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Let's check in on what we're doing with this market. I'm bringing in Geena Martin Adams. I'm just going to radio by right, the age for Bloomberg Intelligence.
Gina. I left Thursday. I don't work Fridays in the summer, as you well know. I come back in the world. What happened?
We left Thursday with a nice soft landing discussion, right, you know, the markets, Maybe we'll get a little friendly pullback.
We come in today and you.
Know I've got I had the nastak off more than a thousand points earlier this morning.
Also the last three trading days, the NASA slaw seven percent. So this will stretch since June of twenty twenty two.
Well, I think one big thing happened, and that was tech disappointed forecasts. I think that this has been actually underway for more than just Friday. Friday was an exacerbation of trends that really started a couple of weeks ago. We wrote a note early last week and we called it four than three hundred and forty four reasons text stocks may struggle with high expectations because tech stock valuations are three hundred and forty four basis points above recent
five year average. It just got to the point where valuations were so extreme in an environment where tech stacks were nearly faced with impossible expectations. Now, what's interesting about the earning season is all the tech stacks beat. They beat forecasts for second quarter earnings, but they were unable
to sustain forecasts for going forward margin growth. And they started to talk about how much they're going to have to spend going forward, and well, they need to cut cap X and they're going to write size AI expectations.
And that created a tremendous amount of uncertainty that was then exacerbated by two big macro indicators last week which fell back to twenty twenty three low levels, which unfortunately would suggest the manufacturing sectors sort of niscent tiny recovery that kind of sort of emerged by March is now could put and we're back to twenty twenty three, which
was clearly a recession in the manufacturing sector. And then also the employment report, which you know, honestly, I'm kind of shocked by the degree of extreme, exaggerated move that we've had to the employment report, because all we're seeing is slowing job growth so far and still extreme entry into the labor force, which as a resulting in modest uptick in the unemployment rate. But we are seeing a slow on an average hourly earnings growth, which may cause
questions about the consumer. The other note that we wrote last week is Amazon is entirely holding up the house of cards of consumer discretionary. So I think that also played out last week is when all your hopes and dreams are on one stock and that stock cannot sustain expectations and then the consumer outlook starts to deteriorate somewhat, you see some real weaknesses emerge there.
And I'm glad you brought.
Up because overall, if you look at the S and P. Five hundred, as you know, twelve percent earning growth year over year here. But you've talked so much also about when people want to argue about the broadening out, but then when you're looking on the fundamental side, what you're seeing beyond Tech, as you're seeing kind of that growth as opposed to narrow between Tech and the rest of the index. So what improvements are we seeing in other components.
It's actually really fascinating, and I think that this is part of the reason, as much as it feels so painful, this market meltdown has looked very different than the meltdown of last fall. Remember we corrected ten percent in the third quarter of last year as well. It seems like a distant memory because we've had such a great pair in stock so far, but we did have a ten percent meltdown led by Tech, but the market's decline was
one for one with Tech. This time, Tech has doubled the decline of the market, and so there is some internal rotation that's quite different characterizing the twenty twenty four tech meltdown and the overall market impact relative to twenty
twenty three. And I do think that that's because of the cyclical the cyclicality of earnings, whereas in twenty two twenty three when tech melted down, there was nothing to kind of hang your hat on because the rest of the sectors we're producing accelerating downside on earnings today that's very different. We're actually seeing earnings growth improve so x mag seven the four to ninety three are posting seven
percent earnings growth. It's the first positive quarter that we've seen in more than four so starting to see some earnings. The most fascinating part about this earning season also is guidance. As much as I think the market narrative has been all the companies are guiding terribly, now the reality is that tech companies have been guiding us to expect less, but the rest of guidance is actually net positive. We're actually seeing positive guidance momentum emerge in the rest of
the groups. There's going to be so much confusion as to how this plays out. If we do indeed move into a state where we're seeing accelerated layoffs, we're seeing much greater jobless claims emerge, and that's going to imply that maybe we have some actual employment losses around the corner. That's going to create a lot of confusion in this market if we get there. But that's not where we
are right now. Where we are is actually companies outside of tech are showing still improvement in their outlook.
We had a guest on earlier this morning that a fund manager just flat out says his note to the clients is by the dip.
Yeah.
Wow, listen, when you get to a VIX that's the highest level since COVID. It's very clear that there is panic right now in the equity market, and panic usually results in major buying opportunities. So I completely understand that we haven't even seen absolute nonfarm job losses yet, and the market is already completely and totally panicked. And this is really because tech really drove a lot of our optimism.
It was the only source of optimism. Now we're starting to see those tech stocks melt down, and the manict the market is completely panicked.
Although you could have bought Nvidia at the open today at ninety two, which training at ninety eight.
Yeah, Andrew Tyler over a GP Mortgan's treat so he made that tactical call this morning about buying the dip.
Yeah. Interesting.
Yeah, so we'll keep an eye on.
I remember being on a desk in nineteen eighty seven. Uh, don't out pick up the phone.
Did we start right before the eighty seven crash?
Yes?
I did.
I was on the floor at eighty seven October nineteenth so anyway, Gina, thank you so much for joinings. Really really appreciate it. Gina Martin Adams. She is our equity strategist for Bloomberg Intelligence. We really appreciate gatting few minus or a times. Michael McKee joins is here and he does all the economy stuff for Bloomberg Television.
Mike.
I left the studio Thursday.
All my discussions were soft landing, some variation of soft landing.
And then today people are talking about a recession.
Well it's only genus people.
Yeah, exactly, it's only the equity market you were talking about nineteen eighty seven. I made a reference this morning when I was on with to people opening the windows down on Wall Street, and I got a note from a trader who's been around for a while who said, the twenty two year old sitting next to me had no idea.
What you were talking about.
So maybe we come up with a different analogy. I said, just a minute ago, it's it's an Emily Lettella moment now because we got the ism services index, and now there's another reference. Nobody she was a comedian, saiday live who would come on and say never mind? Right, and the services ism comes in and everything is higher, including employment, and that was the thing that everybody worried about on Friday.
And with the ism factory orders on factory index on Wednesday Thursday, and you know, production's up, everything is up in that number comes in better than expected, and that's two thirds of the economy. So soft landing might still
be in the cards. I think probably what you're seeing, and I'm going way beyond my level of expertise, is that Gina Martin Adams is right and that the equity markets were overly dependent on a few stocks that then didn't have great numbers, and you put the data on Friday behind them, and everybody panicked, And now maybe they don't need to.
Also this morning, when we're looking at the yield curve, as I'm sure you saw as well, Mike, it's turning positive for the first time since July twenty twenty two. If you're looking at the twos tens part of that. So isn't that something also that you would potentially want to see as far as what that means for the direction of the economy after it was inverted for so long.
Well, yes, and no. People don't realize is that the yield curve disinverts right before recessions because people are anticipating FED action, and I think that's one of the reasons we saw a big move. It's been slowly flattening, but I think today it was basically the two year went way down, the two year yield went way down, people anticipating the FED would be cutting rates and maybe an emergency rate cut and things like that. And right after this ISM number came out, it went back to where
it was yesterday. So we're either slightly positive or back to slightly disinverted. So I'm not sure that's a signal, but there are a lot of different signals you can point to these days one way or the other. And I had an argument with another strategist this morning over the Bloomberg suggesting who was suggesting the FED needs to act now, and I thought, don't you think it probably be good for them to wait a few days and get a little more data and see if this is
just a panic or a real collapse. And I think the waiting part is what the FED is going to endorse.
It just remind us how rare is it for the FED to do an emergency like intrameding kind of rate cut.
Very rare, and they only do it when the market stops functioning. And that's what we saw during the pandemic in March of twenty twenty. That's what we saw in the fall of two thousand and eight when Lehman Brothers went out of business and we saw the market seize up there. But there doesn't seem to be any indication that you can't trade today. So as long as you can trade, that's what the FED is concerned about. If you lose money, that's your problem exactly, not theirs.
Well, you also spoke to Austin Golesby on Friday. He spoke again this morning, but kind of unpacked for us what he in his reaction to the jobs report, because it seems like again they followed trends and that was just one report.
Well, it was interesting because Goolesby has been one of the more dubbish members of the FED, suggesting that they needed to start the process of normalizing rates, and yet he wouldn't really go there on Friday. He didn't want to front run what they might do. He said, you know, we're okay with where we are. Let's see what happens in the rest of the data. And he had a vote this time filling in for the vacant Cleveland seat, and he did not dissent. He voted for the Fed
to hold rates where they were. So if one of the biggest doves was okay with it, then probably the rest of the Fed is going to be feeling okay with it for the moment.
Right, all right, very good, Michael McKee, Thank you so much for joining us. Michael McKee covers all the economics for Bloomberg, and we appreciate getting some of his thoughts here.
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So just went and sitting in for Alex Steel here for the next couple hours. Again, John was just reporting this ism data came in better than expected. Let's go right to that because we could use some good news here. Steve Miller, Chair of im Services PMI, it seems Steve some pretty solid results. What do you take away from some of this ism data.
Yeah, we were certainly happy to see it return to expansion territory. You know, it seems like things are moderating in terms of terms of feedback that we're getting through the survey. We saw from a GDP standpoint, kind of almost dead even those that were in expansion versus those that were in contraction, with just a slight percent but three percent higher on the expansion side. As you see in the number, it's just just slightly above in the
expansion range. So happy to see it's less volatile than we've seen in the past. With last month it was about ten percent higher a GDP represented in the contraction territory versus expansion.
