This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
I think of Nirvana mostly as just the grunge band, but it's actually, I guess a state you can achieve if you what do enough yoga right.
I guess there are some good you know, good meditation, yoga, breathing right, like get there.
I like that, all right, So let's see what he has to say when it comes to the Nirvana scenario. The story the most right on the Bloomberg terminal has been really all day.
So great to have back with us.
I know you spoke to him earlier on TV, but right now joining us on Bloomberg Business Week at your Denny founder of your Denny Research, and.
With us on Zoom in New York City.
Ed, thank you so much for joining us. Talk to us about you know, your thinking this inverted yield curve that is like gloom and doom.
We're going to have a recession, and.
Yet you see it differently. Talk to us about it. And how you came to that.
I do. Actually I wrote a short little book back in twenty eighteen titled what is the ill Curve really forecasting? And came to the conclusion that it's had a great record of forecasting recessions. But what it really does is forecasts the process that in the past led to recessions.
So when the yell curve inverts, basically bond investors are saying, we are willing to buy a ten year bond at a yel below the two year because we think if the FED keeps raising rates, or even if they leave them here, something's going to break in the financial system. There'll be a financial crisis, and that will morph into an economy white credit crunch. And that's what caused recessions
in the past. It wasn't the inverted yell curves. The inverted yell curve just anticipated that something bad would happen if the FED continue to raise interest rates. And so it's got a pretty good track record, a very good track record of anticipating exactly that kind of process. Now,
how about the current situation. All in the current situation, it's done a great job, again of anticipating a financial crisis, we had a banking crisis back in March, but this time the FED came in so quickly with a liquidity
facility to stabilize the situation. I mean, the FEDS used to play whack them all with these problems since two thousand and eight, two thousand and nine, so they whacked them all this time, and as a result, we did not so far get an economy white credit crunch are a recession.
What do you think about this Fed ed? I mean you've worked for various FED I guess boards from the White House, from Wall Street? What do you think about Jerome Powllin how he's done here?
Well, I think it's going to work out this time. There's a Tennessee on Wall Street to what sort of bemoan everything that the FED is doing. They clearly don't know what they're doing. Seems to be sort of a knee jerk reaction of FED watchers on Wall Street and other places. But I think they may actually have got
that right this time. I mean, clearly they were laid in tightening, but once they realized that, they moved very aggressively from zero to five hundred basis points above zero with the FED funds rate and I think that's worked pretty well in moderating inflation without causing a recession so far. And I think again, they came in just in the
nick of time here. Actually, they came in very quickly in dealing with the financial crisis that occurred in March, and as a result, we haven't had the typical process of financial crisis, credit crunch, and recession.
Hey, and one thing Matt and I were talking about is the difference between the.
Different yield curves. Right, we talk about the two in the ten, we talk about the three month in the ten.
What is the yield curve that.
You think individuals need to focus on to really get an idea of Okay, wait, yeah, we're headed for a recession.
Well, the Index of Leading Economic Indicators is an important series and it tends to have a good track record of anticipating recessions. And one of its components is, in fact the shape of the Yelk curve. But it's the spread between the federal funds rate and the tenure yield. And so in this situation, I prefer the two year versus the tenure because I think the two year gives us a more day by day view of what the credit markets are thinking. Whereas the FED funds rate is
totally driven by the Fed. The two year tends to anticipate what the Fed's going to do very well.
But I think Powell in the past has talked about the three month ten year spread. I feel like Cam Harvey. I'm not sure which one he uses, but he kind of gave us this idea, right, He's a professor. I think at Duke who gave us this idea that the yield curve inversion could forecast a recession. Have we seen the three month tenuere spread invert and not had a recession?
Well, again, the inverted yell curve was one of the components of the Index of Leading economic indicators. On both those series have had a spectacular track record of anticipating recessions. I think the last eight recessions were anticipated by an inverted yeal curve and by declining leading indicators. There have been some instances where they started to flash orange and
nothing terrible happened. Those were basically consistent with mid cycle slowdowns in the economy, otherwise known as rolling recessions, and I think that's what's been going on in the current situation. I think We've actually had a recession since the beginning of last year. It's just been a rolling recession. It's
been hitting different sectors at different times. It's certainly ask anybody in the housing market that's definitely been in a recession since the beginning of last year, and same thing goes for goods for the past year. There's been a recession in a good sector.
Yeah, our rich Miller is highlighting you know, you're thinking about rolling recessions.
You know, Cam, I mean Cambell Harvey also.
No, I wasn't calling him camp but I was just saying Cambll Harvey, who also came up with this he for our story, said it's too early to say that the curve in version is a false signal. He said, the big question is not whether the downturn is coming, it's how severe it will be. I do worry that the FED, who two more raid hikes, will put enough gasoline on the fire that is going to push us in a very negative direction.
Is that still a risk in your view?
Well, that's what makes markets right. My view his view, and I guess my view is that the Yeld curve isn't going to work this time. As a predictor of a recession. It's worked very well as a predictor of a financial crisis caused by the FED raising interest rates. But I don't think we're going to get a recession out of it. But it is an open debate. I'll conceive that. I mean, you know, nobody's concluding that I'm
right or the other side is right. It's just the other side has more history, you know, favoring the a recession outlook. But look, it's been since last summer that the yield curve has been inverted. It's been since December twenty twenty one that the index of leading indicators has been declining. And yet we don't have an economy writer recession. But I think we've had a rolling recessions. Right's been just hunky dory.
I think Harvey actually is closer to your camp than the quote in our story illustrates, because I've talked to him in the last few months and he says this time is different and not that the yield curve in version is not signaling a recession. I want to ask you, you wrote FED watching for fun and profits, but you also like movie watching for fun, which I know because I spoke to you earlier about Oppenheimer. Carol and I are both excited about Barbie, but Oppenheimer's another one that
just crushed it at the box office this weekend. What did you think, Well, you know, I.
Had a choice of going with my daughter and her friends to see Barbie or going to see Oppenheimer. I decided to go see Oppenheimer, but she said she want I heard some bad reviews of Barbie, but she said that she really enjoyed it and wants to see it again, so I may join her because it's a cultural happening clearly, But with regards to Oppenheimer, it was an outstanding movie.
The directing was awesome. Christopher Nolan did an amazing job of kind of going behind the story, not just behind the story, but behind Oppenheimer and looking at kind of Oppenheimer and it's times. I certainly had a understanding of the domestic and geopolitical consequences of developing and using the Adam baumb And then you know, there's certainly some philosophical discussion of what does it mean that humanity has created this horrible instrument of mass destruction that can just basically
wipe out creation. So it's it's it's a three hour movie, but it goes by pretty quick, and I thought it was extremely well done.
I love that.
I really want to see it.
I want to see both of the movies. Actually me too.
Can I ask you real quickly, I'm going to go back to markets twenty five seconds. You made some great forecasts on Dow five thousand down ten thousand.
Where do you see markets going from here? Just quickly?
Well quickly, I say, I think we're going to go to forty eight hundred to fifty four hundred by the end of the next year, and I think more to the top of that range in the bottom.
All right, that sounds like optimism to me.
Good to leave it there, ed Thank you so much the movies, the markets.
I talked a little Nirvana. That was really great. We really appreciate it, Edgar.
Yeah, be well.
Edyard Denny, founder of your Denny Research with us on zoom in New York City. But someone who has seen so many different market cycles, and I think how many times we've talked to.
Him, Yeah, I say, you know, he worked at the Treasury, who worked for the Federal Reserve Bank of New York. He worked for the Federal Reserve, Board of Governors, and then various many Wall Street organizations.
You're listening to the Bloomberg Business Week podcast. Catch us Live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app or wants us Live on YouTube.
Now, we're going to talk about Twitter, right.
We're gonna text everything app.
Well it still is if you look at Twitter dot com and the ur L is still Twitter dot com.
They're still working on it.
Yeah.
No, I went to Twitter with those Aria. Let's let's see. You know who knows about it.
Bloomberg News Technology porter Alexbarenka, she's on zoom in La.
I mean it feels like Elon's flywey oh.
I see the X on Twitter now, yeah, it was on it, but it is still the u r L. Right, Alex, When are they going to change that? Do they get X dot com? Is that already?
Given what I do know, A Matt is that I don't know when they're going to change that. In typical Elon Musk fashion, this change happen and basically late last night on the app now formerly known as Twitter, Musk was tweeting, Hey guys, we're going to change the name if somebody can come up with a good logo, pseudo crowdsourcing it as he's wont to do with follow tweets or I guess we now call them exers or some other name that will come up. And wouldn't you know,
twelve hours ago the app is now called Twitter. So this kind of change across the board. It wasn't, let's say, a rollout that you'd see in other rebrandings of major technology or any other firm for that matter.
So, Mike, two questions are is this just something that Elon Musk is trying to do to get attention back from Threads, which must by now have added two hundred million users. And also, is Linda Yakarino the CEO? Is she in charge of stuff or does she just kind of follow on tweet whatever Elon does.
Well, I'll take the first question first.
On X.
Elon Musk has been obsessed with the idea of X for a long time. Our colleague Max Chafkin, who wrote a book on PayPal where Musk kind of made his name, reminded us that back then he tried to get PayPal called X and that didn't work. And of course we have SpaceX, the Tesla Model X, and his child's nickname is X. So this is something that we kind of knew was combing. It's something that he had announced when
he bought this company. But now I guess in the snap of the fingers and the turning on of a big light projected on to Twitter's headquarters or Ex's headquarters, it's now official. But on here second question, So Musk did bring in Linda Yakarino, the former media executive, to run as CEO. Here You saw her today with like really jargony business speak, kind of piling on the excitement about this name change. You also saw you might have seen there were reports that Yakarino actually sent a letter
out to employees. But there was something really interesting.
In there that I noticed.
She was talking about how this name change is the beginning of this second act that a lot of companies don't have a chance to do, and she pointed out that they have the opportunity to do this together. I will just point out that is very different than how this name change played out last night, not actually within the company but on the internet. As Musk is wants to do well.
I just want to know was Linda part of this decision or did she play catch up?
It seems like she is playing a lot of catchup. And because this is something that Musk has talked about in the past, I would hamper to guess that this predated Yakarino's kind of tenure here at Twitter. What she will have to do is continue to reassure advertisers, kind of the monetary lifeblood of X or Twitter, of this social media app, that this is a place that they should be spending their money. If you are an advertiser and you sit back and you kind of see these changes,
there's two ways to think about it. There's the way that Musk really wants you to that Yakarina laid out in her letter to employees that this is the moves of an inventor, an inventive company who moves fast and is really agile. But kind of the bane of an advertiser's existence is uncertainty and quick changes, and Twitter or X has already been kind of having some struggles convincing advertisers that their platform is safe in a place that they should spend money. So whether or not she was
involved in this decision. She is foresore as a CEO going to have to take the brunt a really important group of stakeholders in those advertisers to convince them that this is the beginning of something new and not just a continuation of kind of a maturial leader.
Can I just say, though Twitter great brand name, Most would argue, why the heck would you start messing around with wet and we tweet it?
It makes complete sense.
It's fascinating and I can't imagine changing the name of Google or Kleenex. So you're losing what a decade and a half of history. I don't know you can tell in this interview, Guys, I'm struggling to know what to call it right now. I guess it'll sink and eventually I still don't have a new word for the term tweet. Maybe we'll be xing, I'm not quite sure.
And that just come on totally.
It's like something completely different.
Exactly be for Bloomberg after Dark.
Right, Well, listen, Alice, you you always impress me with your You've got your finger on the pulse of the zeitgeist, as Tom Kean would say, But it's a much younger thing than that. Are you involved in threads? Did you cross over like so many other people did. Is that has that really got any staying power or do people still all tweet?
I am still I did cross over to threads because it was such an easy sign on from Instagram. I do feel this kind of moment of opportunity because Twitter looks like a different place than it did, so I've looked to threads. But also I'm still not sure what the long term value of threads will be for me, and I think a lot of users are still exploring
that too. So while they are certainly with Meta being obviously a tech giant who knows how to monetize social media products, they're absolutely a challenger to the likes of Twitter. I also question where you are spending their time. The average TikTok user, say in the US, is spending ninety five minutes a day on that app. That is an obscene amount of time compared to twenty thirty forty minutes on the likes of Instagram or Twitter. So you know, yes,
I'm on threads. I still think it's a question mark and it's not clear that they're kind of capturing this opportune moment as you have elon musk making noise over here at X but certainly I try to be in front of the zeit guys for you guys to see what's moving and shaking as a chronically online human being.
How old are the people on TikTok.
The people on TikTok are actually getting older, so majority of their users are under the age of thirty or thirty five, but you see about a quarter of their users are actually into their late thirties, forties and fifties. You have TikTok grandma. So this app, TikTok used to be kind of really of the use, but they're starting to encroach on that territory that Facebook, Instagram others have
really kind of made their name on. And just today TikTok has also rolled out a text format, so there's maybe a little jab at both Twitter or x and threads in there as well. From this fast growing competitor who used to focus on video, who's now saying, hey, look, at least we can give you an option to post here on text.
All right, This is I mean, it's all kind of fascinating stuff, but at the end of the day, journalists for the most part, are on Twitter, right. I mean, you look at threads, Alex, but I'm sure you don't wake up in the morning and it's the first thing you do.
I do look at Twitter. Journalists are on Twitter, and increasingly I would make the argument for LinkedIn as well, because you kind of have that business slant for business journalists like me, and again that predictability of what audience do you have where that's going to be the thing that Threads is going to need to kind of answer for users, for folks like me who are kind of the core audience, and the folks who read Bloomberg and Business Weekends and fin twit.
Right, it's fin twit for our for our listeners, for our viewers, for our readers.
But it's absolutely it's funny that you say LinkedIn.
I feel like that is like the sleeper social media app that we all kind of pooh poohed.
It's like, I'm not looking for a job, why do I have to be on it?
And increasingly when you do an interview with somebody or I get reached out, that's where I get pitches Like that has become I feel like almost the sleeper social media app, Alex.
It has, and I can tell you that the comment dialogue on LinkedIn I see there looks like what my Twitter dialogue used to look like five years ago. So it's very interesting you have this kind of thinkfluent or vibe that LinkedIn's been known for people trying to show
off their brains and their expertise. But because I think a lot of folks have been looking for another place that can replace what Twitter once was a place to share new updates and kind of those day to day things that are professionally slanted, folks are increasingly looking to LinkedIn, and I'm seeing not only the posting but also the engagement in the comments that I used to see elsewhere, whether that's on a tech story an article, or I post a lot of videos there as well, and those
tend to do well too, So interesting sleeper idea there with LinkedIn, But certainly there's an opportunity for a text forward place to kind of take some audience here.
You are the best.
Alex Parinka technology port at Bloomberg News knows her stuff on Zoom from La Alex.
Thanks.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business app, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
So I don't have any easy sigue to go from that to talking about Barbie, which I both have not yet seen.
No, I actually had tickets on Saturday night.
I know you talked about having tickets, and.
My babysitter canceled kind of last minute ish. Hey, so so.
You didn't get to go.
But it was one of those days where I had I had a bunch of people over. There was so much going on early day. I was actually kind of happy just to put the down and go to bed.
Yeah, but you both went nap time, go to sleep.
But someday I will go see it. Now, I kind of want to see Oppenheimer more.
Because of Edyard Denny. Yeah, I kind of want to see both.
I want to see Appenheimer followed by Barbie. It's like dinner, dinner, and dessert.
I just feel like, well, we can talk about it well.
Needless to say, a lot of people did go to see both movies over the weekend.
It was a big weekend for both Barbie.
They took in about one hundred and sixty two million in ticket sales. According to com Score. It was the highest grossing debut of the year, passing the Super Mario Brothers movie, which probably.
Don't understand how that was a winner. Who says, man, I can't wait to go see Super Mario Brothers this weekend. I loved the game just as much as the next guy, but I don't want to see a cartoon movie about it. As a grown adult.
I don't know, but people go.
Oppenheimer meantime brought in about eighty point five million. But we want to talk really about the merchandising mite of Barbie, all the Barbie merch that is out there. Katy Thomas, his lead at the Carnie Consumer Institute. She's on Zoom from Pittsburgh, Pennsylvania. Hey, Katie, nice to be talking with you again.
I just say.
Everywhere I turn, and I'll be honest. I was in Zara because they did this whole pop up store and there's all this pink and people were crazy buying anything and everything, and some of its closed, some of its stuff.
But talk to us about the merch.
Yes, I mean the sheer ubiquity of the marketing campaign has been unlike anything I've ever seen, and it did a really great job going across category. So to your point, you know you saw it Zara, You've seen it a lot in appareil and in beauty of course too, but then also the Barbie dream House, you say you're seeing it in home everything from paint colors to furniture.
So that's where I think the.
Marketing team did an incredible job of really just being all encompassing in terms of wanting to meet consumers where they are and just get eyeballs when in a time where I mean, as you were just talking about, there's so much competition across movies, brands and the like that you know, that team really was like, we're just gonna be everywhere all the time, and it worked.
So I mean this, both Super Mario and Barbie have in common that they are movies that come essentially from children's toys. I get that Mario is a video game and a lot of teenagers play with it as well, but is there merch for adults out of this movie? Because the difference is Barbie was a live action film with real humans playing the parts, not animated so does that mean, like, uh, what's the name of the guy from Ryan? Does that mean that Ryan Gosling his jacket is now for sale?
And Laura, Yes, right, Oh sure everybody wants a piece of that energy, don't they.
Now.
I wish what you saw actually would tell do a really nice job of was play the long game here with storytelling. And I think that's why you've seen Barbie be more successful than some of these other toys turned movie franchises. It's because they really have been building up stories.
I mean, it does go back to, of course when she was created and vintage dolls, collector's items, but slowly over time they've been increasing their media presence and so that has exactly allowed for Barbie to move outside of the toy aisle into all of these other categories. And I don't think you see that same shift with most other brands, and there's just not that Barbie Kore aesthetic that again can really tap into many different categories, many
different products people want to buy. I mean, and a lot of brands that even have official partnerships and if they sell something pink, you know it's Barbie.
That's why I found that over the weekend and really kind of the last week or so that I know companies who didn't have any specific deal with Mattel or you know, to do some kind of connected merchandising, but they were like, we have.
A pink nail polish, we have a pink jacket.
Like it was just everybody was jumping on the bandwagon. I don't know what does it say for I don't know. And I also saw consumers snapping all this stuff up, buying Barbies in and her car when they went to the movies.
You could buy it there. I mean, it's just kind of everywhere.
Is there something to be gleaned in terms of consumption personal consumption?
Well, I think, you know, Barbie.
This is a bit of a unicorn. I think you know, there's already a lot of chatter how to replicate this with other movies or toys or what have you in the future, And I think this is something that will be hard to replicate. It was a lot of things coming together at once. So you're seeing a little bit of the nostalgia the gen X and millennials are having right now. You know that brand I grew up with
something for my youth is really popular. You are already seeing a lot of love for bright colors and bright beauty and fashion coming out of the pandemic. We were all sick of being in our sweatpants and wanted to
get out and get bright. And then there's, of course, you know, the angle just of course of women and increasingly being representative and diverse, and so Barbie kind of hit a bunch of things all at the right time that I don't know that other brands could replicate, at least in the order of growing from toy to all these other categories in the movie. I think an example in the reverse is something like Harry Potter, where when their licensing came up, I mean you can buy Harry
Potter anything. I think I saw Harry Potter, you know, like glasses at Williams Sonoma. So I think it's just about, you know, really being able to go across the different categories in a way that just may not work for other brands.
I heard, well, apparently according to the ultra woke, she can't be a white savior. I don't know exactly what that what I heard from some very wold people this morning that that's a problem addressed in terms of the consumer. Katie, do they have excess savings. I mean, this has been kind of a debate at the Fed for the last few months and something that is going to be decisive for the economy. You're a course at the Consumer Institute.
So do we still have bank balances, you know, fatter than usual with you know, leftover stimulus.
Well, I don't know specifically about savings. Savings rates have been dwindling. The stimulus money is largely spent. But what we have seen is that consumers are being just incredibly thoughtful about how they spend. So that's why we've seen retail sales continue to at least stay stable or even tick up in the face of price increases.
Is because consumers.
Are figuring out where to spend and where to save, so they'll especially other every day items. They're really trying to get the best bang for their buck. Stores with strong value props, you know, big box stores, dollar stores are doing well, but people are still setting money aside to save. And that's why you're also hearing stories like how you know, Taylor Swift and maybe now Barbie are saving the economy. So there is money to be spent and consumers are spending it.
All right, Well, kind of interesting.
I keep sharing all of the images to Matt because I can't believe you didn't know that they were clothes out there.
No, No, I figured there would be. I just wanted wanted to know if they were selling you know, Ryan Gosling's specific jacket, you know, or Margot Robbie's actual wig.
Oh oh, you mean, like not not.
The single piece, but like a line of ken clothes for adults.
They kind of did.
I saw a guy on Fox who's apparently their national security advisor dressed up as you know, Don Johnson from Miami Vice. But I think it wasn't at all a joke. It was literally his outfit. He had a pale purple blazer and a T shirt on it. Yeah, it's coming back.
Don't say it isn't so all right, Katie, Thanks so much. Katie Tomas, she's lead at the Carney Consumer Institute on Zoom from Pittsburgh, Pennsylvania. Don't you know everything that's old, it just comes around that.
It just keeps coming. You're wearing Doc Martin's again.
I know, are you?
No?
I did that in the nineties.
You will do it again. Look, they even have cowboy hats.
Taper jeans, Adidas Sambas tapp acid wash.
Mom.
That mom jeans thing though, man, that was wrong.
Very all right.
You are listening and watching Bloomberg Business Week. I'm Bloomberg Radio brother, Marco.
Journal. How about you let me drive? No, no, no, honey, please, I'll do gravel.
I want to try it. It's a good question.
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All right, everybody just got about eighteen minutes left in today's trading session.
Getting ready to wrap up already the Monday trade. Carol Master along with Matthew Miller.
In four Tim Stentevik and let's get to it with Alan Zephyron. He's founding partner co CEO at the registered investment advisor i EQ Capital. Usually talking remotely, but lucky for us, he made his way to the East coast, so he's here in our Bloomberg Interactive Broker studio.
How are you.
I'm doing great. Great to see you Carol and Matt. Great to see you today.
What do you make of the market environment right now?
Well, unfortunately for your listeners, I think we're a little ahead of ourselves, but there's so much momentum in the market. It's probably going to persist for a bit. But if you look at the market, the S and P five hundred, it's a nineteen percent year today and there's probably going to be zero earnings growth this year. So all it's been this year is a multiple expansion, and it's been done in the face of five hundred and twenty five
basis points of FED tightening after this Wednesday. That's pretty remarkable. And to think that we're going to grow earning if you believe consensus estimates by twelve percent for the next two years after rate hikes that haven't even hit the economy yet, it's kind of hard to trade it twenty times forward earnings, which is fifteen percent above your long term average in the face of all these rate hikes, it expect double digit growth from here for the next
couple of years. That seems like a stretch to us. So I don't want to say I'm overly gloomy, but a lot of good news is baked in, and with a softening economy to come, it seems it's going to be some rougher struggles with stocks for the next twelve months.
We said that about BFA earlier that they thought a lot of the good news in terms of earnings was already baked in because of the stock.
I've heard a lot of people today and last week really talk about a catch up trade. Since a lot of the games that you're talking about are only due to the Magnificent seven or maybe the Big eight, depending on how you want to measure it. You still have another four hundred and ninety stocks in the S and P. Not to mention, you know, the mid caps, the rustle, et cetera, that need to make gains to get there, and we're starting to see that broadening out of market gains. So do you like that?
I like it in the short run, and it's remarkable. It turns out even earnings sorry multiple expansion on small and midcaps has been even greater because there's actually been a modest earnings decline in those companies.
You're seeing the VIX has.
Gone down, credit spreads have narrowed.
In the last four months.
We're up already twenty seven percent from the bottom on the S and P, and if we end up going up another five percent back to the peak, it'll have been within the next month. It'll have been the third quickest recovery in all time of a bear market.
It's been extraordinarily quick.
But it sounds like you don't buy it.
I don't buy all of it. I certainly think the good news is built in. In the next twelve months, it's going to be rougher sledding. I think you're going to get lower than historically average rates of return, which have historically been about ten percent per year.
I think we have to have multiples.
Eventually compressed back to longer term avages, which are like seventeen eighteen times forward earnings, so you'll get some semblance of earnings growth. But I think it's a stretch. You think you're gonna get ten percent per annum for the next three to five years.
Ed Hayman says this is a max momentum market. He compares it to the Internet gains that we saw in ninety five, the dot com in ninety nine twenty seventeen. But he says, the bears are underinvested here and the bulls will be over invested next year. Is that just too much timing for you.
No, it's I mean that's the reality.
Is time in the market and a long term investment perspective is the right course of action. So if I had cash today, I would just dollar cost average much more slowly into the market to buy extra time to get invested. But I'd still invest because I still think stocks are a very credible and important component of long term compounding of growth. But your starting point is not as good as it was a year ago.
Is there a fixed it comes aspect to your strategy here?
Yeah?
Absolutely.
First of all, with public rates being up the side, it's certainly attractive looking at tragedies, right why not? And even in the private markets to the degree someone has the disposition to look at non publicly traded investment vehicles but used to pay five or six percent, it's now paying over ten percent.
So you're talking about private credit.
Yeah, private credit is another mechanism that going to blow up. Well, I don't know if it will blow up, but it's certainly going to see a greater prevalence of defaults if we have a slowing economy in the next twelve months. But I don't believe you're going to have enough defaults
to complete worsen the outcomes from private credit. You'll see modestly lower rates of return, but spreads in that private credit are still giving you double judgit yields that more than makes up the amount of defaults that you'll incur in the next twelve to twenty four months, so it.
Still track this.
There are public vehicles that trade that might provide daily or monthly liquidity. If you happen to be in what's called an accredited investor or a qualified purchaser and you have enough capital, you can look for private companies to help you get there too, But there are some public market alternatives that also can get you access to that asset class.
Do you think it should be opened up more widely to retail investors, private credit, and private markets.
I do think you should be democratized, but only to degree we have better disclosures about fees and risks, I actually think, and I'm not a big thing of regulation. Yeah, no, pop getting like the problem is there's so much legals in these documents.
You just got to say flat out and big bullet fees are higher.
Democratization to me sounds like good pr.
It is its great parts. It's another word we on Wall Street, right, But.
I mean, do you think it makes sense?
Because it seems like everybody who comes in talks about public markets and the opportunities in private credit in particular.
Yeah, I think it's I think it should be open up.
But again, we need clear, plain English so people understand the fees they pay and the risks they take. That's what's missing. We have too many pages. Like if you ever got a home mortgage and they had two hundred pages of documents, you never read any of them, you just signed. It's the same kind of thing on all these these documents. We have to figure out a way to have much cleaner and safer, cleaner and more transparency
with respect to disclosures. I think we should at that point allow investors to go in that class.
You've worked at Goldman back in the day, Yeah, back in the day. It's a different day for Goldman today. What do you make of the Goldman of today.
Well, first of all, when I was there, it was a private partnership, so I think just being a public company is a completely different situation. And then secondly, I think they have the pressures to try and grow earnings like any other public company, and so they find themselves divesting into other areas beyond their core competencies, and at times that works well and other times going into somewhat
disparate somewhat not wholly related asset classes. Banking as opposed to investment banking, retail credit as opposed to corporate banking can lead to higher risks as well as higher return. So I think just the organization has shifted over time as a consequence of being a public company, and at times that works well, but at other times it doesn't end well.
M and A coming back, you think anytime soon. This is where you know, Goldman and a lot of others have had problems, and I think on the call you heard David Soloman say that we're going to stick to this franchise and when it comes back, it's going to be great. But he didn't really make a call as to when.
I think it's going to come back. But I think it's going to still be slow and plotting. As our belief at our firm is we are going to enter into our We are already in some kind of rolling, slow, shallow recession, just enough to prevent lots and lots of M and A and the volumes we saw in twenty twenty in early twenty twenty one, and when rates are this high, it mitigates to some degree the ability of companies to finance the purchases.
So the business is very viable.
But I think we have to slog through a difficult economic environment for the next six to twelve months before there's a lot of buoyancy to the.
M and a market recovering.
When does the FED start cutting rates?
In you review, I don't.
Yeah, I don't think the cut rates until twenty twenty four, and that's one of my issues.
With the POME only next year.
Yeah.
Well, the problem I think is basically the conundrum is this, Typically the FED won't cut rates until it sees the economy deteriorating. When the economy deteriorates, you start to see earnings declines. It turns out, in order for the market to recover it takes about seven quarters after the SEED.
Starts cutting rates doing stocks fall.
Through three or four quarters positive.
The explorings of getting released songs with.
Studio own Iq.
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