Truss Resigns as UK Premier After Tax-Cut Backfire

Bloomberg Business Weekend iTunes, SoundCloud, or Bloomberg dot Com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube search Bloomberg glovel News. Carol Masser along with Mike Reagan in for Tim Stanovic on this Thursday, and as we mentioned at the top, really uh the news heard round the world, and that was the resignation of UK Prime

Minister Liz Trust a top story without a doubt. So with what you need to know in the implications of the instability, let's get to ed Price principle for geopolitical forecasting at Ergo, it's a global consulting and forecasting firm. Ed is a former British trade official representing the UK government to Wall Street and the U S official sector that was from A one, and he has also advised members of the European and British parliaments and worked in

the City of London. I laid all that because this is why you want to listen to him, He joins us in our Bloomberg Interactive Broker studio. Welcome. How are you. I've been better busy man these days, I imagine I feel slightly busy, I have to say. Going around the news room, we've all kind of laughed and not laughed that this whole idea of what's going on in the UK is making the US and it's politics that are not always so stable as well, um looking rather good

at this point. Explain what is going on in the UK? Okay, so what's going on in the UK is that a prime minister has resigned after twenty minutes, which is never a good look. For twenty minutes you can read forty five days depending on how you count. Um. And that obviously is the result of a period of some confusion over the UK fiscal policy. The former Chancellor Quasi Quartein decided that it would be a good idea to cut

taxes during an inflationary spiral. The macro text books will tell you that to not in fact a very good idea which he which he found out unfortunately. But now we're seeing that filter through into the Prime Minister and really see her sort of bear the brunt of that on a delayed action, you know. And I think the most surprising news event of the day for me after Liz Trust's resignation, was the possibility of that Boris Johnson

might throw his hat in the ring. You know. I have this image of Boris when he was Mayor of London on that zip line with the two British flags. You know, what are the odds of him actually zip lining on the Downing Street again and uh and taking the job. I'm sorry that image is still in I'd like to apologize on the behalf of the trouble troubled nation. Um, I think they're relatively low. They're very high that he

will stand. It's very it's a very high chance in my mind that a lot of people will think, let's get him back in. I mean, that's not that's not something that hasn't happened. Churchill was out and back in, Heath was out and back in, so the so called big beasts have done it before, but it does seem to me if you look at the betting houses that Rishi Sunac is lee, which I mean, you guys, tell me that seems like a problem in its own right, because of course she just lost the popular vote within

the Conservative Party to Liz Trust. And if there's something about Brexit, it's it's democracy and populism. So I don't know if that I don't know if that's quite gonna work. So help us understand what went so wrong so quickly for Liz Trust. Is it a case of unpopular policies? I mean, I get the whole idea of as someone who studied economics, like there's just certain policies you don't do in certain environments. But is it her misread bad

advisors what went went so wrong? Because safe to say, all leaders, many leaders and developed nations are in a tricky spot right now. We feel in the United States with high inflation, tox of recession, you know, global central bankers continue to raise rates. It's not popular. Well that's a that's a profound point, Like the outcome of populism isn't necessarily popular, But that doesn't mean that populism won't continue apace if indeed it might actually be pushed further

because of that, because of those wobbles. What went wrong? Ideology? Uh, you don't get to decide what the bond markets think. That's the whole point of the bond markets. They don't. They decide for themselves. Um. And I know a lot of advisors in the UK system, and I know a few bond traders. They're pretty smart people. What you don't do is get up in front of everybody and say this is how it will be. We have a forty five and then forty three billion unfunded tax cut. Everything's

going to be fine. Because my copy about the shrub told me it was going to be fine. It does It doesn't work like that, right, Am I wrong? No? She totally disregarded so much right within the system in the UK system and probably warnings right and understanding what the implications were for her policies. I think that's I think it's that simple and so but you know, I think there's a there's an optimistic tone to take, which

is that the systems wrenched arount. So you know, we can't do that with peuting, we can't do that with huge in pit. You know, the system, the markets, the democracy that we have. It's turned around and it said, no, that doesn't quite work. Reality check. It's time for the next person. So it looks bad on the surface. And I'm not going to tell you other word, but you know, a smart fiscal policy is such a lynch pin of

British politics, I guess politics everywhere in general. And I wonder, does this give labor sort of the upper hand, you know, enough to sort of change the balance in the next election, or our attention spans short enough that it shouldn't matter. You're asking me if the Labor Party is going to win the next life Basically, yes, I think. I think we've got to the project. In an objective opinion, of course, that's my that's my forecasting. And so well, look the

Tories have been in for twelve years. I mean, if we if a cast of minds back to Thatcher, she began her supply side reforms at the very start of a political cycle, so she had time for that pain to go through the labor market and for things to adjust. Trust was of course at the end of the political cycle, which means that I would have thought the Labor Party would win whatever was going on regardless of whether or not the Prime Minister has been compared to a Lettice

on television. Right, So, yes, I think the Labor Party I was obsessed with a lettis I'm just going to say bit weird continual. It's a bit weird and maybe unfair to the Lettuce. But but I think that what's interesting is that the Labor Party is going to have

a mess to clear up. And if I was being cynical, I would say to myself or maybe now is the time, if you're a conservative, to sort of wash your hands of it, say well, let the other guys clean it up, because this is a sort of two three year process at least. Well, here's our Bloomberg story. Whoever you know wins or loses trust a successor to inherit a grim UK economy, like you can't change any of that, and

there's some tough things that need to be done. Correct again correct, Yes, I'm not gonna like to So the O E C D is forecasting zero percent growth. Your listeners are mathematicians and finances they all know that zero is a bad number. That's probably optimistic. Okay, But but again I'll go back, and of course I would say this. Given my background, I think that the UK is is very good at imposing shocks on itself early. It's kind of ahead of the globalization curve every time. So this

does look ugly. Sterling has taken a hit obviously, and probably parities cable rate parities is something that we should talk about. But I don't look at the country and think, right, it's completely finished. I think, right, this, this shock that it's going through, you know, in the manner of thatcher before, will result in something else. And I think I know the answer to this question, given your your resume and uh, you know work as a trade official. Part does did

practice make this situation? The Brexit makes this situation worse or better for for Britain right now. So so Brexit was always going to be a short term hit to GDP. Brexit was always going to take the form of a supply shock. Um. It wasn't always a parent in my mind exactly how the policy mechanisms would respond, because on the one side, you could say, well, look, that's going to be inflationary, because supply shocks inflationary, so that the

central bank will have to hike. On the other hand, um, it might have been that sort of demand destruction and a recession had a different response. But it was always going to be something that was tricky. I don't think that Brexit's the only factor. Of course, we had this. We had COVID. I'm sorry to remind everyone we had COVID. We still have it. Actually we still have the vaccine line that I saw last night. I've probably got it right now, to be honest with you, chuck this guy out. Yeah,

just kidding, but but it's also not kidding. You're not kidding. It's a British COVID, though it's much more charming, that's right. But then the war in Ukraine, Well that's a big, huge factor. I mean it's you know, every day we come in here and we just think we figured out the big macro things that we're facing, and then something like, of course earlier this year, the war in Ukraine. So how do you factor that, you know? And then today it's of course not surprised, but to see the resignation

of trust. Um, so how do you factor Ukraine then into all of this? Well, I think that Ukraine is is a sort of signal to everyone that you're not necessarily safe, right, And I think it's the first time. I mean it's like tank battles in Eastern Europe. I mean it's wild. That's from seasons one and two. Right, It's it's crazy that it's back. So my father, who fought in World War Two and his brothers, well like it's like, that's what it's crazy. My family too. We

lost people in both of those wars. Right. Um, But I think that that's that's number one, spooking people to some degree, spooking markets. That's part of why the dollar is so strong. I would imagine, including fed hiking. But I think it's also something that it's it's sort of feeding into the zeitgeists in another way, which is, well, let's stress test everything. I mean, let's really think about

how safe we are or are not. And I would suggest to you that maybe that's what Sterling is going through. So now we've back to your point on brekxfit. People are looking at Sterling and thinking, well, does it really deserve to be one to one with the dollar? Um, So if you're asking me how that affects, does it, well,

I would I would say probably not, probably not. I imagine that we're going to see parity and how will that be received on the ground in Britain, you know, is that is that considered a disaster or does the old trope that you know, weaker currency is going to help the domestic economy. Will people rally be behind that or will they say, oh, boy, were at parody with the Americans, this is a disaster. Well yeah, go back, I mean go back to O E c D forecast

and that zero figure. If you break it down, it looks like point seven positive for government consumption. It looks like point seven negative for loss of exports. So if you're if you're thinking about a sort of medium term correction, if you're thinking about global Britain, if you're thinking about the reason that we did exit the European Union or orbit purportedly the purported reason a part of that was trading in the world and trying to get our exports back.

I'm not sure that that factor because it will be on a lag. Of course, it's a supply side issue. It takes a long time to build capacity. I'm not sure that that issue is as important as the psychology of not being able to visit Fifth Avenue at Christmas really powerful, right, We felt that certainly during COVID right when all of a sudden things that we just took for granted UM shut down. So, as I said, you have advised UM. You represent the UK government, you know,

representing and talking to folkus on Wall Street. We've got a very smart investment audience. So what would be your takeaway or something for them to think about over the next couple of weeks as we continue to see what's playing out in the UK and then more broadly about what's going on in Europe. Okay, well, I mean I'll take the UK first, and of course I would say what I'm about to say, which is, don't count the UK out. This is the country that brought uniteteen forty.

Democracies look messy, but the markets and elections are four. There are messy. There are messy indeed, yes I stand correct, they are messy, UM. But but I think it's going to be okay medium term. And I wouldn't write the UK off because, as I said previously, we're very good at corrections. We're very good at them in ways that you know, let's segue into Europe. I don't think that other other countries are. So I think that while there's a question over the value of sterling, and that's a

justified question. There's still a question mark over the existence of the euro. And if we start to see those bomb spreads wide and again, which I imagine we will at some point, you guys again, tell me if I'm wrong. Um, then then I think the the capricious attention of markets will sort of drift away from the UK and start looking at the your area again. Well, right now, the spreads are about thirty basis points in the favor of the guilt market, while blow treasury yields. Do they belong there?

Do you think? Um? I think guilts look healthier if I can put it like that. I mean, what the ten years three point nine and the thirty years three point nine five, that's better. I think their reaction to to trust his resignation was met in a way. I don't think that they worried about it too much. You can't do that. I always say, meth do you copyright?

I've broken? Copyright comes up with COVID takes my lines. Now, you know, just got about a minute left here, and I do think about you know, here in the United States, we look over at the UK in terms of politics and we're like oh my god, it's crazy. But in some ways it does feel like when something's not working, it's like next and let's figure it out. Is that air? Is there efficiency to it? Well? I think so. I mean I'm someone, maybe I'm maybe I'm based subjective. Yeah, yes,

I'm totally subpecting, totally biased. But I look at the UK and I think to myself, well, this is a wobble. This is what we would call a wobble. It's not good, um, But but wobbles end. And so I would again say to you, our cycles seem a bit nastier. We've gone through any number of moments in our history where it

looked like it looked like game over. If I'm being a frank right, um, but I think we left out The most important question is you wrote it up at recently you talk about the possibility of fourteen pound pints in the pub? Did I must have forgotten about it? Was that maybe someone else, maybe someone else fourteen pound pints? Are you trying to you're trying to give me a heart on air? What are the odds of fourteen pound points in the pubs in London? If listen, if if

the point goes to fourteen pounds. I will go back and stand myself with one platform and one platform only, which is getting the price of a point back down to five and you will have people voting for that platform um at price. Thank you so much, really a pleasure principle at Ergo. I told you about his background Google, Let me can hear more former British trade official and so much more. Joining us here in our Bloomberg Interactive

Broker Studio. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well inflation and rising labor costs will increase US national healthcare spending by three seventy billion in the next five years. Is according to a McKinsey report. Consumer prices are rising faster than health care inflation, but general inflation has recently

driven up healthcare supply input costs. So when thoughts on that and more with us as he is every week. Dr Ian LUs beda clinical professor of medicine at n y U Land, going back with us on the phone in New York City. Ian, we love having you here. Great to have you here on this Thursday with Mike Reagan and myself. How are you a pleasure? Thanks, guys. Hope everyone is staying healthy and well with the new COVID variance out there, but it seems to be under control.

But what's not under control, unfortunately, is healthcare inflation. We're seeing rises of over six percent a year. Healthcare is twenty of the GDP, over four trillion dollars a year and really estimated by two be up to six point eight trillion dollars a year. And there are a lot of reasons, unfortunately why we're seeing healthcare inflation, and we can talk about that, but certainly part of the problem is our our per capita costs. You know, it's about

twelve tho dollars per person per year. Other countries like France, Canada about half that, five to six thousand a year. So the real question is why or our costs higher than other countries. That guy would like to unpack a little bit. Some of the main drivers of that inflation, you know, my guests, would be that there were so many health insurance claims for COVID, whether it be testing or treatment. Is that one of the big drivers of

the increase in particularly health insurance costs. Yeah, they're really a number of drivers. One is hospital care, which is very expensive. You know, you can just look at the bills from even an e er visit. That's about thirty of the cost. The workforce is about of the healthcare costs. And we're really seeing wage pressure, you know, both physicians

and r n s because there's a labor shortage. A number of physicians have retired, a number of nurses are leaving the workforce, so there's really wage pressure in that area. And definitely illness things like the pandemic and aging population and unhealthy population. About of the US is obese, overweight. They use a lot of resources diabetes, hypertension, more technology. Also, you know, we have robotic surgery and all of those are very very expensive. They're high quality, high tech, but

also very expensive. So we're really seeing a combination of things. And the pandemic did not help with resource utilization. All of those nasal swabs that people are doing sometimes on a daily or weekly basis really add up the nets, you know, government money that's been printed in order to give out those um kits. So we've really had a number of forces that are raising prices and there are not a lot of market forces competition, advertising prices to

help lower that. That's part of the challenge. So not a new right. We talked about this for a long time, the cost of healthcare, But Ian, I do feel like there's expectations among Americans that I want a certain level of care when I walk into hospital, I want X y Z. I mean, how do we change the thinking or how do we really constructively get the price of

healthcare down? You know, you're exactly right, Carol the the we want Cadillac care, and we do have amazing high tech care, really the state of the art UM, but we don't really want to pay for it, and we, unfortunately we will have to choose. In other countries, there are delays. If you need hip, elective, hip surgery, knee replacement, you can't walk in if you're eighty five years old and get it the next week. In the US we can.

So I think we need to shift expectations and really say, without rationing care per se, can we change our expectations. We certainly want high quality care, but if we give high quality care to everybody all the time, UM, without any competition or cost uh market forces, we're going to be in trouble with higher percent of our budget. Alright, thirty seconds left. I gotta ask you because I want to know I'm double boosted and double vaxed. I've seen

the lines to the vaccine. Who should get that next booster just quickly and when we yeah, yeah, the by vay want, which is the B four and five are is important to get. Certainly if you have chronic medical issues or if you're older above sixty, it makes sense. It is available for everyone young and old, um, but certainly the tar a good audience should be people with underlying medical problems. There are a couple of new variants

out there to which may be a bigger problem. You don't really know how effective the new vaccine is for those, but probably will help. Certainly, if you have medical issues, it makes sense to get it. How how long do you wait after you've had COVID? Yes, I'm asking you Dr las beta for me, just quickly. Your antibodies and T cells are good for at least three to four months, so I would not rush to get the vaccine if you had COVID within the last few months. There's really

no data on that. Your body should be fined for at least three months. Thank you, So much as always, and smart to talk about inflation in healthcare because it's certainly something that's very persistent. Dr Ian las Beta over at n y Landgown Medical Center. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic

on Bloomberg Radio. Well, stepping away from the turmoil in the UK government for a moment, and yet I gotta say, what's going on there is just another one of the geopolitical concerns that impact anyone and everyone that it's a company, we talk about it all the time with leaders. So we're curious to see what our next guest has to say about the macro environment. And so great to have

back with us. Joe Preston, President CEO at New Balance Privately Held, spending some time with our editorial teams here at Bloomberg headquarters. He is here in our interactive broker studio and it is so nice because I think if it was a year ago or two years ago, we would probably be doing something remotely. Um, how are you. I'm doing well, Thank you, It's nice to be here in person. It's great to have you here. Um, what's it like running a business? Right? Now in this macro environment,

but coming off, thank god, the worst of the pandemic. Well, it's a challenge, there's no question, because there are just so many different things that are being thrown at any company out there for the past two and a half years, and I think for us, the biggest challenges balancing the momentum that we have, which we're seeing here in the US and around the globe with those macro economic trends, because we don't want to miss the run that we feel like we're on right now. The brand is resonating

with a younger consumer like never before. We've just had strongest back to school in our history, and we can see from who's buying on New Balance dot com, the age, the demographics that are that are coming into the brand for the first time. And then we're in close contact with our customers trade trade partners and they're telling us

the same thing. So with that being said, we also know that with interest rate heights in the inflationary pressures and all of that, and the supply chain still is particularly from a logistics standpoint, is still struggling, and so we're trying to balance all of those, all of those pieces together, which I wanted to ask you about those supply chains. I think New Balance is somewhat unique in that you have some big factories here in the US

in Massachusetts and Maine. Does that make dealing with these supply chain issues easier or harder when you have your your actual factories in the US, Well, I mean they're they're they're challenging throughout the past couple of years, There's no question about it. But yes, we have five factories in the US. We're the only athletic brand that has a presence here in the US. We also have a fact are in the UK, and again the only athletic

brand to have a factory over there. And it's a it's a limited portion of our overall revenue in pairs, but it's an important piece of our business. We think it helps our quality scores and it just allows us to be a better partner with our contract manufacturers because of the fact that we're making shoes and we know the processes and then we can pass along those tips

to them as well. Is it more expensive though? Like I always think about, I love talking about anybody who's manufacturing in the United States because we're all trying to we're talking about more companies doing it. Is it more expensive? Well, the labor is definitely more expensive. The cost of the materials are the cost of the materials, so it really resides in labor. So if you look at it strict strictly from a P and L standpoint, you could make

one decision. But there's also getting closer to the consumer. There's also the fact that you can run your inventories leaner because you're not relying on a supply line that's halfway around the globe. And what's a factor in time to try, you know, right, ship it and so on and so forth lely and then the you know, the costa capital is rising as well, which makes all of the contract manufacturing a little bit more expensive because you're

financing at some point. You know, John, I have to tell you so, I come from Philadelphia and uh in two thousand and nineteen, I had my heart absolutely broken by a man named Kawai Leonard of the Toronto Raptors hit what's been known as the shot to knock my six Sars out of the Eastern Coast finals. If you can't say I'm still a little sore about that, but I know new Bouncer New Bounce is famous for its running shoes mostly, But you are in the basketball market

now with a Klai Kwaie Leonard shoe. I'm guessing it's not selling so great in Philadelphia, I gotta say, but but but how's it doing naturally? And how's the basketball business for you? Is that is that an area of growth? Do you think? Well? I think first of all, I guess what is the expression? I'm sorry, I'm not sorry, but yeah, we we re entered basketball. We actually we were the first brand to to uh endorse a NBA play with a million dollar contract. It was James Worthy

back in the day, that's right, I remember. So then a number of a number of things transpired. We got out of the endorsement element of it, and then we got into baseball about ten years ago and today about in Major League players wear New Balance, and then that led us to getting into global football or soccer, and we have two of the top five players in the world in Saudio Money and Raheem Sterling wearing a product.

And then we got into basketball with with Kawai Leonard being the the the Brandon basket I hear his name. It's been really good. Yes, I mean that moves the needle. Those collaborations are having that the sports, the professional sports aspect of it, There's no question, you know, young younger athletes are looking to what they're what is being worn at the major league level, whether it's baseball or football or basketball, and so I definitely think that's that's helped us.

I got I just want to say, and just to follow, I mean, I have a teenage daughter in college now, but I mean sneakers are like a consumer staple for her and numerous kinds like that's her footwear. And you talked about the growth in the younger audience. Is it those collaborations with athletes or what is it that you think is all of a sudden getting a younger generation, which you know can switch in a time in terms of their preferences. Why do you think they're they're attracted

to the New Balance brand. I think it's the brand. I think the brand efforts that our marketing team has been doing have just been excellent. But you can't just market, you have to have products. So we have multiple new products that we've been introducing that have been resonating. We have been using collaborations with athletes and entertainers that have

provided energy, there's no question about that. That combination as well as the other things that we've done to attract the consumer and then make it a more seamless consumer experience when they come onto our website or come through our stores. We also know that is part of why we are successful today. You know, Joe. Obviously here at Bloomberg we are laser focused on Wall Street, and obviously

New Balance is a ivate company. But I have to wonder how often some bankers shows up at your doorstep, you know, with a flashy suit and New Balance sneakers on and tries to get you to go public or has an M and a offer for you. Is that a common experience for you? And what do you tell them when they show up? Well, over time, it's obviously been pretty common. But you know, the company is owned by the Davis family and it's uh, you know, Jim

bought the company in nineteen seventy two. Is initially founded in nineteen oh six. It's had three owners since then, and Jim just celebrated Jim and and just celebrated fifty years with the company. And that absolutely no no um no plans. Well as someone who works the two of us working at a privately held company. You understand kind of the perks and the positives of being privately held. What does that allow you guys to do? And we've just got about forty seconds left. Well, it allows you

to take a longer view. And I think domestic manufacturing is a perfect example. We've seen public companies in our space come in make make statements that they're going to make product here and free. Quarters later they're trying to explain it to an analyst and and suddenly it quietly goes away. When you're private, you can take a longer view.

One last question thirty seconds. If you had to describe the environment for the next six to twelve months, what's one or two words that you would use to describe it? Or three words? Uncertain? I think that is definitely one that you have to keep in mind. And for us, it's balanced. It's about balancing the momentum that we have with the macro economic headwinds that are out there. You're using that because your brand is new. Balance, that's that. What's going on here is that little um. What a

pleasure and so nice to have you in studio. Be well, and we look forward to you coming back real soon. Joe Preston, he's president and chief executive officer of New Balance, joining us here in our interactive broker studio. I'm Macro a journal Yeah, but you let me drive? Oh no, no, please, I want to drive. It's a good question. Driving is good ride to be closed radio. I just got about not in a half minutes left in today's trading session, and we are certainly well off our highs that we

saw earlier in the day. In fact, we're just hovering off our loads of the sessions. So as you heard from Charlie, really the S and P feeling the most on a percentage basis down about seven tents of a percent following what's going on in the UK. But also really weighing on the US markets is the continued expectation of a hawk ish FED as FED officials continue to fight inflation. So let's get to it with Eddie Perkin, chief investment officer for Equity Already eaton Vance Management. He

is with us on the phone from Boston. Eddie, nice to have you here with Mike Regan and myself. First of all, uh, the story of the day, or at least one of the geopolitical stories of the day UK turmoil. How is that if at all factoring into your investment outlook. I don't think it really is. I suppose you could argue that the UK is un a canary in the coal mine with respect to the bond market vigilantes and

what happened in the guilt market a couple of weeks ago. Uh, I guess a few weeks ago now where this austerity package or sorry not non austerity package lead to a bond market selloffs? At least that's the narrative. I think there was a lot more to it than that. I think the UK's uh, you know, relatively isolated from what's

going on elsewhere in the world. It certainly makes for interesting headlines, interesting story, something we talked about and chat about with our team in London, but not something that's impacting investment decisions on a day to day basis, you know, Eddie, I think the big question this year that just lingers throughout the year is how do you play defense in this market? You know, your traditional defensive sectors are are pretty you know, richly valued at the moment. What's looking

like a good defensive play in the equity markets? You given this stubbornly high inflation, and if this rates that just do not appear to be going lower anytime soon. I'm going to challenge the premise of the question a little bit. I'm not sure that I want to play defense right now. You've already had a big market sell off. As you say, the most of the defensive sectors are expensive, so I think you want to avoid the expensive defensives. UH, utilities would fit the build there. We're seeing a lot

of infloens et f inflows into the utility sector. Valuations look fairly rich to us. That's not where I would be hiding. If you really need to be defensive, I think healthcare is probably your best bet. Um you get good solid growth and good defensiveness. Could dividend yields out of pharmaceutical companies you don't have to pay a lot for them. So that's the one defensive sector I like.

But otherwise, incrementally at the margin, I'd be looking to play more offense by buying things that are beaten up, both cyclical stocks in the US and some of the European names that are now looking very cheap relative to history. You know, Eddy, we've seen the beginning of earning season here kind of a mixed bag, you know, some good news and bad news. Uh, everyone I've talked to is sort of bracing for a nasty revision two estimates in this quarter for the rest of the year. And how

are you thinking about that? UM? Is that priced in already for the most part or is there more sort of pain to come in the market because of it. I think it's the most over discussed topic of the market. Actually, you know, I think if I if I had a dollar for every strategy strategist I've heard say, hey, two forty on the spree numbers not right, the real numbers two hundred, If I had a dollar for every time I heard that, I probably have two hundred dollars UM.

And uh, everyone knows the numbers two hundred or maybe it's one ninety or two ten. But we all know earnings have to be cut. Anyone who doesn't hasn't been paying attention. And the markets forward looking, so some of that, maybe all of that is already in the price. And I think you have to look through that and ask yourself, what is the underlying earnings power beyond three of these companies? If three is a recession year, then you don't want to be putting a p multiple on that number because

that's a trough number. So what is the normalized through the cycle earnings power of these companies? Has it been permanently impaired by COVID or geopolitics or anything else that's going in the world. I think the answer is no for the most part in most cases, and therefore you should be capitalizing a number higher than two hundred for the smt uh in putting you know, whatever you want times on that, and you're into a you know, a price target for the SMP that starts with a four.

Does that mean we eventually revert back to that sort of that, you know, pre COVID leadership with tech and growth and and that sort of thing being the real drivers of the of the index is higher. I think that's a good question. My answer is it's it's rare when you get a big market sell off that coming out of that you have the same leadership as you

had before. So uh, you know, technology companies, growth, growth, tech is they're great companies there, but they were very rich coming into this, and I think we probably have had a regime change where it's now going to be more about value stocks. That means financial stocks, particularly the banks. It means commodity stocks like energy, which is but performed very well this year and yet is still under owned by most investors. And it means finally finally investing overseas

Europe and Japan. Uh. International stocks to me look more compelling on evaluation basis. Granted, the economic news is pretty ugly. And one thing I'm curious, Eddie, I mean, you guys eating Vans portfolio. There's a lot of choices for investors out there, fixed income side, equity side. Where is the money flowing right now? In and out? Uh? You know, I think you see a lot of investors want to

avoid anything that's credit sensitive. So uh, you know, I think the bank loan category, so mutual funds that invest in bank loans are seeing outflows across the industry. Uh. And I think most active equity funds you're seeing outflows as well. Um, we run Calvert funds, so Calvert branded e SG funds, and we're seeing good inflows in a number of those Calvert equity strategies. Well, Eddie, uh, is it a fool errand to try to time this market right now quickly? I think we got about Mike, you

know the answer to throw them a softball car. I think it's always a fool errand to try and time the market. I think that's what everyone's trying to do. You have a lot of people who recognize that a sentiment is very negative, cash levels are very high, and you have a lot of people saying, hey, early, the market is going to rip. The problem is if you

wait for the perfect moment, you might miss it. And so the best advice is the simplest, stay diversified, dollar cost average your way in relieve yourself of the psychological imperative to time the market perfectly and just make sure you're there at the bottom when it comes. And you do that by dollar cost averaging. I believe it in cash for a little bit longer, until you really get some clarity. I'm going dare I say, dare I say? Um? Eddie,

thank you so much. Eddie Perkin, chief Equity Investment office there for Equity at eight Advance, joining us on the phone from Boston. But uh, I do you know? I do wonder though, like a at a moment where there is still so many questions, I know you can't time it, but you can certainly, do you know, preserve something, you know, what's in your portfolio? Well, yeah, and your your point about cash, I mean, it's finally has a yield, a

real yield on it. You know, I'm not a real yield above inflation, but a noticeable yield that doesn't round down the zero percent. So it makes that decision a little tougher to to try to take on risk exactly. 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 to Bloomberg Global News