller staff, so the bottom line in those areas have actually been pretty good on on the hotel side, on the room side. Still, the business travels and I am sure you're hearing that all the time has not come back yet. Uh. And a lot of the citywide conventions are not back yet. But the leisure travel has been very strong and as much as we started to see a national business coming back in

once the rules changed um back in early November. Uh. And now you're starting to see that slow because of Mama Crown, but also domestic travel. It's not really going over in a going overseas, so we're still keeping a lot of the domestic travel coming into the property. So well, in all it's been you should wash, but we really want to get that corporate traveler back on the ranket Jay,

let's talk about your domestic operations. We know New York City, California, some of these major cities on boast coasts are actually still waiting to read We're not yet. What are you seeing in the other major cities in the United States? You know, New York has has held up pretty well since spring and summer. A lot of leisure travel was coming in, UM. L A held up pretty well as

as well. I think San Francisco, Chicago, those walkets were in Honolulu, we're taking I think a bigger hit UM than what we saw in l A and New York UM. But again, it's really relying on the business travel for those cities. J How how dynamic is your pricing when you think about overnight stays and how the willingness for you guys to lower prices at a time like this

when perhaps people are canceling. How dynamic is it? And can you give us some examples of when you've had to adjust prices to to attract people so beds would be full. Yeah. Look, that's the amazing thing about this industry. It's only kind of type of real estate where it's so dynamic it could change in twenty four hours. We can run a hundred and thirty all or eight on a Sunday night and three three days later be at four dollars, and you just don't see that in the

classes within real estate. UM, but you know, there's still a pretty good demand and rates actually have been going up in a lot of markets. UM. Miami has been very strong, Nashville has been very strong. Uh So, yeah, to question dynamic pricing, you know, I think the most dynamic in any real estate class. What about the what about the other side of that? J the cost side here, labor costs, materials, costs. Yeah, like everywhere else, it's it's

becoming very difficult costs of and going up. Shortage and labor is is most most dramatic I've been doing this for forty years in the industry, most dramatic I've ever seen. But we'll get through it, you know. We'll raise prices, will raise the salaries and and and then the prices for the rooms are gonna go up, and there'll still be a good value. You know, if you're not. If you used to paying to seventy five and you're gonna

be paid three fifty, it's just like the burger. You're going out now and you're spending seventeen and years ago it was eleven. So I think, you know, it'll balance that it'll take a little while. Once the demand comes back. When COVID runs through its course, you'll see the room rates really going up. Well. J Stein's CEO of Dream Hotel Group, We thank you so much for joining us at such a crucial time. This is Bloomberg. This is

Bloomberg Market Special Markets Coverage, a simulcast edition. Here we welcome in our audiences across all of our platforms on TV, radio and YouTube. We're gonna be here all week long. Myself Romain Bostic alongside Tim Stinovic and Creedy Gupta breaking down. I guess not only the day to day moves here in the market to look back of course one, and

hopefully I'll look ahead into two. Right now, guys, we are looking at a market that is holding right now to record high, at least for the SMB five hundred. The Nastack induscries aren't that far from reclaiming their record high. And when you take a look here, I think it just what we've seen over the past a few weeks, a few months here that's been quite stonishing. And I just want to point out, I mean, we talk about

travel stocks being down today, but not by much. I mean they're still down pretty significantly from where we saw back in March here, But I gotta flag Apple here, guys, because this really seems indicative, Tim and Creaty about what we've seen in this market here, A lot of these large cap megacap tech names either are the ones getting bid. This is where the concentration is right now when it comes to this rally. Look, I know this is not a day where people go to Haven's, but it reminds

me of what I think it was. JP Morgan said earlier today that increasingly a company like Apple is turning into a safe bet right of haven trade. Hey, Romayne, you mentioned today being a record high for the SMP five hundred. If it closes out, a record high would be the sixty nine record high of the year. You have to go back to to get more record closes. About of days have been records for the SMP fire You know, Tim, what gets me about this whole Apple stories.

We're talking about this as a haven, as this kind of growth play. What if it's traditionally becoming such a key part of everyone's portfolio that is, at the end of the day turning into perhaps a value play, still dependent on some of the supply change that extend all the way into Asia. It's really interesting to talk about how big tech. Where's ten different hats in terms of an investment portfolio. All right, well, let's continue talking about big tech, and of course that big hat right now.

Looking at Apple market cap right now, two trillion billion, Abigail Doolittle, she's standing by right now. I assume you're on Apple watch right I am on Apple Watch looking for that three trillion dollar market cap that we were all looking for about two weeks ago. It hasn't happened, as Apple has stalled near that level. Has not happened yet, but very very close perhaps this week. Unlikely today, but

you never know. The volume is so low below average volumes, that perhaps you'll see some traders take advantage of that. And I mean that in the best sense. As for a big tech though, over the last four days it's really astonishing. The NAZAC one hundred up about six percent, the best four days UH in about two months. It has everything to do with the likes of Apple, Microsoft, Tesla, Meta A, m D and Video, all of these big cap tech and communication services names really on fire. This

is bond yields or down a little bit. So that of course offers a tail wind as it takes off concerns around valuation. But this Santa Claus rally, investors really seem to like big tech. In the context of the Santa Claus rally. One question though, that you all have been asking all day how long can it last? Because especially the SMP five hundred right now on pace for a twenty seven percent gain this year after gaining about sixteen percent in twenty and twenty eight percent even twenty

nine percent. Uh in en, that's a huge, huge rally over the last three years, of course helped out by the Fed. Will it last? It will depend on big cap chech because as you know, Romain, uh, those tech and those mega cap Internet names about fifty of the SMP five hundreds makeup. Let's see whether or not the big tech cap rally last. All right, Abigail Doolittle, there, I guess asking the big question about will it last? Coming off a plus percentage gains here on all of

the major inducies. Had Morgan Lander, he's Washington Crossing Advisors senior portfolio manager, joining us right now to discuss this a little bit more. And I am wondering Chad, as we sort of come off, I guess what you can call pretty much an unlikely run that we've seen in this market, at least based on some of the predictions we saw at the start of Do you dare go overweight equity's heading into now, I think if you do, it should be just a modest overweight. You should focus

primarily on the United States. That's how we are tactically tilted. And when it comes to international investing, we would still avoid or have a very low exposure to e M and primarily just have some somewhat of exposure to more developed Can you talk specifically why valuations are so concerning to you as we get into two you had a no doubt at the beginning of this month, Chad. It's called five reasons for caution, and the first reason is

high starting valuations. Right mean, you could look at next year's pe multiple roughly about twenty one times, look at market cap to g d P, of which is now UH in in line or above levels UH, and as well you could just look at the thunderline fundamentals of the year. UH. You did have lower quality stocks do quite well throughout the entire year, as credit spreads started to tighten in regard to non talking about high yield

credit spreads. Uh, so again we could you could make money in this market in two thousand and twenty two. You just just need to be more focused primarily on more high quality types of investments. Chad, you said credit, and my ears perked up. It wasn't too long ago in when you had big tech borrowing at near treasury level borrowing rates, but then on the other hand of

the spectrum you had airlines borrowing at ten premiums. How much of that debtload, that extreme record issues that we saw last year, how much of that translates into perhaps a burden on equities in Well, it certainly can. If you start to see a slowing down of the economy, financial stress even moderate to become more normalized. Uh, that could have dampening effect on lower quality equities. We're not,

we're not perhaps predicting a credit dislocation overall. Uh. That we're not is not on our you know, in our in our focus. But you did have a substantial amount of credit creation, not only on the corporate side, but also on the government side. Keep in mind that this fiscal deficits were quite extreme in two thousand and twenty and two thousand and twenty one, that fiscal Uh, that fiscal push is now going to be a fiscal headwind

in two thousand and twenty two. Uh, that to us is a major concern that deceleration of US economic growth could provided perhaps perhaps a head wind for equity performance

and assessing what's going on with fiscal policy. I mean, a lot of the games that we saw in the economy, not necessarily the market were of course tied a lot to some of the fiscal stimulus measures and pandemic related measures, most of which have either been already been removed or are going to be removed by the time we get deeper into what's the balance that you're looking for right now with regards to what we're getting out of Washington.

Can this market so to stand on its own without the help from the White House in Congress and maybe without the help from the fit Well, I think it can. Uh, but you know, it's just going to be a a deceleration of economic growth and perhaps earnings growth. Perhaps it is going to be a bit too high. I mean, when you have a deficit that is roughly eleven or twelve percent and then it glides, you know, twenty four months later down to perhaps three or four percent. That

is a massive fiscal headwind. And then you pile onto that potential monetary policy of which has already been announced, where they're going to be at least taking that punch bowl away at an at an accelerated matter. Uh. That could provide you know, perhaps some stress on on valuations, maybe earnings hold up, but perhaps multiples compress a bit.

But we have chat historically scene equity markets at least over the last decade do okay when interest rates aren't at quite zero, but they've been pretty low for you know, about a dozen years now. Yes, that is truth him. They have been loved for a dozen years, and I gotta tell you that has provided a lot of that that rocket fuel for the overall broader averages. UM. The real question is, you know, at one point valuations do matter, uh,

and you have an excessive amount of margin. Uh that is built in so corporate profit margins are excessively high right now. Any type of moderation on that is going to provide you know, perhaps be you know, somewhat of an issue for two thousand and twenty two with that We do, though, anticipate that the markets will be at a higher high in two thousand and twenty two, but overall, it's just going to be the inner, uh, the inner parts of the market where that's going to play out.

Chad Morgan Lander from Washington, Crossing Adviser, Senior portfolio manager. There we gotta leave it there. Thank you so much for joining us. Welcome back. This is Bloomberg Market Special

Markets Coverage, Simulcastle and Bloomberg Television, Radio and YouTube. We welcome all of our audiences across all of our platforms here as we count you down to the closed Romain Bostick here alongside Tim Senevic and Create Gupta and Crety, we're looking at a market here setting up for I guess if you're counting, what's gonna be a sixty nine record high for the SMP five record high, and that too on cruise control, no less, of course led by

big tech, a little bit of that defensive positioning, which is totally natural during a Santa rally. The question, though, Romaine, is that it's only Monday. Does it continue throughout the rest of the week? And Tim, you take a look at this board here, I all to talk about the SMP five hundred. How about the Philadelphia Semiconductor Index up two percent here on the day. That's going to be a record high on this day. Even the retailer is

getting in a little bit of a bit. Yeah, but those airlines still continuing to face some pressure over those cancelations and then fears the Ami fron Varian certainly makes people think perhaps twice about traveling if they are concerned about rising COVID cases and perhaps change consumer behavior as a result. Romaine, Yeah, we've seen, of course, a lot of anecdotes as well as some data on flight cancelations

and travel cancelations. Let's get a little bit more insight here and what's going on in the market sort of what I guess we've learned out of one and what maybe what the setup is going into two. Big friend of the show, Sun Deep but goot, chief investment officer over at what are your trust joining us right now? He's gonna be sticking with us as we count you down to the close just about him minutes a way.

So you look at this market, you look at this year an unlikely rally, I guess by some measures here do you see the strength at all continuing into next year. Absolutely, the remedies that we put in place to counter the COVID recessions, they were so substantial. We had massive stimulus, right We saw five point eight trillion in fiscal stimulus, the FED expanded its balance sheet by more than four and a half trillion. Will be left with a legacy

of those policy responses well into the future. We know monetary policy works on a lagged basis, and fiscal policy has still resulted in high savings rate, and so I see smooth sailing here for the next couple of years. Fiscal policy has been a big ballast for this market and for the economy also as monetary policy, and of course we have a FED that is basically made it clear that at least wants to start to remove some

of that accommody from the market here. Do you anticipate that the FED is going to stick by its plans for what could be two to three rate hikes next year, Well, they've committed to three in twenty twenty two, two more than in twenty twenty three, and then two more yet again, Look,

they will be data dependent, they will adjust. But for right now, the big news on what the FED did in their last f O m C meeting they turned hawkish, which is normally a bad signal, right, markets get really jittery when the Fed turns hawkish, But in this instance, I believe they heaved a sigh of relief because they

have been so wrong on inflation. They kept calling it transitory, and in September they were calling for zero rate hikes, and so the fear was that there would be a big policy misstep from the Fed in the direction of actually being too slow. So the fact that they have sped up there tapering uh and the cycle of rate hikes is actually viewed as a positive. Now there is alignment between market x afectations and what the Fed plans to do. And I think three, perhaps two it is

perfectly in line. And let's not forget right, this is a very different economy than what we saw in Any policy measure from last year cannot be appropriate today. We have to normalize well, somedep help us understand what could happen if there were weren't three or possibly two rate hikes in Perhaps if shifting in the next few weeks and months as a result of a new variant, perhaps continue to shift more to goods and lester services, and we saw inflation continue to move higher and and not peak.

Um is that a scenario that that you see as likely. Yeah, to the extent of that inflation does not peak, I think it would give the Fed more ammunition to persist with the rate hikes. People attribute the spike in inflation. Clearly they were supply chain disruptions, right, there is no denying that. But a fair component of the increase is an inflation is related to demand. And so look, we have this seesaw here our maicron will affect economic activity

in the near term. Hopefully it is just a small blip. In fact, the data from South Africa is encouraging. They already have peaked in just maybe three weeks or so, and so this variant will It is more contagious, it's far less potent. Hospitalizations are down, but hopefully it spikes up and then comes down pretty quickly. So we'll have this little bump in the road, but I don't think

it derails us going forward in any significant way. I'm still calling for upside surprises to growth for GDP, for earnings, and therefore valuations will stay fairly intact. And I think we're looking at a positive constructive two. Not with the same types of returns that we saw this year, but still uh handy double digit it equity returns. Okay, well, let's let's do one more on inflation. When Sunday. Do you think that inflation will peak here in the United States?

And then when you think it'll get back to a level of the FED and the US consumers are more used to I'm talking to you person, of course, Yes, sure, okay, let's let's start with sub three. Sub three is not happening anytime soon. Inflation spiked up dramatically, it will subside at a more gradual pace. So I don't see I don't think we see sub three until twenty four. Will it go a lot higher from here? Let's quickly calibrate. PC EAST headline stands at five point seven, headline cp

I at six point eight. I think, tim, we're going to peak soon. Remember, the year over year comparisons will become challenging. The spike that we saw began in earnest in February and March, so that's a good marker where your over your comparisons won't be so dramatic. I look for inflation to peak in an next three to six months. Uh, and then the descent will be far more gradual, will go, will stay it around four percent three and a half,

then get to three in twenty twenty four. Perhaps, But Tim, let me assure our viewers that that's not a reason

to be concerned. Actually, equities to quite well when inflation core inflation is in this three to four percent range, and especially if it gets there from a previously low level where you have now removed this inflation deflation fears, and these levels are symptomatic of a healthy economy, so they In a previous life, you were the head of equities over at Vanguard, which makes me think you were the perfect person to ask about e t F in particular.

Something that's really caught my eye this year is the fact that we haven't had a correction in the Spie, but yet on the micro level we have seen ten corrections and say Apple in Facebook that just haven't shown up on the index level. Is that a reason perhaps for passively investing through e t F. Look, the arguments in favor of passive investing are fairly impressive, starting with the empirical evidence that most active managers just are not

able to beat these passive benchmarks. Having this collection of stocks in one single convenient instrument that can be traded in real time gives you instant diversification. They're all available at low cost. So those are the arguments in favor of a t F and of passive investing. I might point out, if you will allow me, that what this approach lacks is the ability to customize a portfolio for

a client or an institution's unique risk exposure needs. So, for example, if someone is heavily exposed to economic risk, business cycle risk by owning a business in construction, UH want the investable portfolio to be negatively correlated with these risk factors that they have inherited or that they are stuck with. And an e t F does not quite allow for that customization as much as a portfolio of single stocks would. So I guess those are the pros

and cons. Yeah, Well, to your point, let's talk about the index level kind of diversification or lack thereof. As you start to see say the SMP become more tech driven, or even other indexes become more isolated or more kind of geared towards one sector or the other, what is the way to combat that is active investing really your only choice. You would be tempted to think that the active approach would pay heat to how concentrated a stock or a sector has become and then do something to

address it or alleviate it. Of course, the miniuture advance that argument that empirical evidence comes right back in your face, because again, most active managers, given the ability and the luxury to adjust their portfolios away from concentrated holdings, would be able to benefit, but they simply cannot deliver. So active management has room, it has space, but you really need to be selective. Good active managers are hard to find. They are out there there far and few in between.

Takes a lot of research, good due diligence, but you should be able to find them. One quick uh note of caution CRITI on E t F s. The narrower the E t F becomes, so think sector E t F thematic A t F s. You suddenly start to lose that diversification and then they become really speculative exposures or positions in the portfolio. And I would really caution

our viewers to guard against that. It has the convenience of low cost and easy trade ability, but you may not be building the best portfolio and might get tempted to chase fashions. Fads and the latest hot winner are always a great insight. Here from Sundy Pagat, of course, chief investment officer over at Wittier Trust. Thanks for listening

to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube search Bloomberg Global News