A Deep Dive Into Markets

at Bloomberg dot com slash podcast. Well, we've certainly seen a move up in rates here again the ten year treasury one point five three, the thirty year two point zero nine, we did touch two point one percent, So that got people's attention this week and kind of raising the issue of an inflation and and how does the secuity market behave in the facing some uh inflation, both in the near term and longer term. Let's check in with Brett Ewing, chief market strategists at First Franklin Financial

Services during us on the flow from Tallahassee. I think there's some university down there in Tallahassee. I'm not sure might play against my dukeys in the a sec Brett Ewing, thanks so much for joining us here. Um again, we inflation kind of rearing its its head here A little bit more for investors here, how do you think these equity markets perform in what is likely to be a you know, a rising inflationary environment. Yeah, a great question. I think that you know, the market is pricing in

uh continuation here of the inflation numbers. Um. We saw supply chain reports coming out earlier in the week, and as we all know, the supply chain really hasn't been so transitory uh going into this fourth quarter. So we think that that the pipeline there is going to improve. I think it's dependent on COVID and I think that will help with the inflationary pressures in the spring. But

it's gonna take a little longer than we're all thinking. UM. I know it's very frustrating for Chairman Powell, but you know, I think I think they're probably gonna go ahead and start the taper or announce it formally in November at the next meeting. And uh, I think it's due though, So let's talk more about those supplies and issues, because

it doesn't just impact, you know, monetary policy. There's also the earnings question because when your input costs are higher, margins come into question, and especially as you know we're entering now, I believe today's two hundred and thirty days where we haven't seen a pullback of five percent in the SMP five hundred. How vulnerable are equities at these levels as we had into earning season. Yeah, I think last week we did hit an ter day five percent correction.

We were hoping that we would get there. Um, these markets need to to have that correction. You know, the SMP just has gone almost twelve months without it. I think they can be vulnerable. I mean, look in two we're gonna have a lot of headwinds. We're gonna have the FED doing a taper program. We're gonna also potentially have rate hikes going into the fourth quarter of next year. You know, the dot plot is moving forward. As far as ray hikes, We're gonna have continued supply chain issues,

potential hike in taxes. So I think these markets could be vulnerable. But going to the end of the year, we're still holding our price target on the SMP AT and I think we could rally into the end of the year before we get into a more volatile marketplace in Yeah, that's a nice move up. You've got their forecast. I hope you are correct. How about you know a

few weeks ago. We had a big shock to the market when China reared its ugly head and ever Grand and the concern about a contagion coming out of Asia that seems to have ebbed a little bit. Are you is that on hear rate our screen. We are still monitoring that. And it's not just about ever Grand anymore. China has a lot of debt issues and that's just the first salvo um We think there could be continued

problems coming out of China. They've got a housing issues, they've got major debt issues with some of their companies, and the crackdowns are doing in the technology sector and software sector and the gaming industry and recently on bitcoin. It's gonna cause even more problems in their in their economy. And that's what we're forecasting, going into something else that could happen in maybe if you know things get together on Capitol Hill. Is higher tax rates to pay for

longer economic or longer term economic spending. How do you factor that in when making investment decisions, the risk of that coming down the pike. Well, look hiking corporate tax rates. These big corporations, they certainly have the horsepower with their tax attorneys on their payroll to maneuver around as much as they can. It's the small business owner that's going to get clauded, and that is the backbone of the US economy and that definitely will give some headwins to this.

Uh this economic outlook. Earnings growth is already in a slower growth mode as we go into adding increasing corporate taxes is only gonna exacerbate that. Brett gotta asking the time left Florida State Seminal football team, what's going on down in Tallahassee. Wow. Uh man, it's tough. It's tough right now being a seminal. But we do have faith in coach Doorbell. He's a very solid individual, a great leader. I think I think they're gonna eventually get their act

together here, um hopefully this weekend playing Syracuse. All right, Brett Youwing, thank you so much for joining us. We appreciated Brett youing Chief Market Strategists first Franklin Financial Services on the phone from Tallahassee, Florida. And yes he is a graduate of the the Florida State University in Tallahassee. You know, when you think about it, when we talked

to these smart people, these pros Kaylee. There's a lot that goes into that wall will worry that is very tough to dismiss, and yet you continue to see the buying of the dip behavior, and to me that really strikes there's a contrast between institutional investors and retail investors and how much is it, you know, retail investors that just continually come in and buy the dip that is actually continuing to drive US higher despite all the concerns

and risk factors out there. Yeah. Absolutely, And I think it's gonna be very interesting as we go into this earning season starting in a couple of weeks, the guidance we get from these companies, you know, it's gonna be uh.

