The Latest On Inflation, Crypto Records, And Market Bubbles

Lisa ericson right now, Senior VP and co headed Public Markets, the Public Markets Group at US Bank Wealth Management, Lisa, UM, I wonder what you think as we look at inflation numbers that are either shockingly high like the p p I number yesterday, or even higher than expected like the cp I number today, does that concern you, Well, absolutely mad.

It's something that we're keeping an eye on, and while our base cases that some of those inflationary pressures do come down over the remainder of this year and into UM certainly, the fact that we've got a pretty broad based basket of goods that are contributing to the inflation number, and the fact that it's taking some time for both the labor market and the supply chains to adjust is something that we want to keep our eyes on right, tins.

Inflation is so broad based. I'm wondering what concerns you the most. Energy is a really easy thing to point out, and you think about the ripple effects for but are there places that are maybe less obvious that we should also be concerned about. Yeah, well, I think to your point, it's it's really two things. So one is just the

fact that it's really across the broader base. So while you have some areas like energy that can be more volatile over time, what you see is, you know, over the last few months is really looking at the basket of goods. It's not just some of the areas that historically can fluctuate some as much, but also some of the stickier types of I think that are increasing. So that really is a concern, and I think, um, you know, the other issue is how much that then begins to

affect inflation expectations going forward. And as we look at it, what we see is that there are some elevation in inflation expectations over the next couple of years as a result. Um, but you know, over the longer term, what we see is that those are trending down. So again, um, you know, that's The other thing I think we really want to watch is not just where the basket goes right now, but how that's affecting the expectations going forward. What do you expect in terms of the SMP right now? Um,

we're I think up about year to date. Last year was a good seventeen percent gain, the year before that was almost Do we can we really move much further higher? Yeah? Great question that. Well, we're still optimistic on the US equity market and the SMPS five. And the reason why is, you know, overall, if you look at it, we've got a pretty nice context. Despite what some of the worries

we are talking about with respect to inflation. If you step back and look at the indicators underpinning growth, for example, you know they're universally as strong, and we see the trend of movement of those indicators as continuing to be positive when we measure across a broad range. And you know that's also being reflected in corporate earning. So, as we all know, third quarter earnings reports came in very nicely, and that again was across the board as opposed to

being limited to a couple of sectors. So you've got the fundamental support there for the market, I think to your point, you know, as we move into the question is really going to be you know how that continues to play out, you know, as some of the initial reopening spurt comes off, and then again as we've been talking about with the trajectory of what's going to happen with inflation, there's been so much talk about bubbles lately, I mean all year really, and then we've kept on

charging higher. You know, Matt and I were looking at the screens. Just the Rivian IPO today is set for a very healthy pop as it starts to trade, and so we're unhealthy depending on how you look. Yeah, depending that was our big debate, do you pop or not? Um? And so that's the thing. Are you worried about valuations? If everybody is so constructive here, at what point do you start to get concerns that things are worth so

much more than they're actually earning. Yeah. No, that's a great point, and you know, valuations is something to keep an eye on. But as we look at it, I think just the current low level of interest rates really actually makes valuations in what we would call the high

side off fair but not excessive. So if you just look again at history and how much, uh, you know, earning yields are pricing over where interest rates are now, we actually see that they're above average, meaning that stocks are actually giving you a nice premium in terms of the potential return relative to fixed income um compared to that spread historically. So again it's something we want to

keep an eye on. But in an environment like today, where again you see both the macro indicators as well as what's going on with corporate operations and earnings coming in very nicely, those valuations can be more easily justified. Lisa, great to get some time with you, Thanks so much for joining us. Lisa ericson their senior VP and co head of the Public Markets Group at US Bank Wealth Management. Let's get over right now to David Kat's, chief investment

officer and President Matrix Asset Advisors. Have been talking a lot about inflation today, David, and we did see a higher print than anticipated on the cp I. What's your take so short term, there's no question inflation has picked up to a very eating full level. We don't think it's going to go away, but we do think it's going to trend lower starting in early two and we think it will get down to a manageable level. So we're looking for inflation to stabilize somewhere under like three

and a half percent. We don't think it's ultimately going to derail the financial markets, but it does mean that we do think bond rates should be going up and and the Feds next move at some point we'll be moving rate higher. Well, how do you play the smp I mean, we're not seeing major losses here, even on its second day of declines after a very steady rally. What are you buying? How do you how do you

deal with this for the rest of the year. So so, we've been pretty bullish about stocks this year in light of the most recent run up. We would not be throwing new money into the market basically because the market is pretty fully valued. However, there are a lot of very good businesses that haven't done nearly as well as the overall market, that are selling it fifteen or less times earnings, and we think there in lies the opportunity, so we think you want to be selective. Lots of

very good businesses out there. Um, you know, companies like an am Gen or Beckton Dickinson haven't done a lot but the businesses are doing well, very attractive valuations. UH five serve in the technology and financial space as a very strong company. They have an activist involved. Yet the stock is down for the year. We think that easily as like twenty or thirty percent upside. Zimmer is a knee and hip replacement company. They just had a fairly

mediocre quarter. Part of it was because of the COVID pick up. As COVID comes under control again, we think it's a great reopening play. Um. So there are definitely opportunities out there, but we would not get involved with the things that are really hot. We don't think now is a great time to be throwing money at the electric vehicle area or the battery area because we think a lot of those areas are very fully priced. Well. Even with that said, you see Rivan today poised for

a really healthy pop if you could get syndicate. I hope you got it right. I mean, you know that those retail traders are also going to be loving that today. You know, how do you feel about a lot of these moonshot projects that are kind of happening in the world right now. At the end of the day, it does certainly seem like there's a whole generation of investors ready to jump on them. So it's a little bit

worrisome to us. The that market has been exceptionally hot, and right now the electric vehicle car companies and batteries are assuming that everybody that's involved is going to be successful, and not only successful, but wildly successful. That's simply not going to be the case. So yes, the stocks and open up very richly. We think it's not going to be a great investment over the next one or two

years because it's fully priced. We look at companies um like Zoom or Peloton that had all of this excitement a year ago. Those stocks are down by half to three quarters. We think it's not a great time to be speculum lative in the market right now. For the short term, it's gonna feel good, but we really believe that ultimately the music is going to stop and a lot of people are getting involved with companies that they're not paying attention to valuation and they're going to get hurt.

What about companies. I mean, for example, everyone's bid up Tesla to make it a trillion dollar company, and meanwhile, uh Ford Motor Company is worth eighty billion. You know, General Motors is worth eighty five billion. Folkswagen, which has invested a ton into um the electric business is still only worth a hundred and forty billion. Do you like any of those legacy players. So, so that's a great point.

Right now. Testla sells for the exact same valuation as the rest of the entire automobile industry, and we just don't think that's sustainable on the Tesla side. Uh. In terms of the other companies, um, the question is do you want to own an automobile company because more electric vehicles any of these companies make the less um oil um cars, you know, the regular combustion cars they're gonna be selling. So that is a zero sum game. In terms of the automobile industry. The one that we are

most comfortable with right now is Toyota. We think they're going to be a winner in electric vehicles down the road and hybrid vehicles, and you're not paying a whole lot for it. But we think there are lots of other errors to make money in the market, and we're not spending a great deal of time on the auto sector. Bitcoin is at a record Do you think that it's an inflation hedge. We don't, um, you know, we're we're sort of old school, and old school hasn't been that

helpful of late. But we like to have things on a fundamental basis. We like intrinsic value, and when you look at bitcoin, there's not a lot of intrinsic value there. So, uh, this is one that we're also pretty wary about. We don't think it ends well. Um, so we would not be putting money. And we we do believe there are a lot of people that are throwing money in, uh, simply because of fear of missing out. Everybody's talking about how wealthy they became. Uh, so they're throwing money in.

And once that bubble verse, we think it can go down a lot. And what we'd say is, look at what happened during the Internet bubble of the late nineties. A number of the businesses simply went out of business, like an E Toys, but a number of great companies like Microsoft, Cisco, Intel, Um, we're all about a half to three quarters lower ten years later. So when things stop,

valuation matters. David, thanks so much for joining us. David Katz, President and Chief investment Officer over at Matrix Asset advisors. Let me just quickly take a look at what we're seeing in terms of prices. Bitcoin trading up one percent and change three dollars up to sixty eight thousand, five hundred and nineteen, just around the record high. We also have ether trading or ethereum Um I guess ether is

the is the right way to call it? Trading up one percent and change about forty nine a coin to forty nine. Let's bring in someone who knows for sure. Mike mcgloan, senior commodity strategist with Bloomberg Intelligence. Um, I guess, uh these highs? What what's behind this rise that we've seen. Is it just excess liquidity? Is it concern about inflation? Is it has China? Have China and Jamie Diamond and

trashing Bitcoin again? What's going on here? Mike hey Man, Well, the the key thing is it's actually much more simpler to that than that. It's all the above. It's one of those points. Now it's November, we only have two months left than the year. There's a lot of cash on the side. Bitcoins one of the best performing assets on the planet, and a theorium is two and it's got fundamental independents that are increasing in improving. So I think that's what you've seen now is typically it is

the best time of year. It's at sixty eight thousand right now. I think it's heading towards a hundred thousands. The questions when and the key the question I asked is what's going to keep it down? Now? Today was the key key barometer to that. You know, CPI printed high and expected, Bitcoin was down and Dye it popped right up. Gold was down and it popped up. You mentioned silver and earlier segment popped up. But Bitcoin is you know, it's the one with the vig it's potential

upside for the future. So I look at this as you know, this is a market that's had a substantial correction. Demand and adoption are increasing, it's becoming part of every portfolio, and supplies declining. What makes that go lower? At this stage, it's pretty strong and I don't see overbought indications yet. So it's interesting because while the bitcoin, ether other coins

are definitely up today, it's not everything. Guys. She was down and that was one of the I just wanted to mention it here because I don't think you're seeing everything moving lockstep necessarily anymore. Well so, no, thanks for mentioning that Sheba in you is down, and that's a speculation machine that most of us hope will just get it over with and go by and go back, just like those kind of went back. It's just a machine

for speculation. And then you have pure infrastructure building in bitcoin and there, and they're just in the world a better place. She believe it was for speculators clearly undisputable. And then things like a Theorium there, every single cryptodology, the most widely traded Cryptosis and Planet, most of them traded in theory platforms. And then you have Bitcoin becoming global digital collateral. So to me, that's what's happening. The

inflation heads. I don't really think it's so much there yet. It will be when it gets to the higher plateau. I see bitcoin in theorum right now in that price discovery stage, and it's just that time of year. Well, there's boy. Technicals are good, fundamentals are good. Where does it end up the year? That's kind of the quick key question we're all asking ourselves, what do you think about finance? Um c Z is pretty cool to interview. We have him on the network. Sometimes. He actually used

to work at Bloomberg. Um. He's got to be one of the richest people in the world now and he has his own coin that's one of the biggest. C Z is just an edge vacational machinal. Every time he speaks, I shut up and I listened. The key thing I think he repped resents Matt is there's a lot of very, very wealthy young people in the space, and they have a major inclination to make the world a better place. Don't underestimate that. That's the key thing I got out

of bitcoin. Everybody here wants to make a world a better place, and they have the facility, capacity and money to do it in this space. And now that the US is counting China by accepting and um properly regulating cryptos, they have a major platform. So to me, this is a bull market. No many questions when and where do you jump on? And I think that's what every money manager in the planet is saying. Okay, I might as well get off zero, and I think that's what's happening.

The greater risk is being on zero with allocations to cryptos in bitcoins, Okay, help me out here. Because of this inflation hedge aspect of this. You know, crypto people so many inherently um you know with skeptical of the Fed. Do you can you poke a hole in the inflation hedge theory? Well, I think the key things can always look at it. You can't hold gold anymore without having some bitcoin and the theorum in that bucket because bitcoins

clearly replacing it. Now as far as you measure inflations use the currency debasement. Let's look at this month so far. On the month, bitcoins about about ten percent right now, goals up about four and and crudels down one person. I think by this time next year, the key, the bigger, bigger risk will be deflationary trends. And I pointed out clearly because it's measured on a twelve month basis. The

Bloomberg because of crypto and I'm sorry, I'm sorry. The Bloomberg Command Index just reaching all time high twelve months and now it's a real high bar to beat. So and you just measure on a twelve month basis, deflationary trends will kick back in if also needs a little wobble in the stock market, and you'll see those deflation near trends come back and the FED will have to ease. And that's what bitcoin is. It's no one's project, no

one's liability. Declining supply, increasing demand. Even goal has elastic supply, Bitcoin doesn't have that, and people understanding WHOA Okay, I might as well get some allocation to this. So the inflation argument, I think it's coming, but be wonderful if we get true inflation and real demand pull right now. To me, this is the kind of when you hear headlines like to that that's where you back the peak A year from now. I fully predict we're gonna have

more problems with deflationary trends. What when do we know that? Um, you know mom and pop, either retail mom and pop or institutions have fully embraced crypto. Because these are I think two things we're still waiting for. Snelly and I spoke with the conservative fund manager earlier who is just not down to clown because he thinks there's too much volatility. Absolutely, there will be less alto when there's greater depth than the market reaches a higher plateau. So that's one key

thing is probably're gonna miss a big monoch appreciation. The answer to that question, Matt, is very simple. When we have wide dissemination of an e t S or e t S that track a broad index attracts the crypto market, that's where we're going. It's a matter of time. The SEC knows it. If they're truly on to protect investors, they need to approve an e t F to tracts. A spot index attracts a spot markets, not you know, Bitcoin and SAM and index. That's the proper. That's why

we hate most almost everybody in the planet. Tracks stocks go through NT. You have two tracks, an index. We'll get there. It's going to be many years, will be many bumps on the road, But until then, I don't think we're gonna have anything but a bull market that has dips. Alright, Mike mcglogan, thanks very much for joining us. Mike mcglonan their senior commodity strategist with Bloomberg Intelligence talking to us about KRYP Bloomberg Opinion informed perspectives and expert

data driven commentary on breaking news. Alright, time for Bloomberg Opinion. We have our debt markets columnists Brian Hippata in the studio today at the Interactive Brokers Um complex inside one Lexington Avenue, the mother Ship as we call it. He's writing about the FED ignoring a key bubble risk for the stock market or maybe can I say bubbles plural? Brian, Sure you can say that crypto, but they're not saying it. No, they don't use the word bubble. No, I mean they

don't say bubble. They didn't say that may even though they flagged a lot of financial stabild be concerns. And the thing they don't really talk about a lot is real yields. And that is something that you just see written about over and over, talked about over and over. You see real rates hit record lows and there's basically no choice but to to buy risky assets because your alternative is that you buy fixed income, you buy treasuries, and you get a negative inflation adjusted yield. It doesn't

seem worth it to a lot of people. And what pops the bubble? I mean, that's a good question. I mean, I think right now you're seeing inflation go up tremendously uh and you're seeing stocks barely off there they're all time highs. So it's not clear what exactly happens the FEDS reaction function, right now is to just look through this inflation keep keep their Fed funds rate at at record lows. UM it's at the lowest since the nineteen seventies when you adjusted for inflation the Fed funds rates.

So so rates are staying really low, and it's going to be a question of whether the Fed blinks, whether they flinch under political pressure. I think, uh to to do something to to slow inflation down. Next year's the crucial midterm elections. After all, the seventies were bad. By the way, Sinale, for those of you who weren't there, I'm gonna remind you that's when the Mustang turned from a boss muscle car into an embarrassment. Plus we had

incredible inflation. There were uh, you know, people parked around the block waiting to get gasoline. Oil prices went nuts, and as Greg Jarrett was just saying, his mortgage was like four yeah, I mean because the Fed had to raise rates, right, and now you get a mortgage for three basically, So, uh, nominal rates are still extremely low, and that does raise this risk that if you can't get anything in fixed income, you have to go to

the stock market. Some of these statistics that I cited from them from the FED Zone data is that you look at people who are sixty to seventy four, even though seventy five and older, and stockholdings have never before been such a core part of their portfolio because after a decade of near zero interest rates, uh, you just can't count on fixed income anymore, even even if you're in retirement. Well yeah, I mean the other thing about this too, is that the market is already expecting some

like they're they're they're planning for rate hikes next year. Right, That's what's the plan. Right. But the thing is, what about this idea that Mary Daily had brought up to our own Mike McKee a little bit earlier, This idea that we're still in COVID this is going to be transitory. I mean that seems to be the parting line from most beneficials. But how do you know that? Yeah? I mean one of the things, Um, I don't think this

is spoiling anything because I tweeted about it. If I do have a column coming out pretty soon, I mean, you look at um this idea that uh the inflation guy on Twitter um basically came out and said, um, I'm looking for an outlier in this inflation data and I can't find one, and that's a scary thing. And the idea that it's just COVID and that things are just going to come out right, that's the scale, not the length. Yeah, I mean, I think the question is

is can you just blame used cars again? Um, some people might try to, but I think it's starting to feel as if there's more broad based price pressure. And you look at the New York Fed statistics on consumer expectations for inflation. Three year inflation expectations still at a series high. One year expectations still going up over five percent now, Um, so it's getting baked into the cake a little bit here. Uh, in terms of inflation expectations.

The Fed has talked about how they wanted to get inflation expectations up because they want to be able to conduct monetary policy about the zero lower abound, and they're there, and yet we're still at zero. And so I think the question has to become at a certain point, why is zero the baseline for the Fed funds rate? And that all comes back to the real yields when you see them so deeply negative, that's because the Fed funds rate is held at stare not expected to go out.

You know, real wage growth is even more of a problem because inflation is growing at a faster pace than wages are. So you know, even if this is transitory, if it all stops at the same time, the stuff that I need is still cost is costing more than what I'm getting paid, and that's going to continue to increase unless they can turn it around. The problem that that I have is I don't see what the FED

can do about inflation that's caused by supply constraints. Monetary policy doesn't help, right, I mean, the question ultimately has to be is it the Fed's job to constrain demand? Right? If you have demand at a super elevated level and supply is not what they want to there? Right, that's the surgeon who declares his job of success because the patient is dead. In some ways, yes, but in stuff I said that, right, Well, you know, I think I

get it. I don't want to really think about surgeons killing anyone, but but I but I think I get it. But the point is is if demand is running so hot, should the FED cut back a little bit? And John Powell said that current inflation is not at all consistent with price stability, and price stability is one of the

Fed's mandates from Congress. Boring for just a second here, I mean, if you're a saver, you're getting decimated unless you're investing in serious eyes savings bonds which are linked to inflation and give a seven point one interest rate, which we which our wealth team wrote about recently. Well,

how many people are actually doing that? Not a lot? Yeah, And that's what I'm coming down to also, Right, if you are in our generation, if you're a millennial or Gen Z and interest rates are this low, and even with the rate hike, they're not you know, you're not going to get a fourteen percent mortgage anytime soon. So

what what to make of that? Of this new environment? Yeah, I mean that's goes back to the stock You know, you want to call it a bubble, you don't want to call it a bubble, But ultimately more people are invested in stocks than ever before. And the reason why it seems to be because there is no alternative to use the often used enough phrase, right, I mean, but when, but when it comes down to it, if the FED

is concerned about elevated asset prices, elevated stock prices. It's because its policies have pushed people into those various instruments, and as a result, it's policy is also dictated by the stock market to a greater extent. You saw what happened in eighteen There was a big decline at the end of the year, and pal pivoted in January immediately and went to rape cuts. Um. So there is this feeling of the push and pull and it feels tenuous, but people don't really know what else they can do,

and so you've got this situation that feels uh, feels tenuous. Um. And there's really no other way to put it, all right, Brian, thanks so much for joining us. Brian Jrpota there rights for Bloomberg. 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 ball Sweeney

I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio.