Markets And The Fed In 2022

Investment Group located in beautiful Richmond, Virginia. Rebecca, thanks so much for joining us here. You are a fellow University of Richmond alumni. You know what the mascot is mat at the University of Richmond. Wait, I thought you were a duke guy graduate school. I see, Okay, so undergrad the mascot is um General Lee Spiders. Oh yes, you never would have guessed that, but Rebecca knows that. Rebecca,

thanks so much for joining us here. What are you doing in a market where we've got interest rates rising, we've got growth slowing? How do you have the courage to be in this market? Thank you so much for having me. Well for self. You know, one of the things we rely on as our process and our tactical indicators are still suggesting it's appropriate to be overweight stocks UM,

and we are with a preference for US equity. Now, I'll say that and also point out that we have taken some risk off the table um in the last month or so. We've we've bumped up our cash just a little bit UM, but that's really for maybe a buying opportunity later, not because we bearish. Yeah. We heard yesterday we're talking to Phil Orlando from Federate Hermes and he was saying, uh, he thinks the markets rallying to undred by year end, but this first half is going

to be choppy and almost wanting to preserve capital. I think he said, you know for now, Um, you sound a little bit more sanguine about the risks the headwinds UM to to face US stock investors for for this

part of the year. Well, you know, when we put our outlook out in at the end of December beginning of January, the theme of it was the return of volatility in two So of course that doesn't mean it's going to be pleasant, um, but we think, you know, selection is going to be t having um, you know, some growth, some value and against some cash for ballost if you will, against these types of periods, and we think that you can navigate through, but we do also

agree that the volatility will likely continue through through the first half of the year. And Rebecca, we're kind of in getting into the meat here of earning season. What do you need to see from corporate earnings here as it relates to maybe valuation here? Obviously some people have some valuation concerns. What do you need to see from

earnings to kind of address that issue? Well, when you think about where we were in terms of growth in twenty one right there now forecasting full year one is going to come in north oft and we know that that was you know, coming out of the depths, and then now you're looking at two where you're seeing a deceleration of growth in that eight ten percent range. That's consensus,

i think for the calendar year that are in. But that has been well known for six months or so, right so that that forward growth expectation has been there, and we've also seen a couple of multiple points come out of the SMP five hundred as we have navigated through this year, so we're back to what we would consider a more normal type of earnings growth trajectory, and we think that the current valuations can bear that out, particularly when you look at UH profit margins being so strong,

cash levels being so high, and the growth prospects still very good for the US in terms of yields. Right now we're headed towards two. It seems quickly. UM. How much does that bother you, uh in terms of your equity investments and at what point would it you know, what level do you think you'd have to make some changes to your strategy? Well, definitely UH north of two, most likely before we started bumping up our our fixed

income UM. I asked that question a lot of our fixed income folks, and I think that they serve the right to to to hold off on giving a finite number. But when you think about the technology space, we are still neutral to slightly over light there. But we are still leaning into those software companies because we think it's worth it to pay up for names that have consistency

potential as it relates to earnings and revenues UM. And we do expect that they're going to be a little choppy in here as folks digest the fact that rates are going higher, But we still think growth will win out, and so we're content to stick with the space. I'm looking at w t I crude oil. It's off about two percent today but still just below nine per barrel, and it's obviously been a good harbinger for energy stocks actually getting a little bit more love in the marketplace.

How do you think about energy? Right here? Is are more room to go? Well, we had come into this year slightly underweight energy because we did not expect oil to go as high as it has gone. Um. Obviously for the foreseeable future, though, we expect prices to stay high, particularly with the tensions going on on the you crane border. Um. So we have neutralized that position and we're sitting tight with that at this moment. All right. So the geopolitical

issues are always just difficult to get right. Let me ask you, just with about thirty seconds left, what you think about crazy things like crypto? Is it too crazy? Well? I don't um have really a good answer for you. There. It is a space that we watch, obviously because companies that we own have exposures there um that we do not outright invest in it. It's this time, all right, Rebecca, crazy and it's still too crazy. It's still crazy for a lot of people. For main Street, yes, Richmond, and

for maybe even Jamie diamond In. Yeah, but I think like Rebecca, you know, they she has she's invested in companies that are connected. He's willing to work with clients that are connected. He thinks. Let's check in with Darren Schurvi. It's portfolio manager for jacob Asset Management. Darren, what are you doing with this market here? We've seen I guess volatility has been kind of the name of the game

here so far. Ino, how are you thinking about this market? Well, it's absolutely uh remains one of the craziest market environments I've seen. But that's pretty much been the case for uh, you know, not just two but uh certainly I would say for the last twelve twenty four months. Frankly, so this is really not much different. I mean, if if you look at the area where we generally focus on a jacobeth In Management, which is the smaller cap portion of the marketplace, I mean, we've been kind of in

a stealth are market for twelve months. So again I'm you know, generally speaking, I'm looking at this this opportunity to try and find values that are out there in the marketplace. So where are you finding them? Oh, in

a lot of different places obviously, you know. I mean part of the uh you know question is trying to determine which companies are going to do well when we come out of this uh, you know, difficult COVID pandemic environment, which ones are going to be able to handle inflationary environments and uh So I mean one example, for for instance, is in cryptocurrency, which obviously, UH is a area that

that we're pretty intensely interested in. Uh. You know, in a lot of ways, it parallels what we saw UM as a technology focused investor way back when in the dot com bubble. A lot of interesting opportunities, but a lot of perils. So you know, one of the UH stocks that we like here is is a cryptocurrency broker called Voyager Digital. Uh. That is one area that we like. We have investments in silver Gate and Galaxy Digital as

well in that space. So, and I know, I know you were back at the dot com era here, boy, that didn't end well for a lot of people you think the risk was good for But Darren, you were at market Watch at the time, right, Yeah, So I've been uh, originally a journalist and and left to join the asset management field in actually the peak of the dot com Yeah, in hindsight is a pretty good conjuring indicator. But you know, it's all about your timelines. I mean,

you'd say it didn't end well. And yet if you look at the you know, ten most valuable companies in

the world, they're all basically Internet base. It was an issue of timing more so than opportunity, and and so you know that's part of the game in the in the market and uh so generally speaking, you know, when I was looking at this marketplace and all of the crazy speculation that we saw with the meme stocks and the cryptos and and f t s and and just had trouble finding good opportunities in that type of marketplace. So when I see this uh kind of come down, Uh,

you know, that gets me more excited. It opens up opportunities. A great example of that is with SPACs. I mean, you know, that was one of the the biggest indicators that things were just getting entirely uh you know, too speculative and goofy and some level, and and so many of those SPACs are now totally broken with with evaluations well under the price they became public at. You know, are we there yet at the bottom. Probably not. You know, a lot of these companies, just like we saw in

the in the dot com bubble, will will fail. But there are some interesting companies, There are some interesting technologies out there, and I think it is going to be on us to kind of pick through some of the carcasses that arise and and and realize where there's opportunity and when there was just hype. All right, Darren, great to get some time with you, and I hope to talk to you more again in the future. I'm intensely focused on crypto as well. So um, I'm glad we

had you on. And uh, Darren turvit's their portfolio manager from Jacob Asset Management talking to us about what he's looking for in terms of opportunity in terms of crypto. You know, it's been an incredible run over the past um few sessions for bitcoin. We're trading it just over forty forty three thousand, I should say right now, so uh, forty three thousand, four hundred dollars basically. But you know, it was only two weeks ago that we were down

at thirty six and um, we had flirted. People thought we were going down to thirty um, but we have gone the other way and it's interesting to watch bitcoin now get some get some real power. Let's check in with our next. Katerina Simonetti, Senior vice president, Private Wealth Advisor at Morgan Stanley. Katerina thinks, so much for joining us here. I kind of feel like, you know, I got a lot of bricks in my wall of worry here,

not the least of which is inflation. But I need to be in the market though I just stayed defensive. What are you telling your clients, Matt, You're right, I mean the certainly has been a bumpy right, and it's nice to see some green on the screen for sure. Uh. And the uniqueness of the situation is that we not only have inflation, but we also have this really low

rate environment and with no rates are going up. But this combination of the low rate environment and inflation that is higher than expected, UH, is a definite concerns for investors. And we see it with consumer spending, with the consumers seeing extremely relactant suspense and kind of just start looking at the situation and perhaps inflation is not going to stay at the current high levels that we're seeing it. Perhaps it's going to they're going to be some type

of level of normalization. But what it means to investors is that real returns, inflation adjusted returns, are more important than ever and we have to very carefully analyze the investment portfolios through the prison of are they producing enough income to at the rear least maintained the buying power of our portfolios and does everything that we have in our portfolios makes sense from the perspective of real returns? And that's what inflation, That's what investors are asking us about.

And these are the conversations that we're having over and over, you know, looking at everything through the perspective of being prepared for being at the higher rate um inflation environment for a quite some time. Yeah, it's the rates that are the concern. Right, how far do you expect the FED to go? How far do you set a ten year ago? Well said has done you know, very good job setting expectations and their decisions are very much economically driven,

not market driven, and economy has remained strong. I mean, there are challenges without shadow of a doubt, you know. So we think that they're going to be a number of rate hikes, you know, probably the quarter point at the time. UM, it's hard to know exactly how far the rates are going to get, you know, but the concern is really for the existing portfolios and existing positioning UM and the quality right now of fixing com portfolios.

You know, it's important more than ever. Um. Now, this is not an unprecedented times you know, the environment of raising races a little bit not writing for investors, but you know, we get through it, you know, over and over. But it is unprecedented when we're dealing with hiking market volatility, inflution and the environment would fed as a raising rate all at the same time. So it's going to be a bumpy, right, heightened volatility, and we should mentally prepare

for it. Katarina, When your clients call up and ask about crypto broadly defined or bitcoin, how do you kind of have that conversation, Well, you know, it's it's there. There's a lot of uncertainty in that effort pass and you know, we see the volatility that is at the highest level you know possible. So we really are very

thankful about having those discussions. You know, from the perspective of you know, we want to make sure that that investors themselves do a lot of homework trying to understand what the assets class is all about and what will

in place, you know, in their investment portfolios. You know, so we we just you know, our job as advisors, you know, EA is to set expectations and prepare the general investment public for a much much higher level of volatility and asset class versus traditional stock market investments and uh, you know, more expected volatilities. We've seen some reasonable volatility and commodities other commodities, right because a lot of people think of cryptos just as digital commodities. What do you

think about the the o G commodities though? I mean, you know, the oils, the metals, the eggs. Is that important? Well, it's bring you bring me to the original question about inflation. So commodities traditionally are viewed as one of the inflation hedges. And you know what we're doing right now is we're putting making sure that an investors do have a diversified portfolio. You know, all the sectors that are you know, historically known as inflation hedges, and commodities absolutely play a role

there we can deny that. You know, there has been a serious subject in the price of oil, you know.

But the other area that that works really well in this environment is real estate because as we look at the inflation heades, you know, would ideally would we try to combine is not only the appreciation potential and maintaining the ability of these sectors to maintain the purchasing value of the investors, but also looking at asset classes that produced currents become and this is where you know, industrials

and reads, you know, really common to play. But historically, you know, coming back to your question about commodity, commodities can be used very effectively as inflation hedges. All right, Katerina, thank you so much for joining us. Always appreciate getting your thoughts and perspective. Katerina Semineity. She's a senior vice president and a private wealth adviser for Morgan Stanley. And you know, it's just math. We've seen the commodities inflation.

You know, everybody that comes on and there are a lot smarter than me, say, inflation is going to come down markedly throughout this year and maybe it's even peaky now or perhaps next month. Boy I guess I haven't seen it yet. I mean I also hear that from UM. Most of the people who come on, all of whom are also smarter than I. UM. I will say, and again I'm going to revert to N I Gilbert. I highly recommend people type NI space Gilbert on the terminal.

I'm doing it as Mark's story number three on on his ticker. There is about a couple of really big names on Wall Street. Nikolai Tangan, who's I guess Global Wall Street right because he runs the Norwegian Wealth Fund, and Blackrock are both saying inflation is here to stay. Yeah, I don't know, but you're right. Most people have said it's going to be tempered in the second half, come back down to earth. So we'll have to see a

that's certainly an issue for investors today. David Cats, president and chief investment officer for Matrix Asset Advisors, joins us, David, I love chatting with you. I love to get your thoughts here as we struggle here early in the equity markets a lot of altility, which people warned us about,

how do you think about value versus growth here? Given what we've seen so far this year, So we went into the year cautiously optimistic about the market, but a little bit concerned about the growthier areas of the market because we saw a lot of accesses in light of the fact that you had a ten to sell off in that area for the first month of the year. We think it's a more level playing field right now, and we think that you can buy in both areas, both value and growth, but you do have to be

a lot more discerning on the growth side. What do you think when you look at what's happening in rates right now? I mean, we're all on kind of two percent watch with a tenure um right now trading at one plus. We have in It's not just the US, right You've got UM, the b o E, and now the ECB on board with kind of a global rate raising uh cycle. So we do think that rates are going to be going up this year. That's you know, locked and load of the fet is going to be

raising rates. Whether it's three or four or five times, it's going to be happening. We think inflation is definitely out there. We do believe it's going to start to come down a little bit by the July August time frame, but we think interest rates are going higher, and you want to invest accordingly because it shouldn't be a surprise when the tenure does hit too. It's going to happen small caps. Is it a time for small caps to really shine? Here? David So again, small caps opened the

year pretty horribly. They're down about fifteen to so we do think from here, in a better economy and as count COVID takes a back seat eventually that they will come back very sharply. So we like small caps here. We don't traffic as much in individual small stocks. We focus on mid and large. On the small cap side, we like the e t f s like the Russell two thousand or the SMP Small Cap Index. We think is your real good exposure to that area of the market,

and we would be buying the step. You know, you've had a very sharp sell off. We think if you have a six or twelve month time arise and there are lots of different places to put money to work, we would not chase the strong days like today, but on the days where the markets off two hundred five hundred points small caps are down, we'd buy small caps and we think there are, you know, lots of places

to make money, whether it's small, mid, or large. And what about regionally, I mean, do you focus on only the US? Do you look at what's going on in Europe emerging markets? So our primary expertise is in the US. We do look at the international markets, and we we think after a decade of underperforming that the international markets are also poised to do better. So we like the developed markets this year again, we would do that probably

where e t f s or some active managers. We also think the emerging markets are probably one of the better opportunities in the globe. There's a lot more uncertainty there, there's a lot more volatility, but as long as you can put a small percentage there, we think you can buy some e t f s in the emerging market area and you'll be well rewarded. Rewarded on a twelve month basis um. Just to understand that there's a lot

more risk associated with it. And in terms of the emerging markets, we think they're about six to twelve months behind the United States in terms of trying to deal

with COVID. But we do think you're gonna have a global economic recovery and that helps the emerging markets, all right, David, we have inflation, and one of the discussions that Matt and I continue to have is, you know, we know the feed is retired the term transitory, but a lot of folks that we talked to on this program talk about inflation ebbing materially in the second half of the years.

That's something you ascribe to. So the question is what's materially We think that inflation is going to start to move lower, you think we think the comparisons start to get easier by uh June July, August. We think inflation ultimately settles down and like the three and a half to four percent range and then then goes lower from there. But we don't think you're going back to two percent, But we don't think you're going to stay at seven or eight percent. So you do think UM inflation is

here to stay UM to a point? What does that mean the Fed has to do to fight it? Well, we think the Fed is correctly raising rates this year, and we think that as the logistics problems from that our COVID related go into the rear view mirror, and as the labor market settled down, UM inflation settles back at the three and a half percent level, and we think if the Fed has raised rates a number of times this year, um, they will have correctly slowed inflation down.

And that's a very livable number, we think in terms of the stock market. Uh, inflation under three and a half percent is very good for the long term. When inflation gets above percent on a longer term basis, and we don't think that's going to happen, that typically is a negative for the stock market, So we don't think we're gonna get there. We think we're in a sweet spot of the equity markets where you have a good economy, inflation should be manageable, interest rates are still relatively low,

so stocks can do okay over time. David, what's the best idea that you've heard recently and maybe actually actioned on it? Well, generally, as you know, we look at things at six to twelve months. So what I might put out as a good stock idea today probably looks pretty stupid today, but six and twelve months out we think will make you money. Uh. So you know, we like a lot of stocks here again longer term, so

companies like Comcast, FedEx Us, Bancorp, Metronic, and Gilead. On the value side, we think are really good businesses at a very attractive prices. On the growth side, Google had a great quarter, Microsoft had a great quarter, Thermo Fisher had a great quarter, and you're paying about twenty to twenty four times earnings of those companies, which is okay

for great growth company. So we think that sort of basket of stocks is a very good place to start, and we'd be buying, um, you know, into any sort of down days here. All right, David, thank you so much for joining us. We appreciate you sharing your thoughts here, sharing some names that you guys are looking at at the moment. H David Kat's President in chief investment officer Matrix Asset Advisers here. 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. Pet On Ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.