I think we're gonna hear about these uh supply chain challenges and the impacts that will have on its costs and you keep correctly bringing up the margin pressure that could eventually come into some of these companies, And so that will be really interesting, uh to see kind of the guidance they have as it relates to the supply chain, as it relates to inflation, UH, and their margins going forward. So again, earnings as it seems to be every quarter,

will be very important for this market. As this market is at or near all time highs on a daily basis, we're gonna more coming up. This is Bloomberg, all right. Looking at the d X Y index's came back, you know, late Mayo's around here. We are ninety four and change. Nice move in the dollar, dollar strength. Let's get to

the bottom of that. PREA misra head of global interest rate strategy for TV securities joints is is that you the flight to perceived safety over the last couple of months here, what do you make of the dollar strength?

I think thanks for having me on. I think the initial move may have been, you know, just safe haven, but I do think there's an underlying theme here of US exceptionalism, of the U s out performing the rest of the world U on the growth front, and now in the last week of the FED starting the process of unwind and they've sort of taken the drama out of the taper. We know when taper starts, when it ends.

And if that means that US rates and US rates have been the underperformer in in in terms of global rates over the last week or so, I think that's what's reflected in in in the in the currency. You know, the correlations between reads and currency do tend to rise when you're in these inflection points of monetary policy, and I think we're kind of there now, So let's talk about those higher rates pre Obviously, we're now north of one fifty, where it seemed for a while like we

might never get back to. There is the bias for yields now firmly to the upside. I think in the long end, I would argue for somewhat time. Yes, I think tapering is not entirely priced in. The Fed chap out suggested a much sooner end to tapering than what the market was priced for. So the market, I think in the last week has been pricing in a fast end of taper or or a fast end to quee. I think there's a little bit more room and that

we're looking for one seventy five on the tenure. I do think the front end is much more a function of economic data. We're gonna get payrolls next week, and our view is that that's where the economy is a bit choppy, or the recovery is not going to be a straight line up. So I think the front end, the zero to five year part of the curve. It's not clear to me that the bias is higher rates

just yet. We really need to see whether the structural labor market issues, is participation rising, what's happening on the labor front. I think we need evidence of that recovery before those rates can rise a lot, because we're already pricing in the first rate hike at the end of next year, which I think is a fairly optimistic view.

So I actually think front and rates and long fives, I think front and rates can decline because we're going to realize that the economy has a lot of work to do on the labor market front, and the FED is going to let it run before they hike. But the long end is a different story. I think that's

where Acque actually matters a lot. And you know, you raise a good point there, because we had initial jobs claims this morning came in a little higher than expected, the highest point since early August, the third month in a row of of kind of higher initial jobs claims. Should we make up too much out of that or how do you view that? Are you putting that in the context? Is that a trend for you? Yeah, we

were stretching aheads a little bit about that. You know, there's always seasonals this time of the year, just at the start of the new school year, We've often noticed seasonal quirkiness in the data. The supplementary unemployment insurance also ran off. It's also only a couple of states um that showed the rise, So we're not thinking this is the start of a trend, but it's absolutely something we

want to watch for. Or I think the claims are giving you a sense of you know, firings and layoffs, while what we're trying to spend more time on is people re entering the labor force. What's the pace of hiring is if some of the supply chain disruptions that maybe keeping you know, production law are those ebbing away. So you know, our thought is that the labor recovery is still continuing and that it's not reversing, but it's a slower process than I think what the FED or

the market would like to see. Obviously, the labor market recovery and the resulting FED reaction function is one thing that the market has to consider on the monetary side, on the fiscal side, I'm just wondering how you view the drama down in DC, not only the question around the dead ceiling, but also the question of what economic spending in the longer term is actually going to look like in terms of a dollar figure. Right, that's a huge deal, particularly because we know there's going to be

a physical drag for next year. So the extent of the drag I think is very important for every market to consider. And that's where this artisan there. It's one or three and a half or nothing. I think it's going to have an implication for how much of a fiscal drag does the economy have to live through next year because growth is going to slow down. Are we going from four percent to two or are we going below that? I think the fiscal package actually has a

lot of bearing. Um. Hard to tell our base cases that one and a half to two trillion partisans plus the one point too and bipartisan will go through. Clearly not easy, and then we've got this messy dead ceiling. At least it seems like the shutdown is going to get resolved. That's good, But the dead ceiling is a tough one, um, And I think the market is absolutely

ignoring it. Other than a small part in the builders, I don't think any market is really pricing that in and it's one of those things where you hope and pray that you don't have to get to it, but if you do, these market implications economic implications are so high that I think being aware of that and hopefully we don't have to wait until October seventeenth to see what happens. But I'm not seeing a very clear consensus past of how the death ceiling you seized. Pre MIZERA,

thank you so much for joining us. I really appreciate always getting your thoughts here on global interest rate. She is ahead of global interest rate strategy at TV Securities, based in New York City. We've got green on the screen here. A lot of uncertainty down in Washington, d C. Today, and a lot of things have to happen right to get some of this legislation moving. But the markets are kind of taking away and see action. Uh so will we. But let's check in with a professional on the markets,

Alan Rukshoff, and financial advisor and senior portfolio manager for UBS. Alan, thanks so much for joining us here. I'm a little surprised that the markets are kind of hanging in there, given that we've got a lot of things building. This wall of worry, whether it's rising interest rates, tapering uh, legislative uncertainty down in Washington. How do you put it all together when you talk to your clients. Yeah, Paul,

that's that That is the the billion dollar question. We have a lot of investor challenges, potential to higher taxation, inflation, all these ideas that are out there, and government shutdowns looming. Perhaps so all these things really are in the midst of a period of recovery after the pandemic. You know, we have a situation where we have a health crisis that's going to leave a world that's more indebted, less global,

more digital. But at the end of the day, they're going to be structural changes that happen as a result of the last eighteen months that we've all lived through together that really could lead to extreme positivity, spectacular positivity. And I think that the market is aware and has to balance both of those things, the realities of the uncertainty with the fact that we have a potential for

unbelievable new things to happen over the next couple of years. Well, you talk about how things have changed during the pandemic, and it's to such a degree that the word normalization is relative. You know what is normal now. But when we talk about not just monetary policy normalization but fiscal policy normalization and that being less supportive going forward, how do you think about that with the long term lens. Yeah, we have a situation on the monetary policy side, and

we'll get the fiscal policy in a second. Of the monetary policy side, where we have a balance sheet that has doubled over the course of the of the of the COVID crisis. We had a quadruple over the course of the financial crisis. So there's a lot of new

money out there. We have a Congress that is considering two bills right now that's going to spend more and more money, and so there is a real structural question about whether or not this can have long term impacts on inflation, and the inflation question, the transitory language, notwithstanding, has to be a question that goes beyond the academic because we have a lot more money out there and balance that with the supply chain issues and everything else

that's going on, and we really have to try to understand where things are heading in the ticks of these great changes. So the fiscal policy and the monetary policy of all this new money, Really we don't know where that's going to be, and that is the wall of worry that that Paul referred to. So Alan, you know, Katie and I were just chatting off air about, you know, how consumer behaviors may change post pandemic. You know, we've been through eighteen months of this, whether it's getting back

into the workforce, buying a house. When you talk to your clients, have you sense that their outlook for their investments, their goals has has anything changed? What I've seen changes this acceptance that we are in an inflationary period. I think the people feel that, notwithstanding this idea of transitory inflation, once prices go up, uh, we don't see it go down so fast. And I think that the clients have are respectful of that and trying to figure out how

to keep up with inflation. Historically, the stock market has been an excellent place to do that, and that's, you know, one of the ways to stay ahead of inflation. But really doing that in the context of managing the risk of what's going on out there, it is a necessity, and it goes beyond you know, having bonds and stocks.

It goes looking at alternative investments and and other potential and uh, you know, and this is by certainly not a recommendation and uh certainly not an area of that that we look at from an investment perspective, but certainly gives you some indications of people's thinking out there is the focus on the cryptocurrency market and the fact that it gets quoted, you know, by by people on TV and looked at very seriously because people are trying to figure out how do you manage the risk For us,

we really try to diversify throughout um the listed security world and through alternative investments to try to do that because of this uncertainty that's out there. And I think that in answer to your question, that's what clients are focused on. How do you balance the COVID realities, the fiscal man terry policy realities, with the fact that we have to stay ahead of inflation. What do you tell a client who comes to you and says, I think it may be time for me to you know, telt

more into cash. You know, having cash as part of me portfolio, especially in a period of such dynamic change, is a must. At the same time, I think that the inflation picture is something that we have to be aware of so we don't want to. It's not a matter of fear of missing out. It's beyond that. It's a matter of keeping up with the global pricing structure to being able to be able to buy the Coca Cola for the same price you know, two years from now that it is today, based on your assets that

you have. So I think that people are it's they're they're they're numerous risks by by taking an action, but there it could be significantly greater risk by taking in action. All right, Alan, thank you so much for joining us. I really appreciate your perspective and your thoughts. Alan Rekschaffen, financial advisor and senior portfolio manager at UBS based in

New York City. Um, and again, you know, it's it's tough to be in cash because it's not you're not getting paid here and on a you know, a real basis, you're losing money in cash. And so it's for a lot of folks it's that Tina situation kind of there's no alternative. I need to be in the market, and so that becomes a question of what do I own. You know, if we're in fact heading into rising and rate environment, inflation picking up, and it may not be transitory.

What do I want to own in this market? So that tends to be the discussion for lots of folks. We're got more coming up. This is Bloomberg. Let's bring it right now. Louis Navalier, Chairman, founder and CEO of Navalier and Associates. Louie, thanks so much for joining us here. I think as we think about these markets, Kaylee and I were just discussing, this wall of worry is a

real thing. There's a lot of stuff out there. How are you thinking about these markets when people might throw back, Boy, We've got inflation, we've got earnings risk, we've got uncertain Washington d C. We've got rising rates. How do you

frame it all well? I think the big picture that's happening now is obviously China's intercession, and we had that with their purchasing energy index this morning, and Britain could be in a recession pretty click too if they don't get their act together, and then we have a green energy problem because anyone who's trying to comply is um it's not working out in China. It's the higher electrics

drawing down. So then they're trying to. They have rolling blackouts and many provinces and obviously in Britain, I guess pycess up sixfold because the wind will stop blowing. That's also hurt Germany. And it's it's a problem, and it's just, uh, we're gonna have very high energy inflation and uh it's um. I think it's against told. But the central banks can't

raise rates because the interest burden is too big. So okay, so you just desc I had a lot of things that I would think would be you know, kind of negative for a risk sentiment. But to Paul's point, we continue to climb the wall of worry by the dip works every time. Is there a point where it's going to stop working. I think it's gonna work welter in the next year, because um, when you have inflation, it's either real estate or stocks, and growth stocks are place

to be. Clearly, some energy stocks are gonna wint fall earnings. But I don't have the analysis estimate cuts UM that some people are starting to complain about. But I am finding fewer stocks to buy UM, and I am profiting from all the problems out there. I mean, I'm loaded with all this shipping and container stocks, so they're going to be profiting from the glut men the ship, the shipping glut, and um It's just it's a very interesting

environment we're in. But earnings do work. Um. We are going to have positively quota results and notest on so it's previous quarter and then we have season seasonal strength in a lot three months the year. October is the season strong month despite October eighty seven and Novembers even better. So I expect the strong finish to the year. UM. I was very happy. Every time the market corrects, the money seems to go to different stocks, so money is

not leaving the market's just washing around. All right, Louis, you've been in this game a long time. You began publishing your research advisory newsletter in so you've seen economic cycles. The one of the areas that's really getting my attention in the last several weeks has been this global supply chain issue. We're hearing from more and more companies affecting their businesses and more and more ways. It just seems

like it's setting us up for some earnings disappointments. Perhaps uh not just in the near term and maybe intermediate term, how do you think about this global supply chains. It doesn't seem to be fixing itself in the near term. Well, other than only the container stocks and a lot of shipping stocks. I don't have an issue with it because I am T s M and UMC and micro Electronics and TMC Thaiwan Semi, so they're making the chips are in high demand. But there's no doubt that the electrification

has become a problem. And because the electric cars would take more chips than the other cars, and so that's it's it's a glitch. I mean, Taiwan, somebody's building a great big plant Arizon them, but it's just it's not ready yet. And uh so there's this fight for chips and it's very very sad, and but at least I can profit from that and from the shipping bottlenecks. UM food is a big problem because fertilizer is high and

natural gases gets fertilizer prices up. You you're talking about things that could profit from some of the shortages out there, but that if there's a winner, there's always going to be a loser. So what would you be saying far away from in this environment, Well, uh, that's a good question. I don't like this typicals um. Uh. I like companies that dominate their business and monopolistic margin expansion is one of my big things. Uh. So I have sold all

the Chinese retailers I had. I did that some time ago though. UM. And in the US, I'm very careful about retail I do have Coals and some especialty stores. I have some sporting good stores, you know, Dicks, Big five. UM. But I really do think we have to be very very careful about we have to watch the consumer. I mean that's um consumer the conference board, UM, the consumer sentiments dipped and that was not a good thing. Hey, Louis, thanks so much for joining us once again. We always

appreciate your time. Louis Navalier, chairman, founder and c IO of Navalier UH and Associates here again. UM. Interesting, you know, trying to pick the sectors that are benefiting in the near terms, such as the transportation logistics companies that are able to charge extraordinarily high rates here for their goods and services to get the goods around the world moving.

Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Put on fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio