A Closer Look At Markets, Focus On The Fed

feels it looks like a by the dip? Should we read anything more into that? I think she was headed right there. And you know, just going back and looking at what's happening in last oh year or so, since about this time last year, buying the dip, it made a lot of sense. You know, the market dropped down about the fifty day moving average and you'd see support coming right in and then all of a sudden, you know, we started hearing about a contagion, uh that you know,

for many it seemed to come out of nowhere. You know, that really started look hitting the markets on Monday and the question of buying the dip of you know, people started you know, scratching their head. But you know today it looks like it might be another reversal and and uh, you know, I'll say by the dip until it's proven otherwise. And right now, I'd say markets are kind of excited about you know, it's kind of a stealth day for investors,

but it's a pretty big day for the markets. We have had a number of um, big market commentators come out and say this dip could be could get bigger. Scott Minored, for example, was telling me yesterday from Guggenheim he thinks we could go down ten maybe. And that isn't dramatic compared to what we've heard from a lot of the big banks on Wall Street. So what what what do you think a correction will look like here? Yeah, corrections are inevitable, you know, we we talked about them.

They're healthy for the market. It it gives investors time to kind of reassess where you knowings make sense and we're realocate But the fact is when it happens, you know, we all cringe and you know, scrambled from monitors and

talk two clients. But yeah, we always talk about you know, what's normal and what's healthy is in that ten correction where you get into problems when you start realizing that ten percent on a market level of day is a little more significant than you know a few years back. Uh But I still think that you know, there's going to be something that it's going to be an outlier event. It's not going to be something expected that's going to cause market nervousness, and it's not going to be a

one or two day events. You know, there will be selloffs and that will give us an opportunity to to really look at the markets. But you know, when you still look at what the underlying and support for the market is, we still have you know, strong earnings growth. It's slowing down, but you know it's certainly above trend from what we have seen over the last several years.

We've still got uh fed that's giving us liquidity, which you know, we'll find out what it really means, you know in a few more hours, you know from you know what German Powell says, and you know, you know, let's just not forget that. You know, when we're sitting at rates near zero, investors are looking for places to park cash with some upside opportunities. So you know, corrections inevitable. You know, we're going to scramble and trying to understand

what it means this time. But you know, I don't look for you know, that recessionary impact anytime since. All right, Tom, So, to the extent that people have what Tom Keene will call the courage to be in the market, are you more inclined on the equity side to be in kind of the cyclical maybe a reopening type scenario, or are you comfortable with what has worked for better part of a decade, the big top line growth text stories. You know,

I think it's it's really is a combination both. And the reason is that, you know, when you look at what has been you know, sustainable over the last several months, you know, once we got past the pandemic clearance and we solve you know, stay at home, work at home stocks really moving. A number of those stocks still have good growth prospects and they're changing the way we work and we live and we play. Those are good quality stocks.

But meanwhile, those cycnical stocks are starting to come back. Uh. Just jumping on a plane over the weekend, looked around, flights were full, airplanes are full, and lo and behold everybody's wearing masks, so there's kind of a new normal. Their cynicles are coming in. You just talked about the energy markets on a rally. I think, you know, that's really reading and the fact that economies are coming back.

But it's going to be looking a little bit different now as we adjust to you know, whatever COVID variant looks like. You know, we're starting to see still manufacturing, you know, coming up to all time high, so the economies are building up to you know, what looks like

traction in the economy. I think that looks a little bit different than saw a year ago, but it's going to be kind of I think a bifurcated of both good quality growth and followed by good quality value stocks that have you know, like a growth factor in them. That's going to really explain how this economy is going to pull out and you know, start maintaining its traction that we've seen for the last several months. Tom, thanks

so much for joining us. Tom string Fellow there he is chief investment strategist at Argent Trust Company, talking to us about his outlook ahead of the Federal Reserve finishing their two day meeting today and we are going to hear from Jerome Powell m a little bit later on. I guess it is. What's just about four hours from now, Well, it is FED Day, and that's a big day here at Bloomberg Television or radio. So we're gonna be all over that said on this side, it's big. It's big.

