Managing Your Emotions in a Bear Market

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. We'll get a perspective on the economy and certainly an update on monetary policy, because tomorrow this time we will have had the fourth f o MC decision of the year, the student meetings. Some have likened it that it could be fed Chief J.

Powell's Vulcar moment, So let's get more on that. Francis Donald is an economist and strategist for Manual Life Investment Management. Francis joins us on the phone from Montreal this afternoon. Francis, how are you, I mean, I'm busy. Yeah. Taken in a lot of data. Well, thank you for taking the time to join us. Yeah, and it's only Tuesday, but I'm also really excited for this FED meeting. I think it's it's going to be one obviously one to watch.

So here's my first question to Francis fifty. You know I'm not going to fight it. Uh, the said has somehow I've never seen this in my career, engineered in monetary policy shocks during a blackout via news channels. Uh, sometimes you just have to go with the flow and these things. Seventy five basis points looks like it's priced in,

but that's not what I'm watching for tomorrow. What I want to see is one of the things either uh, any information about just how high we're gonna go this year and whether we're simply bringing in front loading all those hikes in uh. And then also any sort of notions from said chirp Howell about whether he's concerned about recession risk. We've seen this from some other central bankers. What does the unemployment rate look on those summary of

economic projection? Because it is possible we get seventy five basis points, but there's a nod to downside risks which we haven't seen yet for a while, and I think those are going to be more relevant for a lot of this market than the twenty five basis point variation we could see. All right, so Francis, I still love talking with you. Um, what I wanted to say is on the Bloomberg terminal on this flag day is also a story that traders are betting the FED will cut

rates after Steve hikes. Uh. You know, I do feel right that there is. It's not too soon to be talking about the FED cutting rates, No, of course not. I mean the average time between the last hike and the first historically has been eight months. We're in a compressed cycle. So that's what my team did today. We saw, okay, well, we had a more steady rate hikes cycle that had

a curse steepiter in it. Were reassessing that and thinking, you know what, maybe this is a said that is more comfortable front loading a significant amount of hips into two. But I'm only going to add that into my forecast. Is it comes with uh coupour. And I gotta tell you, I've been on the road with us some long term investor clients over the past couple of weeks, and you'd be surprised how many of them are asking me about

what the next easing cycle looks like. And that's not for me that we are now Almost every model that you look at is going to tell you growth is real darn low in recession or not. We gotta start talking about what the implications are for the next three years. And the bond market is thinking about that now. I wonder if you're opening act with Jim Bullard as you were on the road, because Jim Bullard is at this point I gotta be saying, I got this right. I've

been talking about this for a long time. Um. Interesting, So can the markets deal with We've had a lot of whiplash already, you know, put pandemic, everything falls off a cliff, lots of stimulus, everything bounces back in a big way. You know, we're seeing another drop off a cliff, high rates. I mean, is this just what we need to get through until we get to some sort of normalcy again? Will things start to then settle down? Because because the supply chain in inflation, that stuff the FED

can't fix. They can certainly reduce demand, but they can't fix that stuff overnight. The issue is that you know, at the beginning of the year, I certainly felt like the SAID tug of war was going to be between inflation and jobs. And we're running all thet charts that we have now on unemployment and looks like you're going to see a rise and unemployment, but the magnitude of

which we're not sure of. So the initial call that I had at the beginning of the year was that the SAID is going to have to focus on the second part of their mandate. And yet what's occurring right now is not a SAID that's concerned about a rise and unemployment. In fact, it looks like they're intentionally engineering one. But avoiding a financial accident is going to become very relevant here. I look at credit. I mean, we have I do ets that are at the same levels they

were in when we had massive SAID action. Now it's more orderly, and that's an important distinction here. But we're looking at a spect that the tug awar the SAID fields right now. It's not inflation versus employment, but actually inflation versus making sure they're sufficient liquidity and no financial accident ahead. What would that financial accident look like? Oh, at this point, you know, it's never what hits you between your eyes. It's what hits you in the back

of your head. But we do need to watch some liquidity and the bond market. We do need to watch for, you know, disorderly type of moves that happen across asset classes. These are all things that need to be monitoring. And some of the tools that the SAID has at its disposal are things that we've been discussing in the last few days that we may see some sort of need to protect certain areas of the market ahead. And this is really the SAID. The challenge is how do they

tighten financial conditions and an orderly fashion. I don't have particularly high hopes. Um does it bother you that about the bond and stock market are trading in cahoots if you will, and just got about thirty seconds the correlations are positive, is of course very challenging in the outset allocations space, so you to extend your investment horizon. But I do believe that the equity market has priced in a good amount of the growth slowdown we're heading into.

What hasn't is the bond market. And every time the seat is hyped into a more difficult economic environment, we've seen raids. Ultimately declined, So do expect the stock bond correlation to turn negative again sometime in the next few months, maybe not tomorrow. Don't tell the rest of my guests, but you really were my favorite interview already for the day because I think so important, so much, you had to help. Nobody else is listening, Sorry, everybody. Francis Donald,

she's economist strategist at Manual Life Investment Management. On the phone from Montreal. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. She has the key to surviving a bear market, so

just stop what you're doing. We've got the answers. This story from our Bloomberg Business Week team found online EP, Bloomberg dot com, slash Business Weekend on the Bloomberg We're talking about Susan Suzanne Wholly, personal finance reporter for Bloomberg near She is with us right now in the Bloomberg Interactive Brokers Studio. Follow her on Twitter at wealth Watch. All right, Susanne, the key deep breaths right class that we should all do. Yes, it's financial yoga, but it's

also about assessing your risk. It is I mean, it's now is a good time to just like you said, take a deep breath, look at your portfolio that I'm supposed to It's not true like inertia is sometimes really helpful and investing because from doing anything too crazy. So we're supposed to look at it. We're supposed to open it up, look at it after market hours. Okay, look

at it after market hours. Wipe away the tears and then what I have a few quiet sobs and then you know, just take a hard look and think, see where you are. You know, do you have It's so easy to have gotten overexposed to text stocks obviously, because that's what's driven the market. It's been momentum driven market and you know, like five big text docks. So you want to sort of think about whether that's how you want your portfolio to be. So here's the deal, Like

we all said, index fun right, spread your risk. We all like piled in for years because we thought this is where everything was going. As it turned out, there was a lot of you know, kind of overweight right in terms of certain members. But that was supposed to protect us to the down side, and it didn't happen. It didn't happen in the short term, and the short term in the market is very emotional and psychological. In the long term, I think that logic of diversification works.

But right now, you know, even after this big drop, the big five, you know, the Apple, Microsoft, Amazon, people, um, they still make up about I think over of the SMP because it's market kath waited. So your five stocks were really more like five stocks, you know, or ten stocks, and you didn't have that diversification, which we at Bloomberg would tell people over and over and over again. And yet we all still kept going there, Yes, we all

of us. Well, it's true because it's sort of it's there's the fomo, you know, fear of missing out, and the fact is that we had been in this. I'm just just going to ignore the bear market of twenty because that doesn't really count. It was such a quick one. We've been in such a long bowl market. A lot of people only know a bowl market, so it's very easy to think that this is just going to continue. This is how it is painful. Down drafts don't really happen,

or they're not gonna happen to me. Should we beat ourselves up? Okay, as somebody who you know is very good at doing that. I don't think you should. I mean, I think if you have a good long term plan, you've sort of you have a smart you know, portfolio that it fits your goals and your life and your age and all that, you should not feel bad. You know, these down drafts. Bear markets happen and we live through them. Right now. This is really ugly because the tech stocks

were so high and they've fallen so far. But the main thing to do is this is so trite, but not to panic and not to make any rash moves. One of the things we just talked about with Francis Donald of Manual Life is this correlation and this trade that's going hand in hand between bonds and stocks right both going down, which is not normal. So that whole idea of being diversified equity, you know, fixed income to

kind of protect you on the downside, it any working. Yeah, it's not working right now, but you know over the long term it may work. I mean, Rob are Not of Research Affiliates that I spoke with them for the story. He made a really good point, which is that in the beginning of bearer markets, like everything seems to go to hell in a hand basket and the diversifiers don't work. But as you get further into a bear market, then

the diversifiers really start to pay off. And I think right now we are seeing rates rise, so yields on bonds are gonna in chup a bit, and that will you know, that is an argument that they may play a much better role as a diversifier than they certainly have this year. So we've taken the deep breaths, We've looked at the portfolio, We've reassessed our risk. We haven't had any rash decisions. What else do we need to do?

If you sold and are looking for if you have money in cash, um, you may want to look at Hill savings accounts because as interest rates, interest rate has been raised on your cash account. It's lovely, isn't it. I mean it's still you know, Goldman still looks low. It is it's Goldman's Marcus Bank. You know. I think that they just bumped it recently up to like point eight five. It's like it's hard to get too excited

over like less than one percent. But I sort of feel like if you have money in like a sweep account in your brokerage account that you're getting nothing. So I feel like we should at least if you have money in cash, try to, you know, get something on that money. I mean, is it smart to kind of if you have stuff in cash, hold it or maybe add to it. Is it? Is it at this point not a smart idea to move anything to cash because it's because of the selling that we've seen, certainly so

much in equity. I mean, we could most think we're going to go down even more at this point, and you know, is there a role for crypto and all, oh my god question we can't even I just feel so the crypto question. I mean, if you are nearing retirement, then you need to really think about how much cash you need on hand. What's nearing retirement five years, ten years,

I'm saying five. I'm saying five years because you can't afford you do not The worst thing is to have to sell into a down market, obviously right when you're around retirement age, because you don't have that many sadly, maybe you don't have that many years sort of in the job market left for you. Um So if you take a big hit, you can't really earn it back like a young person. Young person takes a big hit. They have tons of years of earnings potential ahead of them.

But if you're heading into retirement and you need to that's a if you have to sell into a downmarket, you can permanently hobble your nest egg. So I will say in your story you talk one time, a fixed income in investment that offers a particularly strong hedge against inflation is a Series one savings bond from the U. S. Treasury. My friends will not stop talking about these. Seriously, sounds playing vanilla, but right yes, they think they're the smartest

people in the world because they discovered these. I'm like, you did not discover this. You don't imagine that conversation. But I mean, you know, the sad thing is you can only invest ten thousand in them per calendar year, you know, but they're paying what are they paying? Like, I think it's like nine points. That's amazing. You can't get that anywhere right now. So that is really a great to hold them. Otherwise you have to hold them.

You have to hold them for a year, and then if you sell before five years, you give up three months of interest. But there are very there are semi cash like move and you can't get that kind of yield anywhere else. Go ahead quickly reads to just about thirty seconds. Also an option reads in your story possibly, but reads will reads. You know if they have been traditionally been diversifiers, but they're not doing very well lately. They're not they're doing the old they're joining bonds in

sort of the parade down. So in the short term they're not looking so great. Those coin cats, gender mattress. That was the other option, digging a hole and putting some gold bars in the ground in your backyard. All I will say ten years ago, the market was a lot lower. Right years ago, So just remember what goes down goes up, what goes up goes down. Look back five years and you're still way ahead of where you We're not telling you what to do for just a

little perspective, Susan Willie, Thank you. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovich on Bloomberg Radio among our most read on the Bloomberg. And yes, this may be a moment to get out your tiniest violin, and yet it's significant pertains to a big market story of our time. It has to do with cryptotim Yeah. Tom Maloney is utter at Bloomberg News.

He's with us right now. In the Bloomberg Interact to Broker Studios, he writes today all about the crypto billionaire fortunes that have vanished just as quickly as they were made. Tom, good to have you with us. Is that your tiny violin? Yes? All right, well it's still tiny because you know, all the people on this list are still billionaires right now,

but they are less billionaires. I was so worried. Yeah, okay, well we should name some of these names, Okay, c Z over at Binance, people known as c Z Chang pang Yao, uh SPF, Sam Bakman, Freed. They all have initials. That's they're like, they're like Madonna, right, They're all known known by these things. That's I don't forget the winkle voe say there it is so um take us through the fortunes that have been lost here, because there are

different types of cryptos in different types of companies too. Yeah. Well, most of the folks that we track on the Bloomberg

Billionaires Index are associated with crypto exchanges. So people like c z as you mentioned, founder of Binance and bike, Winfreed, founder of f t X buying Armstrong, coin base, Um, the Winklevoye with Gemini and those businesses have really gone from um, you know law last year when there are kind of sky high evaluations and a lot of optimism about the future of that industry, to the total opposite now, you know, real pessimism, job cuts at those companies, and

that's obviously had a massive impact on the fortunes of these folks. Last year in November, when crypto prices were at their peak, these guys collectively had a fortune of about a hundred forty five billion um. They've lost billion of that doubt now, so there are so how do we think about this, Like is this akin to a lot of the Internet billionaires or a millionaires you know, back in the day of two thousand, like similar haircuts of just you know, companies that people who seem to

be wealthy and paper and then just we're not. Yeah, look, I think there are massive parallels with that era. You know, the crash that was saying in crypto A lot of people are comparing it to the dot com crash. Obviously, a lot of fortunes ended up still being made from the internet. We might see the same thing with Crypto. I think it's too early to say. Um, these guys are still billionaires, are still massively well, but a massive colm down from last year. Well, we can't forget the

Winkle Loss. Twins are touring as part of their band right now. People were tweeting about this earlier this week with all the news about Gemini McDonald is the opening act for I did not know that she talked about Tory. That's great, so she so the wink Yeah, the winkled Um their uh their band is called Mars Junction. By the way, Brooklyn bawl last weekend and could have gone down and say them. I didn't find out until I wrote this story. Next time we'll have to do that.

I did see some pictures circulating on Twitter. An interesting name on here, Mike Novograts, because that's not necessarily an exchange, and this is also a guy who's um made and lost fortunes before. That's right. Um Novigrats was a hedge fund manager bicycly at Fortress. He it was a macro fund that ended up being wound up back in I think, um, you know, he's kind of remade himself as a crypto evangelist.

Last year, in November, when crypto processes were at the peak, he had a fortune about eight and a half billion, and now he's at two point one billion. He's also been kind of closely linked to one of the you know, crypto scandals. I suppose that sort of kicked off the crashing crypto process, which was Terra and its sister coin Luna that collapsed last month. Um, he was a big proponent of that coin, you know, going so far as to get the Lunar tattoo infamously on his on his

arm last December or in January. Rather, tattoos are permanent crypto fortunes, not so much that's to get a Bloomberg tattoo. As much as I love this company still, yeah, I do have a few more years. Hey. You know, one thing I do wonder is when there's somebody who's so entrenched in an industry, you know, anybody who's saying I'm out,

I'm out at this point. I know some of them probably can't because they're still involved and there's financial, uh positions at stake, But I do wonder if there anybody has just been like I'm out of this and I've changed by tune a little bit. Well, none of the folks on this list for sure. I mean these are who you know, their fortunes are still entrenched in these companies that most of them, you know, these guys are all founders of crypto focused company, so they're not going

to be getting out anytime soon. And I think that the all of their statements that been as committed to crypto as ever. Michael Sailer keeping the faith, that's right. Michael Saylor of micro Strategy. We haven't mentioned him yet. We've talked to him a fair amount of times, right, Yeah, so we haven't tracked his fortune, but the steak in micro Strategy that he holds now, I mean that that the share price of micro Strategy is down around from its peak and his company has racked up about a

billion in paper losses on its bigcoin investment. Before we let you go, Tom, I want to talk about El Salvador's president. I went to his Twitter feed yesterday because I was wondering if he's tweeted, and he hadn't as of yesterday. Um, because this is a country that made it legal tender just in the last twenty seconds that we have. How should we think about that? Well, look, I don't think it's great for El Salvador finances. Obviously. You know they've been buying bitcoin, I think at an

average price of thirty six thousand. It's now just above twenty two thousand, so you know they they've they've got some serious losses on their hands. I was looking at his Twitter feet as well. He still has the laser eyes on his profile photos, so I guess he's as

committed as ever. I do wonder if, like you know, we look back I don't know, twenty years from now and we say, okay, bitcoin had some problems, but it becomes something much bigger and is really a part of our exactly we will be Tom Maloney, thank you so much, editor Bloomberg News. Here in our interactive broker studio. I'm a journal now, but you let me drive. Oh no, no, no no, please, I'll gravel. I want to dry. It's

a good question. Try to the clube radio. Right, just about ten and a half minutes left in today's training session. Another volatile day, one day, in less than twenty four hours, we'll have that latest FED decision. At that June meeting and get an indication of what the FED might be doing for the rest of the year. So let's get to it. Megan Horneman is chief investment officer at Ridden's Capital Advisors. Megan joins us this afternoon on the Access

line from Hunt Valley, Maryland. All Right, Megan, I'm gonna ask you the same question I've asked other guests today. What happens tomorrow from FED Chair J Powell and the f O m C fifty. Um, it's like a Twitter poll. I'd love to see them go seventy five and insinuate that we'd have fifty and then the coming meetings. But the only thing that holds me back from there is he did make it pretty clear at the last meeting that seventy was not on the table for this meeting.

Keep in mind, there's other ways that he can insinuate, you know, more tight. Was that the last meeting or was that the meeting before that. I'm trying to remember the last meeting. Um, he said that was none that he was using the press conference that you was asked if it was on the table, and he clearly said no. But remember, the data changes. The data does change. But the transparency the FED is very important. UM, it's important

to markets. So there are ways that they can get around by maybe saying, you know, it's only going to be fifty this time, but they can also maybe accelerate that balance sheet runoff. They could double that in size instead of um keeping it where they had. I want to make sure I understand this. You're you're saying Megan that it's there. They'll do fifty because it's important for them to be consistent with their previous messaging credibility and credibility.

But I think at the same time, they could do other things that they didn't make any mention of. They were very clear that the balance sheet runoff they would could accelerate that if necessary. So I think you may see some acceleration in that balance sheet runoff to kind of make up for those people that were looking for

seven and five. But I also think that they can and maybe by learning their lesson insinuate that the rate hikes and the next couple of meetings could quite possibly be higher than what we have right right to use this meeting right, because if we want to make sure that the markets respect these FED meetings and what is said right like they could say, Okay, let's do what we said we would do and then open the door

for maybe being more aggressive at the next meeting. Right and there is a lack like we need to understand. I mean, although it does feel like the needle isn't moving aggressively enough when it comes to inflation coming down. And keep in mind that they also are looking at economic data which is getting soft very fast, so they have to keep that in mind. I make consumer confidence at a record low, these are things that they have to take into consideration. Gas prices where they are, this

is going to hurt the consumer. What else are you seeing in terms of softness right now, because we're still seeing some are than expected Prince, Yeah, the one thing that it will look closely that is the retail sales that comes out tomorrow. Keep in mind that will be from May and May was when we hit another record high and gasoline prices a very big jump in the month of May, so we'll be looking at that for

any softening in the consumer. If you look at things like small business optimism and some of the different components within that week that we see that's weakening. The housing market is just looking very very very weak. So I think there's a lot of things that they can point to that suggest, hey, we have to be aggressive, we have to be flexible. He's probably kicking himself that he made that comment in the last press conference that he wouldn't go seventy five. He's got to make it very

clear that it's a very fluid situation. We may need to go higher and more aggressive in the coming months, and we may need to be flexible with the balance sheet run off as well. Now that's a really good point.

Nobody's really talked about, you know, using some of the other tools in the tool kit, right, and we have talked about that, you know, when the FED starts doing great moves, but it's also got the balance sheet, that's a double whammy like that is they're both going to impact what's going on in the economy and liquidity in

the markets. Yes, and the one thing that they also need to address to kind of give themselves a little leeway if they need to come in with seventy or they could come in with emergency measures in between meetings when the FED. I keep saying, I was having conversation, I said, I used to remember you'd wake up in the morning or I was doing an early morning show and all of a sudden bam across the bloomberg would be the FED doing an emergency like they don't do that.

It feels like anymore or less, it's a crisis, right, And I think that they can make note that these are things that they may utilize, so me, we may come in next week and we get another really bad print on something from an inflation standpoint, and they come in and they say, Okay, we're going to go another fifty. So they need to keep all at this point, all of their tools out there so that people aren't necessarily surprised if they use them. I think that they should

go more than fifty. I think seventy five that you know, at a minimum for this, But I just don't know that they're going to be able to do that with how they kind of pitching them hold themselves at the last time. So what's an investor to do in this environment? So it's it's very frustrating and completely understand that because any hedges that you typically would use in an environment

like this, I mean, let's talk about it. We've got elevated inflation pressures, we have a FED that's doing everything that they can to get that inflation under control. But the FED can only go so far some of these other inflation pressures to supply chain reasons and then maybe too much fiscal stimulus that was put out into the economy.

Those are things that FED can't can't control. They also can't control, you know, other countries when they go on lockdowns, which then exacerbates the supply chain problems and then creates a weaker global economic situation. These are things they can't control. They can only control what's here. So um right now,

an investor needs to be patient. Look at some of those areas in the market that have priced in the majority of the pessimism, the as we are in a bear market, and what history has told us that you know, these are part of any investment cycle, and if you're patient and you add a little bit in and when it goes down a certain amount, and then maybe a little bit if it goes down another ten or twenty, that these end up being good potential, good buying opportunities.

We let me just ask you, because we've only got about seconds left here, Megan, Is it all about though, you know, capital preservation where to hide at this point? Or is it where to look for some really great opportunities. How do we need to think about it long and short term? So long term investors, you should be looking

at opportunities in the market right now. Um short term be really defensive because I think that this summer, at least in a minimum, will a pretty brocky and vottle time for the market, which is it's already it's only June four tone, you know, can we get to fall pretty quickly? Uh? Megan? Thank you. Megan Horneman, chief investment officer at the wealth Advisory multi family office firm Verden's Buple Advisors, with us on the phone from Hunt Valley, Maryland.

I think she made a really good point that the Fed could be more aggressive with the balance sheet. And you do wonder about j Powell wanting to be like this is what I said. I'm not going to muck around with it because that's how's to do with my messaging and respect in credibility. Basically, I know, look, only they know, only they know that's true, and we'll know unless it's twenty four hours time. Thanks for listening to

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