And when you're looking at the Atlanta Feds GDP now model, obviously we know that's volatile, but still the next update is going to come later this week, but it's around two and a half percent for the third quarter, so I know there's a lot of concern when we had
some of the manufacturing data lasts Thursday. Obviously the jobs are port on Friday, but when you still have economic growth forecasted to be pretty solid here, how do you sort of unpack some of the latest wave of data here and how this latest when you're looking at ISM sort of fits into this.
Yeah, so on average for twenty twenty four, what we're seeing is gradual expansion. The latest reading is about I believe it's point eight percent represents about a point eight percent increase in GDP growth. So I wouldn't be surprised to see that kind of a growth a growth number, but certainly what we see in our survey data on average is continued growth in GDP.
All right, Steve, thank you so much for joining us. Really appreciate you coming on and breaking down some of these numbers. For Steve Miller, Chair of the ISM Services PMI, again some better than expected services PMI fifty one point four was the actual reading consensus was fifty one. Last period is forty eight point eight, so a nice improvement there.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple card Playing and Brounoto with the Bloomberg Business app. Listen on demand wherever you get your podcast, or watch us live on YouTube.
Jess Meant and sitting in for Alextel on Paul Sweeney here on Bloomberg Intelligence Program. We're live on a Bloomberg Interactive Brokers studio streaming live on YouTube as well here, and John's just talking about the ten year treasury three point seventy five percent. We were low with three point sixty six percent, so it's moving all around.
That's right there. Today we missed that five percent mark. Paul, Yes, exactly, so bad, exactly all right.
Next guest Joints is here in studio making a big trip over the pond, Chris Watling, CEO and chief market strategist for Longview Economics based out of London. We got him here in the big town. Chris, thanks for coming into our studio here.
What do you make of the last several days here?
It's just been a real readjustment for the market in terms of its outlook.
Yeah, I think it's fascinating.
I mean it seems to me we've evolved from sectu otation, which was kind of a mid July theme, to really we're oute to a liquidation event. And as as we were saying just off air, it's really all about the Bank of Japan's governor Yoida, who came out they surprised markets with a fifteen bit hike. But then of course, on top of that he talked about the idea that neutral rates are a long way away, so in other words, as a weight hiking cycle, and he's done that into
you know, we've done it's very interesting. So the Fed's talked about cutting and we've got a bit of that from Power last week, a bit firmer and the boj is raising, and they've done that into two extreme positionings in markets. Everyone was short the end and everyone was max along the MAG seven and those both those rate cutting, those rate cycles changing influenced that position. So it's like we're in a giant repositioning in global markets and.
A giant liquidity event on the back of it.
So it's a lot going on. It's pretty interesting, not to mention the macro data, which we haven't got to.
Right well, looking at the MAG seven index here in the terminal down almost five percent a days on peace for its worst day actually since July twenty fourth here, so keeping close eye on that. But also you neutral to US equities in late July, actually it was ahead of the Federal reserves decision last Wednesday. Kind of unpack us how you're advising clients to position, where are you telling them to put their money and like, what would you want to buy what would you want to sell at this point?
Well, I think it depends on obviously your time frame. So if you're sort of, you know, the next couple of months, I'd just be cautious. I think markets haven't finished their sell off today, where you know, we're in the midst of it and there's more to come. And generally when markets sell off this sharply, the price section dictates you get a we test unless we get something dramatic out of the FED in terms of you know, inter meeting cut or very dramatic strong signaling. So so
short term I do that. In the medium term, I think one wants to see this as an opportunity to start moving portfolios around in terms of that global sector rotation, So our viue is that markets have fashions. Every six or seven years, the global sector leaderships change, and you know, it's been tech, it's been strong, and we think it's now starting to change.
We're coming into a rate cutting cycle.
I think we can get cyclical week acceleration in the West, and you know, we think people should stop positioning for that. That's smaller midcaps in the US, that's overseas equities non US equities. So I think, I think, you know, the headline is we're going back to the noughties in terms of what does well, you know, I mean, it's like back to the future all over again.
But what goes around comes around.
And I think we're going to get a consumer and housing boom over the next one to four years across the Western world, and that's going to change the equity sector leadership in the global stock market.
Look at that de Vic's here, it's up about nineteen points to just north of forty two. It was up to a level of sixty five earlier this morning, just blowing out like crazy.
Does that tell you that panic is out there earlier today?
Well, it's definitely panic, isn't there. I mean, sixty is a big I mean I remember when I started in this business, if it went over twenty, you thought it was a big number, and then of course that's all changed. But sixty is undoubtedly a big number, very very rarely to get above that. So I think very short term what people want to watch is do you get a bullish keydo reversal in markets today? You know, obviously the voting below the lows to their close above levels that
they saw on Friday. I mean, it seems a long stretch from here, but still a few more hours of trading. This market is very volatile. It can move along very quickly. But look, most sell offs happen in three or five waves. So we've had wave one. We're going to get a Willie Fraley. If you're a trader at some stage over the course of this week, you want to get involved in that. On alongside, when you're.
Talking to your clients, what are some of their top questions right now?
Well, I mean I haven't talked to many today because I think the questions might have changed over the last twelve eighteen hours.
But no, I mean we've been, we've been.
You know, the big question has really been when you get out of the MAC seven, and I think that's becoming increasingly obvious. And of course I think the really big question will be, now, has the psychology really broken in that sector? Is this genuinely the top on a relative basis for the MAG seven? I would definitely argue it is because it happened on July the eleventh, on that CPI day when we changed better inflation and so on,
and better therefore interest rate outlook for the FED. But look, I mean, there are you know, there are tons of questions. People are going to be asking about this liquidity out of Japan. They're going to be asking about neutral weights in Japan, what is your aid to mean? And we're going to be looking for FED, FED and other central bankers to accelerate their weight cutting torque.
I think I'm glad.
You brought up July eleventh, the CPI day when we got that last report for the month of June, because if you look at the flows data, a lot of that rotation. Of course, people were talking so much about small caps last month, but now they're coming under pressure. But those kind of income driven type proxy bond like sectors. If you're thinking about utilities, real estate, a lot of
flows going into that. Even last week, if you counted both of those sectors with Bloomberg Intelligence data, it was close to about a billion dollars going into those two sectors. And then if you looked at technology, there was a little bit of a bid for the buy that did there's around three hundred million that wouldn't that sector. But when you're thinking about the bond proxy type corners of the market, I mean, are we still clearly seeing rotation.
It's just rotations now continuing to move. If you're pulling up at those expectations for when rate cuts could potentially have.
Yeah, I mean, you know, markets set off, you go defensive, you go bomb boxes.
That's that's what you do, that's where you go and hide.
So you know, generally, I think I always think of the market as cyclicals, defensives, and long duration growth. And you know, there's an argument you go defensive before you go into the cyclicals. But yeah, it's no wonder we're seeing that. And I think that three hundred million into tech is probably they're probably regrading every penny of.
That right now.
But yeah, look, I mean I travel around the world talking to investors. Over the last six months, every single man and his dog has owned in video and now every single man and his dog is probably selling it if they haven't already.
So so is the buying opportunity then well, there is stuck like that.
I mean, if you if you look at tech in two thousand when it had its major T and T peak, the sector de weighted relative to the market until twenty fourteen, which didn't mean you didn't not buy it for fourteen years, but it just means don't be too quick so outside Sorry sorry, I was going to say that is the absolute key question here for an equent investor.
Has the psychology in the MAKES seven change?
Is global equity sect sector leadership changing at this moment?
That is the crux.
Well, there's argued in me that if tech doesn't lead this market, this market doesn't go anywhere that tech is by definition market cap wise, has to be a leader.
Well that's absolutely right in the US, but outside the US not so Globally the market can be led by other stuff.
But you're right, the US will really really struggle with that.
At the European I'm just looking at the European markets, you know, selling off today as well here.
Of course, But interestingly, in the first two weeks of the tech sell off you're held up really nicely. So you know, these things have phases. We're now into the liquidation phase, so you've got to sell everything. Gold's selling off.
Yeah, and you don't have an in the European markets. The the tech exposure that they have in US mark not where it changes the treating dynamics, the evaluation exactly.
The sectors are very different. We have ASML. But that's about it really. I like SAP too. I like SAP.
Yes we are a couple, but it's pretty thin exactly that you have the I mean the European companies to have that exposure to China to a greater ease.
They do, yeah, they do.
We love Spanish mid caps just to go really Spanish. Okay, no one's talked about Spain for fifteen years. But the pigs are coming back. Okay, pigs about you remember the pigs in the noughties. Yeah, they're coming back. It goes around, comes around.
Very good, Chris Wilding. Actually we're going to keep you for a little bit.
So all right, so as you travel around here, are you talking about European equities more than US equities?
The folks this year we've started talking about European equities and UK as well. UK. I mean, I don't know.
How much you've seen of our riots over the weekend, so maybe people are a little off the UK at the moment. But actually that you know, the UK is a very interesting opportunity because we're going to get it. We're going to get a consumer and housing boom. There's going to be great earnings growth it's a cheap market. I would argue we have political stability. It doesn't quite
feel like that in the last few days. Maybe maybe our riots haven't hit your news wise, I don't know, but it's been pretty brutal in the UK over the weekend. But yeah, we're talking a lot about European UK, even some of the emerging markets, but not in this liquidation event. This is when you pick them up on weekdays. In this liquidation event, if you're you know, one, two, three, four year investor, it's going to be a really interesting four year.
It's been very different from the last five to fifteen.
Really, So what do you tell people that walk up to this market and see this kind of volatility here? What do you telling those folks that this is maybe perhaps of a part of a reasonable correction, or.
Is just something else gone on?
Well, I think I mean to be honest, it depends on their timeframe and whether a trade or an investor. But what I think the really important thing here is this, you know, just look at the end. The end tells you everything. The short positioning, it's the carry trade currency. Everyone's been the short end long Brazilian or Mexican currencies on long that mag seven or whatever it is, you fund out at the end, so you're getting killed at the moment.
So this is very much a liquidity event.
Short term, it'll burn through, hopefully the central banks will turn up, and then you start picking out what you want for the next twelve eighteen months. And that is when we think about this movingto cyclicals and move overseas or into mid and small caps.
So what's the next big sort of event that you're keeping your eyes on? Because obviously we have Jackson Holtz until later this month, but we'll have a ton of different FED speakers coming out, and then still a lot of consumer related earnings in the US this week.
There's a ton of stuff going on, isn't it. Even though it's August, there's no going on holiday. Luckily I've been so I don't have to worry about it. But yeah, I mean I think are we going to get an into meeting cut? I think that really depends on how much financial conditions titan and the price action in markets. What is the market pricing in Are we going to potentially get fifty as the market probably priced in fifty
for the next meeting already. I don't know I'm out of date to mows but but yeah, I mean, I think all of that is critical. The data is critical. Ism services Today was very interesting for the soft landing.
On Kim yep kim in better than expected. Hey, Chris, thanks for joining us here. Chris Watling, he's the CEO, chief market strategist for Longview Economics based in London, but he's doing his US tour here because we worked during the month of August unlikes.
I'm just laid it out Friday.
So appreciate it.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple card Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Jess Meant sitting in for Alex Deel on Paul Sweeney. We're live here in our Bloomberg Interactive Brooker's Studio, or streaming live on YouTube as well as you can hit over to YouTube dot com search Bloomberg pot. I mean, who reports earnings on a Saturday. Only Warren Buffey could do that at Berkshire Hathaway. I was not paying attention whatsoever on the Jersey shore, but somebody who was paying attention to Matt Palozoli. He's the senior analyst covers all
the insurance geeks for Bloomberg Intelligence. He joins us here in our Bloomberg Interactive Broker Studio. So what'd you learn from Berkshire. I'm guessing more cash and even more cash, more.
Cash and even more cash.
So the big story was really them selling half of their Apple shares. We had mentioned in our earnings preview note that we thought they might lighten the stake a little bit more. I didn't expect them to be this much, but that was the big story coming out of it.
And why was this like what ended up being the kind of cause for them to want to pull back in Triumpid's tag.
Sure, just so we had mentioned also they kind of telegraphed a little bit that they were probably going to sell more at their annual meeting in May. Buffett had warned about tax rates going up potentially in the future
and maybe taking some gains off the table. Tim Cook was actually sitting there and the audience was kind of funny, and that they had sold I think it was like ten to thirteen percent of their holdings at that time, and they got questions on it, and it just seemed body language wise that they would be selling a little more. So I think tax rates, he if it's been a little weary on exposure to China for some company. So I think those two played a big role.
And actually had mentioned to you before when we're off air, kind of trying to pick your brain because Apple if just for people to remind them it was underperformed the S and P five hundred tremendously in the first quarter. It was one of its worst quarters relative to the index, probably like the fourth or fifth worse since the dot com bubble burst. But then it bottomed in April and has been up close to thirty percent since then, and so the S and P five hundred that span has
only been up about four percent. So you were saying you didn't think even just the rally that we've seen was as much of a factor either as far as why they turned their stick.
Yeah, I don't think so.
I mean, more buff it's not out there trying to time the market one way or another. And you know, he looks at these stock investments as if he's, you know, buying the company. So he also said at the annual meeting he expected Apple to be their biggest holding at the end of this year. It still is, so, I mean, it was that stock was about forty percent of their portfolio before this move. So I'm not surprised to see him take some concentration of how much.
Cash did they have at Berkshire Hathway today and so any any ideas what they might do with it.
Always a tough one, Paul. It's I think at a two hundred and seventy eight billion dollars, which I thought was a mistake when I first saw it because they were at like less than two hundred before the sale of the Apples like brought in a lot of cash. Higher interest rates have taken a lot of pressure off them holding cash. I was calculating that just a simple after tax return on the cash would help their earnings by at least five percent next year, right, so just holding.
It will be okay.
You know, they bought it big steak and shove. That would be an interesting, mega, mega deal and not really predicting that would happen, but just seeing that, I mean, I think the next deal buff It does probably something we don't even really understand what it is, like, you know, makes unique parts for some materials or something like that.
It's interesting too because at a certain point they're holding an Apple was so big that it took up basically half of its portfolios. So for in your kind of view, does it make sense to make a move like that, Yeah.
I mean, you know, I don't know if anyone wants to have one stock makeup you know, half of their their portfolio. You know, he had said he would love to have owned the whole company at one point or something. You know, it does seem like he was worried about global economic situation. I think the timing of this is just kind of a coincidence. Why everything imploding today and
this happening. Also keep in mind Bank of America was also their second biggest holding them and selling a lot of that in the third quarter, So I do think he's really looking at concentration.
So some reporting, I think it was in the Times about Bill Gates and Warren Buffett relationship maybe not as tight as before, any thoughts there.
So what has been happening is Buffett's part of the Giving Pledge where he gives away a bunch of his his wealth over time.
And I am not on you to spend every least dollar.
I'm not either, I don't have enough wealth to give away. So but he was giving a lot of his money annually to the Bill Gates Foundation. What happened, I don't remember when it was. I think it was probably the end of last year. He had announced that when he passes away that his children are going to inherit the shares in a foundation to be used for charity. I think before that the buffet found the Gates Foundation was I don't know if it was official, but was at
least thought was going to get some of that. I don't know about the relationship between the two of them. I just know that that is the case. And I think you know he's given tens of billions to the Gates Foundation over time.
Anyway.
What about insurance, because I always think about the insurance companies in relation to obviously Warren Buffett. If you look at that group though in the S and P five hundred down about three percent today but up fifteen percent year to date, what kind of view do we have as far as how he viewsed that particular core of the market.
Yeah, So insurance is kind of the engine that drives the float for Berkshire Hathaway.
They have a.
Primary insurance business, They have a reinsurance business, and they have the auto insurance business, which is Geico. These companies as a whole, and Buffett obviously loves that industry. They made a big play in flight last year, which doesn't look seem.
Like they read it. And today hurricane hitting.
So hurricane we have a note down on Hurricane Debbie. Not really a big deal for the insurance companies, will be very minimal for Berkshire Hathaway, if any impact on them as a whole. But for the group we seem to be hitting maybe pek Arowi's maybe this year and next year. The valuations generally peak before the roe s do, so it seems like less rosy times ahead from a fundamental standpoint for the insurance companies. But I'm Buffett hasn't been hasn't changed his view on insurance at all.
All right, Matthew, thank you so much for joining us.
Matt Palizola, Senior Alice covering all the property and casualty insures for Bloomberg Intelligence, joining us live here in a Bloomberg Interactive Brokers Studio Warren Buffett in the Berkshire Hathaway.
Folks reporting earnings over the weekend.
Again, huge cash haul, and for those of us on Wall Street, we're just like, how do you ever deploy that?
I don't know how you ever deploy that?
I know.
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Markotsoft two point four percent, the S and P four hundred.
So a lot of folks are saying is a natural, healthy pullback in what is otherwise a pretty solid market. We're just the beginning of something more on the downside. People trying to get a sense there. What's going on? Carol Pepper, founder and CEO of Pepper International, joins us from New York via zoom. Carol, what are you hearing from your clients? What are you telling your clients on a day like today, We've had a big move to markets.
Yeah, I'm telling my clients keep calm and carry on. This is a little bit of a pullback, but not unexpected. When Warren Buffett went and sold hath this Apple position, that.
Made people nervous.
But frankly, the fundamentals have not changed the fact that there's a slight correction. Nothing will go up every single day forever into infinity, and if you think that it will, then you shouldn't be in the stock market because it never does that.
But you have to look at long term trends.
Over time, growth stocks and particularly the Magnificent Seven.
Have done extremely well.
Should there be occasional pullback, yes, but does that mean that we're in serious trouble.
No.
So if you hold these stocks and you're nervous right now, this is not the time to sell. Obviously, even the plunge from this morning has paired back its losses. Some of this was the fact that a lot of the traders are on vacation, so whoever is in the market is moving things around much more than they normally would when it would not be in the middle of August.
What are the top questions you're getting from your clients.
Well, obviously people wonder is this the beginning of the end? Have we run as far as we should. Should we be pulling everything back?
And again I manage money for people with over one hundred million dollars who are who have single family offices, and we make bets, not unlike Warren Buffett, not that I was as good as him, but we make bets for multiple generations.
So again, if you.
Look over the last five or ten years, how much has growth and check in the US outperformed everybody else. AI is the new entrant into the tech scene. It will continue to perform. Will there be moments like now and maybe the market enthusiasm god ahead of the reality where the price should be. Yes, But does that mean that it's going to plunge to zero?
No?
Are we having a dot com crash?
No?
Why because there's actual earnings underneath these stock.
Prices, whereas in the dot com day there was nothing underneath. It was all air.
So for that reason, I tell people, yes, it looks scary, No, don't do anything. This is a typical August doldrums, you know, buy the news, sell the news kind.
Of market movement that we see almost every summer.
So where should people if they maybe want to look for some values here in a market that that's pulled back a little bit.
Where are you suggesting they go first again?
If you're underweight in tech, Depending on your own weights, this is a great time to get into tech. If you want to get in. Having the price draw up five or ten percent terrific. Get in now. If you're not in there, if you're not wanting to kind of test or bat when things are going to move one direction to the other, just sit in cash, let us settle out for a couple of days, and then proceed in an ornerly fashion as usual with your investment program.
So I'm telling people just to remain calm. I don't think this is the beginning of the end. I don't think Warren Buffett was doing something sinister. I do believe him what he said. It was a tax move on his part to sell half of his Apple position.
So you know, just calm down, everybody. It's going to be fine.
When you have the ten year last week's sliding below four percent for the first time since earlier this year in February, and then you have obviously income kind of driven type bond proxy sectors, utilities roots that were taking in a large amount of the inflows, especially since that CPI report on July eleventh, as well as last week when we saw the sell off accelerate the last few days.
Are you putting money or suggesting clients put money in those particular corners of the market that would obviously benefit from rate cuts.
Yeah, I mean, I do think the right cuts are coming.
I hope that we will go back to having at least two rate cuts this year, maybe September and November.
So certainly, if you're.
Underweight your fixed income and you've been just relying on you know, good positions in your cash accounts, those rates are going to go down, so perhaps the time to consider getting into bonds a little bit. But again, you can never time exactly when that's going to happen. Well, you hit it exactly, No, who may hit it exactly? Are the program traders not human beings. It's impossible to
outtrade this market, so you can't be that smart. But if you've been sitting in very high cash shields and you're worried about you know where cash shields are going to go, which is down when they start cutting the rates. And yes, it may not be a bad time to put a little bit more into bonds, but timing that date is still going to be tough about.
I don't know if you have any views on crypto, but that's been whacked.
All over the place today, with a bitcoin off about eight percent today.
Yeah, well again, there's fear days and there's greed days. On fear days, everything that looks risky quote unquote goes down. So crypto is considered a risky or a growthy asset. So of course it's been hit. But I know a lot of people who are buying massive amounts of crypto
right now, particularly overseas. I work with a lot of international families, and there's a lot of reason why people are starting to substitute crypto in some cases for their own currency or using crypto to move money around the world. So that's going to continue to happen. For people that are hoarding crypto, this is a great day. They can go out and buy some more and they all would project within two months it'll be back up into the sixties, maybe back to sixty five.
All right, Carol, thank you so much for joining us. Always appreciate getting your thoughts. Kyle Pepper, founder and CEO of Pepper intern National.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
So let's talk.
Come on these here, let's get the latest. There's a lot going on. Miami.
Mike mcgloan, Senior Commodity strategis from Bloomberg Intelligence. Droorte Is are on zoom from Miami, Florida. Mike, what's your commodity call today? When everybody's probably saying what is going on out there? In financial markets?
We're seeing sell what you gotta and not what you wanna and that's really affecting. It's typically you've seen this happen in the past. When beta goes down in this velocity, you sell what you have to have. So that really started this weekend. Bitcoin broke blows sixty thousand. How were there on Saturday and then broke through there on Sundays? That was your indication. We'll start with the world's most significant leading indicator. And there's a lot of people who
speculated it. So that was like people had to sell that because they need to raise capital.
You're seeing in gold.
That really started similar beginning of two thousand and eight when we had the financial crisis. The significance of things like gold and copper going down is they're perfect goddess sellers, but the gold will probably do better. The thing is manage money in that position. Speculators are way long gold for a reason because it's a bull market, so they're liquidating some of that, but I think it's more likely to cover.
And the difference the is crude oil. Crudel's hanging in there.
It's only down one percent on a day like today, it'd typically be down more than it has to be five hundred. But we know there's geopolitical tensions, you know, escalating, and a lot of the future's positions were way sold out about a month ago, so Crudel is not way
overweight long like gold is. So that's where you've seen some of the greater I think pressure on goal at least for today, but in the long term as this resolves itself, we see that if beta is clearly making a little bit of a high, and volatil he's making a bit of a bottom.
Gold would be one of the primary beneficiaries, and.
Looking over at the crude oil market WTI for those US features falling to around seventy three dollars a barrel. As far as what it could be coming ahead here when you're talking about looking at the commodity space, what do you think this tells us more kind of broadly about the economy and the potential direction here for the US stock market.
Well, it's deflationary forces. And I'm glad you went there, because I've been writing about this for a little too long, but particularly this year. Kimmani's basically predicted this with gold going up and all commodities go down, going down. The Bloomer COMMANDI INEX on a one year basis is down six percent, and the SMB five hundred on a one year basis is up about twenty one percent.
That's one year. That's signs of deflation forces.
And I think what's happening is those auto correlation forces and commodities they go down because they go up, are trickling down to other assets. So I don't see this as something as a one off. It looks like it's just getting started. And then you tilt over. Why, Well, here's one good indication the ten note yield in China's two point one five percent. That's compared to three point
seventy nine in the US. So China's heading towards a pretty severe deflationary recession if you watch their bond yields. And I am and I think that's what's happening, and it's happening global leafs, so kmmandi's have basically been predicting this. I think we're just seeing a little bit of trickle down from the stock market that's way elevating. I'll end with this the Bloomberg the sorry, the two hundred day move in on WTI crew oil is about seventy eight.
Dollars a bill a barrel, and that's tilted lower.
We're right now about seventy three the two hundred day moving average on the S and P five hundred, it's five thousand, and the SMB five index is about five two hundred.
We're just potentially going to revert there. And commodities were.
Kind of a good indicator for that, and bitcoin was one of the quickest indicators I think for what's happening.
So for WTI crude oil, let's just continue there. Mike, is it a supply issue driving this pullback here, or demand or maybe a little bit of both.
All the above.
The first thing I have to remember is the key force that pressured crude el since the peak in two thousand and eight is that the excess of supplying demand out of the US and Cana is accelerating. It's about six million barrels a day. In two thousand and eight, it was a deficit about ten million barrels a day. That's about what you see from that increasing excess of
spare capacity out of Opex. So see the bad trend there, and prices remaining high because of geopolitical tensions are keeping that force intact.
Meaning the cost of production in.
US is around fifty five dollars a barrel and candidates around sixty dollars of barrel, So you keep prices above those levels, they'll just produce more and it's reducing demand. Diesel demand in this country is in a downward recessionary trajectory, and I hear it's the same in some of the other countries, most notably China, are just harder to measure.
So that's the problems you.
Political tensions are keeping in elevator, and then's just going to be pushing back towards its cost of production US if all the rules of economics apply.
So I'll give you one example.
The number one measure of heat, electricity and fertilizing this country.
Natural gas has already done that.
It dropped to and earlier in the year the levels that were first traded in nineteen ninety.
Corn has already done it.
Corn has dropped to a level of first traded in two thousand and I'm sorry, nineteen seventy four, back down to four hours of bushel.
So this is just.
Normal commodities, but it's deflationary because they went up too much. The question is how normal is for stock market baaltile at the bottom and stock marks go down, then that's what really precious crude aiut when it goes. When stocks go down like this, it'll bring down crude and copper.
Another corner that you keep a close eye on is trollium futures. So you were talking about in a note recently how managed money, when you're looking at the hedge fund positions in particular, are set up for a bear market. And then obviously, when you were pointing out to how the stock market mean reversion might be a particular deciding factor. What does this mean now moving forward, now that you're seeing stocks under pressure here.
Yeah, so I think that's part of the main reason.
Despite the you know, the eminent attacks and more violence in the Middle East, which might curtail supply, despite that overhanging the market, Crudell's going down and despite the market has really sold out. You mentioned from futures, it's going down partly because beta is going down. It's the power of beta. When the stock market goes down like this, it's all that matters. So this is something that's really
been a great indicator this year. If you watch these speculative speculative futures traders, when they get way too long, usually it's when the market peaks, and that's what happened this year.
And when they sell out.
They typically don't get short petroleum futures, but when they sell out the levels that are basically flat, it typically marks the bottom. That's what happened this year, and now we're kind of in that range. Just watch the next key level. So in our next key step to and WGI crewdel there's like a line of sand support around seventy thousand. I think it's a matter of time. It follows that it goes below that level. A natural gas has done it, Corn has done it, but right now
it's keeping it elevated. His futures are basically sold out. We kind of have to reset those positions, and those geopolitical tensions are keeping things somewhat elevated.
All right, Mike, Great Twitter force, Really appreciate it.
Mike mcglow, Senior commodity strategist, Bloomberg Intelligence, zooming in from somehow he scammed this Miami, Florida.
I don't get it. But he is a winner.
He is a net winner during this whole global relocation, that is for sure.
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