It's kind of like you know, playoff day for ESPN or something. So it's a big day here. We certainly can. It comes once a month though, I know, and that's what we love about it. Once a month. All right, let's bring in an expert that kind of help us kind of preview what we might hear and see and read. Danielle di Martino, Booth CEO of Quill CEEO on Director of Intelligence for Quill Intelligence, also former advisor at the

Dallas Federal Reserve, in a Bloomberg Opinion contributor. And the highlight is she's actually in the Bloomberg Interactor Broker studio today. It's great. Yes, it's so cool. And I know on Bloomberg Television, Matt Jeff Curry from Goldman Sax He's also in the Bloomberg Television studio. So people are coming out and their count coming into our offices, coming into our studios, which makes it so much better. Uh So, Danielle, great to see you give us a sense of what we

should be looking for today. It feels like the tapering discussion has been so well telegraphed. What should I be looking for? It has been so well telegraphed. But on the other hand, and I'm starting I sound like an economist. But on the other hand, J. Powell's got a lot of reasons to be reticent, and I don't think that there's a great enough appreciated ation for that right now. Uh you know, in the post COVID world, we've forgotten

what FED traditions are. And there are certain things that the FED does not do, regardless of where we are in economic cycles and before or after pandemics. They don't step into the in the middle of any type of political event or political morass, the debt ceiling, the budget resolution, the drama that's being played out in the Beltway. The FED does not make major policy shifts in the midst That is the tradition. And the FED also, if you look back through history, does not make big moves in

the month of December. So I understand the telegraphing, the broadcasting the fact that the market is ready, the appearance that we're not going to get a taper tantrum, because if we were going to get a tape taper tantrum, we would have gotten that when J. Powell first acknowledged that the discussion had started, and that really didn't happen. But again, the flip side of it is, there are

certain traditions and we're starting to see foreclosures rise. Right before I stepped into this into the studio, Cox Automotive came out with a report and said that of potential auto buyers are now going to pull back and wait because of prices, not low supply. We're hearing the same thing coming out on housing, that prices are becoming a deterrent,

not just low supply. So there's a different narrative that started to emerge, and J Pal will be paying attention to that, especially as you hear one company after another talk about the labor pool refilling and more applicants um putting in, putting in for some of these job openings. He'll be looking for wage inflation to fall. Yeah, we we actually just had a headline Cross that existing home

sales fell um two percent. And just this morning I was talking to a friend who decided not to buy a Kia because the dealer wanted ten grand over ms RP and wouldn't budge a Kia Akia. And what do they say? What do they say? That the cure for high prices is high prices? Yeah, well, I guess that's the case here. Um. You know, you've got so many other issues. Uh, You've got the China, the common prosperity crackdown. Um. You've got the supply chain snarl ups, which I guess

are are are part of that high prices issue. Um, and you've got, um, the labor shortage. I wonder if especially the latter, what what's your take on the labor shortage? Now that we see extended unemployment benefits coming off, are we going to see the labor shortage ease again? Just this morning I read a laundry list of companies that have come out on calls and said that the shortage is alleviating before their very eyes, now that all fifty

states UM have indeed stepped away from these programs. I live in Texas, where the supplemental benefits went away in July, and I can tell you just by driving around the Warren buff fit fashion and kicking the tires. I don't see as many help wanted signs as I want said. I'm not waiting as long in restaurants. I don't have to wait as long to get an uber or a lift. There are certain things that are just said. They had a huge spike in new drivers, so they've really added

a ton and plus. But uber rates are up. Why not? Um? Sometimes that I've spent in Florida with my family, for example, I've heard people say I'm not going back to my job at Disney because I can make double that as a lift or an uber driver. Yeah. Well again far. But but to your question about Disney would be a lot more fun. I feel like Disney would be so fun, especially if you get to dressed up as the mouse. Okay when it's a hundred degrees in humit, Okay, let

me get back to me on that. Um. But But the point is, this is what j. Powell has been waiting for. This is why he keeps saying, let me see September and October, let me see those non farm payroll reports come out before we make any big decisions. And again I will bring back to you the debt ceiling, and there are major implications we've just had come to light meeting minutes from an emergency Federal Open Market Committee

from October two thousand thirteen. There is actually a blueprint for what the Fed can do to alleviate a potential debt default if extraordinary measures that Treasury Secretary Yellen is implementing or exhausted. You can, in theory but default on the treasuries that the FED owns, and really not it's called a strategic default, and and and and not technically default. Fitch and Moodies won't like it, though. What are the chances I was talking with Matt Winkler, or editor in

chief emeritus about this this morning. What are the chances that the United States might, you know, not because we can't afford to, but for political reasons, miss an interest payment on its debt. Well, that was exactly what I was just describing. And again there is a blueprint that has been drawn up between the Treasury and the FED that ex blains how we would go about doing that. Because the first debt first default in the Fed's debt and then defaulted everyone else, just the Feds. It's just

a quarter of the Treasury mark. They own a big chunk of it, so you can theoretically buy a lot of time. And you have to remember their accounting maneuvers. The FEDA Reserve remits treasury interest back to the Treasury once a year. That's how accounting it at the FED works. So as far as they're concerned, they're just moving money around on a ledger until the debt ceiling is resolved.

All right. So one of the things I'm wondering if the FED is looking at the FED Chairman Pal's looking at, is we're hearing from many sectors of the economy in many companies, that's the supply chain. It's not getting better and it may even be getting worse. We take a look at the number of ships stopped off the coast of Los Angeles and Long Beach, and it's get it's growing, and we're getting into that killer, you know, kind of season of you know, shopping and Christmas and Holidays and

a lot kind of stuff. Is that on their radar? Uh? It really is. And just listening to a lot of of manufacturers in the Texas area, the Houston port is hopping other ports companies are trying to get around that the three big West Coast port log jam because it's historic, it's it's it's as bad as it's ever been. And freight costs have become you know, comed about if they used to be a small line item, but they're enormous.

So even though we're seeing iron ore prices come down, and obviously we've talked about lumber and corn, little bits and pieces here of input costs coming down, but freight searcharges and you can I'm hearing anecdotes of freight surviving and companies saying, if you want the merchandise, by the way, you're gonna have to pay up. It will be another fifty dollars. And some of these sitting there right Paul, weren't you saying, yes, yes, somebody had a shipment come

in and it just sat in the port for two weeks. Yeah, it just sat in the port. It just sounds like something I guess we thought about this. Yeah, Okay, there's a supply chain, but it will work itself out as the world reopens. It seems to be a bigger issue, and again we're hearing it from more and more and

more companies. Well, and I think on a broader level, I think that companies are also kind of starting to hide behind, for lack of a better term, the ability to really ramp up pricing, behind the auspices of this supply chain distruction. But again, pay attention to what's happening underneath the surface. Pay attention to things like Cox Automotives saying it ain't a supply issue. People, fifty percent of

is a big percent. Fifty percent of buyers. And you're seeing this in the University of Michigan buying conditions for cars and houses. They're saying, Bosta, this is too much. I'm stepping back because of the price shock. Yeah. Interesting, alright, so much to look at there. Danielle di Martino, Booth CEO and Director of Intelligence for quill And Intelligence and former advisor of the Dallas Fota Reserve and a bloomerket

opinion and contributor, thank you so much for joining us. Well, I guess the folks that were, you know, by the dip type of people, they were right again, the markets up over one percent here in the SMP and DOW. So there you go. Let's check in with Alan Adleman, Senior fund manager and senior Research annels for Frost Investment advisors have about five point one billion dollars in assets under management. Alan, it seems like to buy the dip.

Folks were right again, is that your take, Paul, thank you, good morning. And I'm still not convinced. Frankly, Uh, the market to us feels a bit fatigued, just kind of given the rapid pace that we've seen over the last year or so. So a lot of our smart money investors and you know, we're engaged with a lot of investors, both institutional as well as individuals in Texas are actually

looking to buy the dips. But the expectations are that the market is a bit fatigued, and we could see it Isptember going on October, and we could see a little bit more of a pullback we have seen looking back at the SMP five moves about there were a hundred and ten one moves in and so far we've only seen thirty five. So it's definitely a market that has lost some energy in terms of um you know,

the size of of moves here. And we've heard a lot more people Alan's calling for a pullback, calling for a correction, not saying you know that they're bears, but saying we expect a ten percent drop or even a drop. What do you think about the possibility of the ladder? I think, well, first off, I would say that we're still very constructive on the on the US large camp

equity market. We're fully invested at this choke er. You know, we've looked for further opportunities, but we're fully invested, which should should show you where you know, where we're at from a market perspective. But your constructive, and you put your money where your mouth is now, and well, I mean, I'm not trying to be a wise guy, but we put our clients money where our mouth is. And that's

even more of a conviction from a Frost perspective. So do we expect some kind of correction, We would welcome it. We think that right now we're kind of in a purgatory period, Paul, relative to you know, we're not yet an earning season. We've got all sorts of exogenous types of activities going on. You know, evergrand Is seems to not be quite as the topic to Jore, but nonetheless, you know, you've got you've got situations like that, You've

got the congressional circus going on in Washington. Relative to the death ceiling. So there are are non corporate events that really could trigger investors at this particular um juncture. And we're looking forward to earning seasons, but you know, we've got realistically, we've got a month ago before we

get back into that. So, Alan you're fully invested in the market, are you invested for a reopening type of trade, i e. Some more cyclical parts of the market, or are you uh kind of in that camp where I'm sticking with the tried and true top line growth stories, tech, healthcare things like that. Well, the short answer, Paul is both, and we take a blend approach, so to speak, in terms of the ladder the names that you are referring to on the growth side technology, um, you know some

of the healthcare names for sure, um. But we're also invested in the cyclical names. And if you think about it from a portfolio construction waiting perspective, UM, we're probably, we're not. Probably we are more heavily weighted to the growth segment than we are to the sick of sick of learn um exposure perspective. So that's you know, that's that's where we're at today. What do you think about or how much does it matter to you that we get more fiscal uh spending in terms of for example,

the infrastructure bill. It looks difficult right now, but it's it's a huge number. How much does it matter to you to you for your clients, I would say, well, for our clients, it's a broader topic. For us specifically. You know, we really pay attention Paul uh To. I mean, you're an analyst, so I mean we take a very much of a bottom up approach, and we talk to our companies and we listen to them all all the time. We do channel checks, we do all of the things

that are fundamental equity manager we do. We're managing portfolios, diversified portfolios where we're we're investing in literally every economic sector in the S and p um or our benchmark, So we do take that approach. Having said that, I would say that the infrastructure built over the long term would have positive ramifications for for the economy at large. These are things that are required, are necessary. Whether we get into some of the softer things time will tell.

But but I think our client base and where we're coming from is we have a high level of confidence that ultimately will get at least the hard infrastructure build past, you know, sometime in the near future, and that will bode well as we get into two and twenty three and beyond. But I'm repeating myself, which I guess I'd like to do. But having said that, the whole atmosphere in Washington is still problematic in terms of not being able to make a decision, not being able to come together. Alan,

thanks so much for joining us. All Adelman there from Frost Investment Advisors. I want to get over to the chief investment Officer of Global Equities at invest Go. George Evan joins us. George Evans joins us now, and we're gonna hear about your market views, but I want you to first, George, explain your Mantra investment themes to us. So certainly, so good morning and what everyone, um, So we we run I've been running an international strategy uh

at Investco. It was often time before since so we're just over twenty five years and we've followed the same four themes over the entire art of that time. So there's MANTRA stands for the four themes, which is mass affluents, new technology, restructuring and aging. So we want to be focused on areas of the global economy that we think are set to grow structurally over many, many years, and to find the winning companies and invest in those stocks accordingly.

So they're connected. So mass affluence is basically about the world getting getting rich, and particularly after the fall of the Berlin Wall, the massive increment to growth and wealth, both of wealth in the emerging markets. I mean we see it. We all see it in the number of millionaires and billionaires just soaring everywhere in the Western world and in well in China as well. What what's led

to that? Well, I think the biggest thing is the way that the whole world more or less embraced a greater orientation towards market economies after the collapse of the Berlin Wall. So if we look at pre Berlin War, you're looking at really only about fifteen percent of the global population that lived in countries that had market oriented economies. After the collapse of communism, we saw more and more of the world embraced market economies and that's been the

principal driver to wealth creation. So you know, China's gotten grown staggeringly fast over the last thirty forty years. We've seen huge increments to growth from many other emerging markets. So it's really gone from a small proportion of the global population engaged in sort of living in market economies too, you know, probably now well over well over half engaging it. So that's so now a lot more people need to buy German cars, stay at five star hotels, and drink

Johnny Walker blue label. Absolutely everyone, um, you know, like you know, people to people go from you know, riding bicy walking or riding bicycles to motorcycles to cars. They get bank accounts, they get credit cards, they like to go on fancy holidays, and as you might be pointed out,

people like to drink beer and wine and spirits. So George, give us, you know, maybe a practical example or two where this mantra has taken you into some sectors that have been good for your fun over the last twenty five years. Okay, so let's pick luxury goods. So we luxury goods. This is one of the you know, in talking about luxury goods, it's an area where you must be invested internationally because all of the big brands are mostly based in Europe. So we've things like Louis Viteloy

Hennessey UM. We there's airm Airs which we own UM and there are several other big brands that are all pretty much European based. The well over fifty of luxury good sales now go to people that are from emerging markets, and the Chinese have been a major driver of this growth over the last over the last ten twenty years.

So as people get wealthier, they like to signal where they are, you know, in terms of relative wealth, and one of the ways that they principally do that is by buying UM a lot of luxury goods, whether it's handbags, clothes, jewelry,

fancy watches, etcetera, etcetera, etcetera. So this has been a you know, a relentless structural growth over the last ten twenty years, and it's got to the point where earlier this year there was a period I think of a couple of weeks where uh Benna Arno, who is the majority owner, what he's got the biggest steak in Louis Vutan nuer of weeks, the richest man in the world. I mean, this is a very very powerful sector. There's

very very good long term structural growth. We tend to prefer true luxury rather than just sort of expensive fashion products because the we believe that the that the demand is a lot more sort of robust and less variable for that. So that's an example in in in mass affluence. We've also, you know, whilst the US has prepositions, but across the beach front in much of technology, there are a number of companies um in the international opportunities set

that have been extraordinarily well positioned. So a large holly for us in the Dutch company a s mL. It is effectively a monopoly at the leading edge of semiconductive production equipment with the latest EUV equipment that will allows the etching of extremely sort of find diameter h I find diameter chips. So that's that's been a share that has done extraordinary well over the last one three and

five years. And then a course, the largest foundry company check boundary company in the world is based in Taiwan.

That's t S seven CE Taiwan seven Conductor. So I think that one of the most important things in thinking about international is that there are first of all a lot of extraordinarily good world leading companies based abroad, but it is extraordinarily important to be a stock that because would be highly highly selective, because a lot of people point at the point to the the the outperformance of the S and T versus any international all the collective

of international industries over particularly the last twelve years UM. And part of that is because a lot of the international industries are not as well constructed as the SMP. They are not populated with companies of such sort of uniform or not uniform but such excellences as as populates all of the S and P. So there are clearly sectors you know with our theme approach that we have

totally avoided structurally over ten and twenty years. So we are very low on financials, with very low on industrial materials, were very low on energy, and these areas have all been structurally well represented in the non US indices, but are areas where there hasn't been a tremendous amount of wealth creation. All right, George, thank you so much for joining us and sharing their your mantra strategy for twenty

five years. George Evans, chief of Chief Investment Officer of Global Equities for Investco, Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller, Three Ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio