Markets, SCOTUS, Crypto, And Real Estate (Podcast)

What the first half of the year plus declining SMP. We've got double digit declines and the Bloomberg's corporate bond indext treasury bond indext, the sixty forty portfolio is dead. What do we do in the second half? Yeah, well, it has been a very very dell difficult and challenging start. You write, it's sixty forty portfolios down almost se year today, so it's really been um a tough start. But I do think as a result of that, a lot of things that it needed to correct did correct in the

first half of the year. And when you think about it, we did a lot of heavy lifting. We came into the year thinking we might get three rate hikes from the FED and instead we're gonna get to three percent or higher on the FED funt rate by the end of the year. So that's a huge pivot that needed to happen, and as a result, we needed to see the reset and valuations. But we have seen that. If you look at the NASTAC evaluation, the p went from thirty five times to two times or so today, so

that's a significant correction. We've seen the crypto craze that you know it was alive, and while at the tail end of UM take take a big leg lower and I think some of that needed to happen as well, that froth needed to come out. So as a result, as I think about the second half of the year, I do still think we're not out of the woods yet and there's gonna be challenges and we could talk

about some of this. I think something's may break. But having said that, we're not a forty seven hundred anymore. We're thirty seven on the SMP and if we would go down to thirty so that might be justified by multiples and earnings, that's still a lot less down to go that where we started the year, well, that's still higher than where we were when the COVID crisis forced governments around the world to shut down completely their economies.

I mean, let's not forget how serious that was. Right, Um, it's it's been a bad quarter for the sixty portfolio, but last year was aces We went from the end at the end of one after a global pandemic. I mean, was that justified? Well, I think it was at the time, perhaps, right. I mean, there was nothing to stop it because the FED was incredibly easy. We've had zero percent interest rate

and people feel comfortable taken on risk. The beta trade was very much alive and well, and you know, justified by where the FED was and the risk appetite that was there. But it's certainly not justified today. But I would make the point is I don't think we need to go to where we were just during the pandemic

or just coming out of the pandemic. Because the reason I sort of circle this thirty five hundred level on the SMP is because earnings estimates are higher what they were before, but they probably need to come down some And if we have a base case scenario that it's not a recession but a slowdown consumer, let's slow down that earnings revisions need to come through to the two six or seven percent, And so you do the math on that, and you apply a multiple of fifteen or

sixteen times, then that gets to two about thirty five hundred on the SMP, maybe a little bit lower so UM so yes, I think probably a little bit lower still, but not to the levels that we saw just coming out of So that's pretty conservative for earnings estimates. We we've been talking um here in the newsroom about a story that Jess Mett and Lou Wang wrote. Peloton analysts still see Peloton tripling in price. UM analysts still see

Uber more than doubling. Analysts still see Carbona, Carvana doubling. Um don't earnings estimates need to come down pretty significantly? Why our cell side arnalists analysts so slow to bring these earnings estimates down? Well, I think for some of the companies, perhaps some of which you mentioned, they probably

do have some some further room to go. But the reason I was referring to the six or seven percent for the broad indusease the median earnings revision in a recession and environment is about thirteen percent if you assume they were not going to a full fledged several consecutive quarters of negative GDP recession that I don't think thirteen percent at the index level is justified. I think half

of that is the most likely scenario. And if you look at two dollars on next twelve month earnings, you apply that six or seven percent haircut to that and that's what gets you to about two. So that's at the index level. But I do think there may need to be more Froth Moore exuberants that need to come out of some of the sec long term secular growth trates. And it's not universal. What's happened for the last two years.

You've seen massive acceleration and things like e commerce and you know, perhaps the Pelicans of the world, but that's not repeatable and those growth rates cannot possibly compare to what they've seen in the last couple of years, so perhaps there's more to go there, all right, Anastasia, thanks so much for joining us. Really appreciate getting your perspective here. A brutal first half of the year for investors. Um you know, hopefully a little bit better in the second half,

but who knows. Anastasia amar Rosso, chief investment strategist for I Capital and also a proud graduate of the University of New Mexico, Los Lobos. That's very very cool there. All right, we have yet another Supreme Court ruling. This could be the last um we're gonna go to June Grasso are legally analysts to talk about. The Remain in Mexico ruling kind of fell in the direction that the Biden Court, that the Biden administration wanted it to. Although they lost the e p A a um uh case,

let's start with remaining Mexico. Okay, Okay, I was gonna say that the blow to the Biden administration on the e p A case is far greater than the wind here on remain in Mexico. Okay, So there's it's not like, oh, they won one and they lost one. They won one and then they won a half of one, and then they won and then they lost a big one. So anyway,

remain in Mexico. That's the policy that the Trump administration put into a fact that because there's not enough room for the immigrants crossing the border, that if they don't have room, they would get them, they would return them to Mexico where they would stay. And then these ten cities that were while their asylum bid was processed, which can take forever. So and then the ten cities grew up.

It was very dangerous. Biden administration wanted to stop that, and two of the two of the Republican led states sued.

So here the Supreme Court said, and it was a five to four vote because Chief Justice Roberts who and uh Justice Brett Kavanaugh agreed with the liberals, So it was it was those five against the four Conservatives that um, it didn't violate the rules for him to have this remain in Mexico to rescind the policy because he had they had given a good explanation, unlike the DACA case a few years ago, they had given a good explanation

and they could rescind it. Now this goes back to the district court judge in Texas, who is who has been really hostile to the Biden administration. So it doesn't really end here. I mean, this could come back up again. No one's talking about this. This could possibly come back up again because if if the district court says that they're sending it back to the district court for details

to be worked out. So I suppose the district court says, you know, just still doesn't work according to the guidelines you gave me Supreme Court. Then it could come up again. I mean it probably won't, but it's just a possibility.

So but in this case, what was what was difficult about this case for the states who oppose it is that they're basically would have to tell the Biden admin allustration, you have to engage with a foreign state, with Mexico and get an agreement with Mexico to allow this to happen.

So they would really have been interfering in, you know, foreign affairs, which during the Royal arguments they say, what I remember, I think Elena Kagan said, what are we going to tell Mexico to, you know, keep everybody here? And well they have indeed negotiated that with the Mexicans, which I think is crazy. But with the Trump administration, I had confused this earlier and I'll correct myself now with the title forty two, which that was a COVID

driven thing, right, that's still in effect. So that is still in effect because Biden administration wanted to end that that COVID was used. The title forty two Public health emerge in a similar way, right to send asylum seekers back while they're because they were worried that those asylum seekers might spread COVID. Right, So the courts have told

the Biden administration you can't end that. So they're still using Title forty two at the boarder and you know, secretly, I think they might have been relieved they had Title forty two because they are not prepared for the influx at the border in the summer months. You know, it starts to build up. We were given a tragic example of how dangerous that is the last couple of days. Let's get to the e p A. Uh decision, which you think is more important, was a big blow to

the Biden administration. Well, you know, it's it's cutting back on the e p A, which is the agency that handles this, their ability to set rules to curb climate change. So it's a huge blow and you know, one wonders, now what's going to happen. And also, as I you know I mentioned before this, the conservatives on this court are against what is called the administrative state. They want to cut back on the agency's rules, on the agency's ability to you know, to put rules into effect all

the different federal agencies. And you know, you know, if Congress were there to stay been and make rules, this wouldn't be quite as big of a loss. And conservatives who push this through, who pushed these through, know that that's the case that Congress is not going to start

passing rules now. Do they want it to go back to the states, as this the state's rights issue from the conservatives on the Spreme Court, I think it's a I think I don't know if it's a state's rights issue as much as it's we don't want these administrative agencies to be making decisions their bureaucrats, and it should be the elected representatives of the people making these kinds

of decisions. But you know, how is I don't know how other than people that are trained in this and do it for a living, you want them making decisions about it, you know, just the big government. I guess you just don't want the Washington big government. You know, it's sort of drained the swamp in a different in

a different respect. So it's interesting how these uh, how people in this country looking at it from outside, because I lived in Germany for years, fall on different sides of the ideological For example, they want small government, but they want huge border control right. They don't want the government to be able to decide anything, but not not the important decisions, but the death penalty, right, because that's

not a very important decision. No, it's um no one said it makes sense, right, but that that's our Supreme Court. And they have ruled. And so now they go on summer vacation and we'll see what they do. Twelve o'clock they're going to have Tom Brown Jackson sworn in. So I think they'll all have champagne and then split champion split.

You know. It used to be there there was a story that one of the justices used to have have a limo waiting to take him to the airport right after the least is exactly all right, Joan Grasso, Bloombridge Legal, Anos, thank you so much, all R. Let's check out with Everett Millman here. Uh he does all that commodity stuff for hold on, hold on, hold on, hold on. It looks at all kinds of coins, but also Gainesville that's right, that's right, at Gainesville Coins chief market Strategies. But crypto,

yah know, so let's start with crypt dough. All right, we got Everett Crypto print. We were below, we were down to eight. What's going on in the world that crypto here, right? I think it's worth noting that the crypto, entire crypto market as a whole has been falling dramatically, So it's not just Bitcoin, although that's obviously the one that we're all going to focus on. I think that this is a sign of crypt crypto winter being in full force, and a lot of what's caused Bitcoin to

go down is really exogenous to the to the coin itself. Uh. We've seen that it has lately followed the stock market lower, and I think we can reason our way to why that is the case. That a lot of more institutional holders are now in the bitcoin space, and so as stocks fall, they liquidate their bitcoin UM. And the fact that other crypto projects, other crypto lenders starting to see some cracks and failing UM. They often use bitcoin as collateral, So we've seen a lot of selling of bitcoin to

try and probably of other cryptos correct. So I think those are the main culprits here. UM. Yeah, there have been a number of failures or now we have heard uh it reported that Three Arrows is being forced to liquidate UM and I've also seen forecasts for bitcoin to fall down to twelve thousand. Still, to put it in perspective, Everett, I heard um someone say earlier is the worst quarter for bitcoin since Q three of eleven. So I looked back at the price action in Q three of twenty

eleven bitcoin at that point. It wasn't that nineteen thousand or twelve thousand, or seven thousand or three thousand. It went from sixteen dollars to five dollars. So we've come a long way, baby, Absolutely. I think when you zoom out like that, that is a great way to look at it. And most of the early adopters and some of the people who are old heads in bitcoin, they've seen this sort of cyclical pattern time and time again over the past ten years, so kind of retracing back

to where our starting point was. Anyone who has been holding along the way is very happy with the performance of their cryptos um and particularly for bitcoin being the biggest, most recognizable one. At some point every nice seen me recall folks, you know, as we're all learning about crypto and bitcoin, uh talking about it. Maybe bitcoin is a hedge for inflation, but that doesn't appear to be the case,

does it. Well, that has not played out thus far as I mentioned, I think it is those exogenous factors. But by its design, bitcoin is supposed to be a deflationary currency. The supply of bitcoin every four years UM. The pace of the supply growth gets cut in half, the so called happening UM. And so this is a

deflationary design. And although that does solve the inflationary problem that we have with fiat money UM as far as I can tell, it introduces a second problem, which is relates back to one of the oldest principles in economics, known as Gresham's law that good or bad money drives good. Essentially, people want to spend cheap money that's losing its value and hold on to the money that is rising in value.

So if indeed bitcoin is supposed to be deflationary over time, it begs the question why on earth would anyone spend bitcoin At a certain point, UM, you would want to keep bitcoin and spend everything else. So I think that's very many years of still out down the road. But it does bring up an interesting philosophical question about what

is sound money and it is bitcoin actually money? UM. I think it's quite fair that the CFTC is going to be regarding it as a commodity because bitcoin does convert electricity into new coins, so it is sort of backed by a commodity. Okay, good stuff evert moment, appreciate it. Love getting your thoughts here. All things commodities and most notably crypto. Over the last we learned something new. Gresham's Law. We're going for it, named in eighteen sixty by economist

Henry Dunning McLeod after Sir Thomas Gresham. Thank goodness for Google. Everett Millman, chief market analyst for Gainesville Coin, The building of real estate, construction and all that good stuff. John Fish, CEO and chairman of Suffer Construction Company, joins us here. John,

thanks so much for joining us here. We'll get to the kind of the interest rate story angle in a bid, but I want to just talk to you about if you want to go out and build a building, whether it's a residential real estate or commercial real state as a construction guy, John, can you get the labor? Can you get the raw materials? If you do get the raw materials, do you have to pay through the nose?

Give us a sense of what it's like to actually build something today, you know, Matt Paul, thank you very much for the opportunity. Again, it's probably one of both challenging times iron industry has had over the last five years. Again you pointed out the material cost are as high as I've ever been, and again the shortage of labor across the board and this is just not the East Coast but the entire country right now. And again because it's a demand for talent out there is one person

for every two job openings. When you think about that, and that's detrimental lab business. What it does, it drives up wages. At the end of the day, wages over the last eighteen months have grown up substantially in the same thing with material costs. And then you introduced the concept of supply chain. I mean that also again creates

a tremendous amount of disruption. What we've seen in the construction industry right now, in the realist industry is a tremendous amount of uncertainty in our industry as a whole doesn't feel well when when there's a deal of uncertainty, so um, you don't see or do you see inflation rolling over. We've noticed in some places, um, for example, goods that you would find at Walmart and target um, they've overstocked. Critty Gupta is just on talking to us

about shipping costs which have rolled over slightly. UM still not cheap by any means UM. And we're watching for softening of other UH inflation or other metrics. Do you see any of that in construction? We not as of yet. I think it's gonna happen. I think in the next

quarter we're probably gonna see things slowing itself down. We're still climbing from a cost perspective point of view across the country, and I do think as this negative news comes back into the marketplace, people gonna start putting the brakes on a little bit preen the day. But I would say this, Matt and Paul, We've been a long way to go. You're at eight point six percent inflation right now at this particular point time, we don't do well into it down to the three the two and

a half percent levels. And so at the end of the day, I think we've got a ways to go, and I think the only way to do it is the FED continue to put the squeeze on, and that's raising interest rates. And again I will say this r very you know, defensively is I think we we we

need a recession at this point in time. I think it's the only way to sort of choke off the inflationary pressures that are on the economy right now and get it over with quickly, because I do think because of the fact that consumers still has almost five point four trillion dollars and savings in their pocket, once we sort of ring out this inflation and the consumers on the sidelines that comes back into the ballpark all of a sudden, we're going to see the economy moving back

up again. So I'm bullish in the long term. I think we've got a period of time twelve to eighteen months that it's going to be challenging right now. And my attitude is, hey, let's let's put the brakes on, let's get this over with. Let's rebalance the labor market, let's rebalance the supply chain, uh, and get back to work. John on the commercial side, UM, you know, I think the work from home thing, getting back to the office thing, the how people are gonna be working going forward is

still very much influx UH in the United States. As you talk to some of your bigger clients, how are they thinking about office space going forward. I think most companies right now are re engineering how they're using this space, which is which, which is smart. But at the end

of the day, again, I think it's a short term phenomena. Okay, we might be talking about twelve, eighteen, twenty four months out, but at the end of the day, the only way to build culture, the only way to get promoted, is people to be back at work at the end of the day. And we are social animals as human beings, and what we need we we we thrive on that energy. And what happens is a company maintains a competitive vantage, I believe through their culture, and you can't build culture remotely.

So how's it look then? How's it look in Boston? Can I tell something right now? I think overall you know people, I would say we probably have six people back to work generally speaking, our companies back at pcent back to work, which I'm proud of. But at the end of the day, I think Boston, like every other community, is grappling with this issue because right now labor is in demand. They have to say as to what's going

to go on with the work rules. Right now we're seeing this with unionization at Apple, We're seeing this at Starbucks across the board. But my senses, as the market softens a little bit, all of a sudden, you'll have

more of a balance in the environment. And I think that's what we need at this particular point in time, and that's why I am a strong advocate, you know, continue raising the rates, although I don't like it, and in the real estate is very, very uncomfortable with with interest rate rising because the real estate runs on credit as we all know, and doesn't like the uncertainty. But at the end of the day, my attitude, let's get this pain out of the system, okay, and let's move forward,

all right. The way, I just want to say, for those listeners who have who don't know, I have never heard of it, been or seen it. The Boston Pops is one of the coolest events I've ever attended in America. Um coming up on this, I guess Sunday and Monday it used to be five thousand people gather outside the half Shell there to watch, and it's gonna be getting back to numbers like that. John, do you go? Do you watch the Pops? What we do? I'm a strong

support of the Pops. I think it's one of the best, uh you know, organizations I think in the country. To be honest with you, it's a huge cultural event for the city of Boston, and I would just say this to you, it's something that we as as Bostonians extremely proud of. In my sense of that numbers probably up the seven d and so we'll keep you know, we'll hope for a good weather. All right, it's that's starting at five in here on Bloomberg Radio Monday. It's big.

It is so much fun. I mean, I have to say, anyone in the area, if you're close enough, get to it. Um. It's just a great party. It really, it really gives you that feeling that the country is coming together, which is a feeling that we've been lacking in the past a couple of weeks, months, or years. And we're gonna be showing that at five pm here on Bloomberg Radio. All right, that's coming up. We had John Fish, their CEO and chairman STUFFI Construction Company. 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. On Fall Sweeney, I'm on Twitter at pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio