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Joining us now from the sunny clines of his Aruba, his Dutch Caribbean Urie Timer, who grew up in the Caribbean and of course iconic at Fidelity Investments, Urine, I've got to get to your brilliant work on LinkedIn, folks. Just simply follow Urine Timer on LinkedIn. While the nifty to fifty remains far from evaluation extremes, here's where we are. How extreme are we right now? Uri and Timmer?
So the nifty fifty good morning, by the way. So the top fifty companies which in you know, years, past, decades past, have had occasional unsustainable valuation moves. So the original nifty to fifty in the early seventies, and then of course what we used to call the Jenus twenty back in the late nineties, and at the peaks those stocks would trade at two x the pe of the bottom four fifty Today it is nowhere near there. It's
about twenty five thirty percent. But if you take just the mag seven, of course, which are the booster children of the mega growers, they're trading at about a thirty eight pe, whereas the bottom four ninety three in the S ANDP are trading at about twenty two. So there we are getting closer to sort of historical extremes. But having said that, you look at the earning squiggles and I get them from Bloomberg. You look at those sort of next twelve month numbers, next twenty four months number.
They are still not only rising but accelerating, so you get both sequential improved moquents from one calendar year to the next in the estimates, And those estimates themselves are rising rapidly, more rapidly than the market in general. So until they lose that fundamental support from rising earning estimates, which are known to be a proven driver for future returns, I think these valuations can still be sustained.
And David to me, the delta announcement what four or five days ago was extraordinary. How they just blew it out and they just killed it.
You're in I look at what I'm going to keep hammering on this this morning for the lack of breadth in the market, and I wonder if what's old is new again kind of looking back at two thousand and three, parts of tw twenty twenty three, parts of twenty twenty four, how much is that weighing on you, just sort of the increasing narrowness of this market.
Yeah, it's a great observation. And I was really taken aback in December by how quickly the breath in the market sort of evaporated, right, So just to dial the clock back in twenty twenty, So twenty two October we had the cyclical bull market. Begin twenty twenty three was a very good year for the SMP, but if you were not in the MAC seven, you were not feeling the joy because there was no participation from anything else, even though the S and P went up, you know,
over twenty percent. Then in then in late twenty three, when the Fed pivoted and the Treasury kind of did its debt management, you know, going away from long dated stuff to T bills, the market really broadened. And throughout most of twenty twenty four, you know, seventy five eighty percent of stocks were in up trends above their two in a day moving average, even though they could not quite compete with the Max seven, but you did have
a broad market, a bullish broadening. Now we're back to like fifty to fifty five percent above their two inundred day and as of two days ago, only about a quarter of the stock were above their fifty day moving average, and so that's not good to see, and it kind of brings us back to the twenty twenty three environment. I hope it changes because the earnings growth is there and it is relatively broad based. You mentioned the Delta news.
That's case in point, and it's not like the other stocks in the S and P are not doing anything. It's just that they can't really light a candle to the mag seven because they are so far out in front.
A novice like me once some guidance from a pro like you. How much are you watching the ten year and amidst all of the anxiety and adjucta surrounding it moving toward five percent? How much does that matter? How much is that merely a psychological threshold or is it something that portends some kind of change in market sentiment and where things are going?
It matters a great deal. So when you think about equity valuation right discounted cash flow model, you got earnings growth in the numerator, the cost of capital in the denominator, and the new luminator. The numerator is more powerful.
Right.
If you get good earnings growth, the market can withstand changes in interest rates. But you know a few years ago during COVID, when you look at the FED model, which compares the pe on bonds, right, the price that investors pay for future coupons, and you compare that to the pe on equities. In twenty twenty, bonds were ninety one percent more expensive than stocks. So it was very low hanging fruit for the stock market to do well because they had no competition from what we consider the
risk free asset. Now, bonds are fifteen percent cheaper than stocks, even though bonds should be more expensive because they are considered the risk free asset, although some people might argue with that these days. And so as yields rise and bonds have become viable, right, so we're at four point seventy nine percent, tips are in the mid two so you're getting a real yield that is significantly positive, and
you have now a positive bonds to stocks correlation. You're at a point now where stocks need to compete with bonds to be that viable, risky asset. And when bond yields go up let's say four and a half five, when they get into that zone, the stock market starts to wobble, which doesn't mean the end of the bullmarket for stocks, but you know, it interrupts the mojo, as I've been calling it. And we saw that in twenty twenty three, obviously twenty twenty two, and we're seeing it again today.
Quickly, Urine, what is the length of this bull market? You've got a wonderful I'm going to be polite and called a spiral chart out on LinkedIn that shows a duration of a bull market on a baseball And he's Dutch Caribbean. What can I do on a baseball standpoint? I mean, I mean, Urine's up in Boston. He doesn't go to Fenway anymore. It's been so difficult. But are we in the third inning or the eighth inning? Urin?
I think we're closer to the seventh or eighth inning. And when you think about the all bull markets over the past one hundred plus years, the median bullmarket lasts thirty months and produces a ninety percent gain. Our bullmarket is twenty seven months old and has produced about a seventy five percent price gain. But of course the median, you know, is the median, and there's wide, wide dispersion.
I mean, the nineteen ninety five bull market lasted for much much longer than that, and certainly there are parallels to that, but the whole AI theme. But when you go back to periods in time where rates mattered, as we just discussed, the bull markets tend to be more sort of average, and I'm thinking like nineteen sixties, in nineteen eighties. So I think we're in later innings, and you know, the momentum of the valuation push I think is behind us. Now it's all up to earnings which
are coming through. But now you get these cross currents of the FED being done and rising rates, and it will occasionally interrupt and slow down this bowl.
Sim Martin sat Stacius. I hope I'm pronouncing that right. Saba curso bonaire. And you're in timmer this morning, folks, and for those on YouTube can see the joy is in arubaur in Timor. Is your Dutch Caribbean the same as your childhood.
It is a lot busier than it was. But so I was born here in nineteen sixty two along with my two brothers. My parents lived here for three and a half decades. My father was sent here in nineteen fifty for the military service. My parents are ninety and ninety seven. They retired to Holland back in the nineteen eighties, but this is the one trip they still make and my parents are here, and that's why I'm here because
I don't want to miss any minutes with them. So my parents and their three sons are under the same roof in my brother's house. And but the island is much much busier. There are more hotels, there's a lot of ARABNB. So when I go to the supermarket because I like to cook here every night, there are so many tourists who are airbnbing and therefore are cooking themselves. And that's, of course, it's great to see. It's not a criticism, but it's different from the sleepy days when I grew up here.
Tom taking notes, you're gonna get that note taking notes for the president of Airbnbreckman day.
You're in Timber get in line. Can we look at the Dutch Caribbean as a fifty second star?
All in good time, Tom.
You're in timer. Thank you so much from Aruba, and just good morning to your parents as they celebrate with you and your family in a Ruba. That's really cool.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Apple Karplay and Android Atto with the Bloomberg Business app, or watch us live on YouTube.
The the report and CPI tomorrow. And we have someone right now absolutely definitive on this. Stephen Stanley is chief economist at Santander and has decades of extinguishment of having trophies on the mantle for getting it right. Is it tough to measure CPI now or do you feel like you got to handle on the guestimate for tomorrow?
Yeah? I think that what's been tough lately has been the translation from CPI to the PCE deflator, which is obviously to what the FED wants, the FED pays attention to, because we've had consistent point three s on the core CPI and some months that translates to a high PCE number and some months to a low PCE number. So that's that's really been the difficulty lately.
How does real estate rental homeownership plug into this madness?
So, I mean, it's far and away the biggest piece of the core CPI. It's over forty percent of the core CPI.
It should be, That's what I mean. I mean Lisa's rent and she's putting eighty percent of her paycheck monthly rent forty All.
Right, yeah, yeah, it's less in the core PCEE, but it's clearly an important part of the puzzle right now. Fed uh Palell and others of the FED have been talking about how this was going to come down for a long time, and it really hasn't until last month we got a low reading and so we're waiting, I think, to see whether that was a fluke or the beginning of a better trend.
As we look ahead to getting these data in just a few minutes and CPI tomorrow, what would be most worrisome for you to see as you look at it on a more granular level.
Well, I think that you know, the really important piece of this right now in terms of core inflation has been on the services side, So you know, housing is the biggest chunk of that, but certainly medical care services, financial services, they're you know, a handful of these big services categories that really paying attention to and where you're going to have to see progress if we're going to get back to two percent inflation.
It's the FED too narrowly looking at these data.
Now.
We hear a lot about being data driven versus a point driven. Are you worried that there is a tendency here to look at these one by one, not with any sort of average or longer term horizon.
Absolutely.
I mean my sense is that we've had kind of strings of good and then bad data. You know, we had high data at the beginning of twenty twenty four, then it came down a little bit, then back up, and it seems like every time you get that little shift, the FED is swinging violently from hawkish to dubvish and back again. So yeah, I'd like to see them a little provide a little bit more stability on that front.
But what Global Wall Street wants to know from you, is a disinflationary vector still in place.
I think it is. I think that we're going to see gradual improvement. It's going to be slow, but I think we are as as time passes.
Theoretically an extended axis. It's going to be slow. Is beneficial to embed in anchor a lower inflation, right is physics? One oh one?
Did you do physics in high school?
In high school? I mean, but isn't the slow disinflationary tendency better? For John Williams Well.
I mean, you know, ideally, I think the FED would like to be at two percent yesterday, right, And I think the stubbornness of inflation running above their target has been somewhat frustrating to them. But I do think on an underlying basis, we are seeing slow We're seeing slow deceleration. So I think we'll eventually if we, you know, stay the course, we'll eventually get to two percent. But it's not going to happen in the next month or two.
The analysis here for surveillance worldwide is boom. Stephen Stanley with us as well. Stephen, you're not looking at the data but across the board a disinflationary tendency. What happens if we get that tomorrow with CPI wow, I think talking about whiplash.
The FED would be very happy with that. I will say, there's the relationship between the PPI and CPI. How can we put it. It's ten us and I thought we'd get a lower PPI number today, but I have a high CPI number tomorrow. So I don't think this necessarily should give us a ton of comfort.
Okay, so you're gonna wait to see what the tomorrow's for sure. The deity is the PPI for those younger, it's not the same structure or model. Is the PPI we were schooled one years ago, that's right? Yeah, how is it different now?
So the BLS has begun, I don't know, it's been about ten years now, has begun to try to measure service prices at the producer level. So in the old days, the PPI was just only goods prices at the wholesale level. And you know, some of these things, it's it's kind of hard to get a read on because you know, honestly, there is no wholesale market for most surfaces, right, So
I think the methodology is quite different. What's important about the PPI now though, is that for some of those services categories, the BEA uses the PPI data rather than the CPI data to calculate the pc deflator items?
Are you kidding all this? I feel like I'm in secretary excess kind of God looking at the alphabet soup. David has saved me here.
Stean, we were talking just a moment ago about the kind of vacillation we've seen between the FED being hawkish and dubvish as we do this kind of economic ornithology here, we're seeing a more dubbish Stephen Stanley as well here in the studio as of late. How are you navigating all of this? How are you putting this together? And how's it sort of shaping this? Yes, the inflation data today,
but the labor market data we got last week. How's it changed your vantage here on what's going to happen going forward?
Yeah, Well, as you mentioned, I mean I've actually been pretty dubbish lately, which is a r Yes, I'm usually the hawk in the room. So I think that the economy is likely to be slower in the near term. And I think the main the easy explanation for that
is that businesses are uncertain. We've got a lot of policy questions to be resolved, and so I think a lot of businesses that probably even though they've we've seen business optimism pick up, I think businesses are sitting on the sidelines waiting to see so I think that for me, the first half of twenty twenty five should be the slowest period, and then as we get certainty on policy, I think things start to pick up again. The question really is, are we getting a slow down in the
labor market? Last Friday's numbers would say no, you know, I would argue that we're still slowly seeing job growth moderate. I do think the unemployment rate will tick up a little bit in twenty twenty five, and that gives the Fed a little bit of a reason maybe to move closer to their view if we're neutralists.
Steven Sanley, thank you so much with sentender this morning.
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Sarah House joins us now senior economist at Wills Fargo. Sarah rates higher, Does that just simply mean, we got a better animal spirit, a better inflation, a better nominal GDP, and that will fold over to a good earning season. Is that what you're here from Securities Research at Wells Fargo.
Yeah, so, I think that's a big part of the lift and rates that we've seen as we've continued to see a really strong performance of the US economy, whether it's in some of the more growth related indicators like the consumer spending and we'll get a look at retail sales later this week, but also just as we've seen the labor market firm up as well, I think that's pointing to consumers still have money in their pockets that they're spending, which I think all should still be pretty
beneficial for corporate earnings growth that continue to I think also have that positive the backupfact with the labor market, so support supporting headcamp.
Sarah, give us the battlefield report here as we look at the Fed's fight against ty inflation and the data that we got this morning that miss on Producer price index looking ahead to CPI tomorrow, where is the FED in this fight? And I wonder about the longevity of this two percent target going forward? Here it strikes me that we were kind of in this vacuum of a sort when we didn't have all of the uncertainty surrounding
tariff's policy or immigration policy or fiscal policy. Now that we introduce all of that, do you think we're going to see a FED, shall we say, place less emphasis on that going forward.
Yeah.
So I think this is the hardest part of the inflation fight. So early on, we had I think some pretty low hanging fruit when we think about unwinding supply chains, just the normalization and commodity prices after the Russian invasion
of Ukraine. But this is the harder part where we're still seeing pretty good growth, as we talked about, but that doesn't leave a lot of incentive for firms to really pair back in terms at the rate of which they're increasing prices, and I think they've they've relearned that you can increase price without losing volume in any material way. And so I think that does make it a pretty difficult position for the FED, and ultimately this inflation fight is not over.
Sarah House, I've got to ask here, we're deep after PPI forty minutes on, have you readjusted your view to CPI tomorrow after witnessing the disinflation of eight thirty this morning.
Now having may changes to what we're looking for for CPI tomorrow. These are separate surveys.
You know.
There are a few parts of it that are are pretty highly correlated with CPI, like for example, consumer food prices, but for the most part, these are looking at inflation from different surveys and different perspectives, so those from what consumers are paying versus those of what producers are receiving. This is more important for the PC deflator. So we were kind of looking at what core PC and headline
PC are tracking for December. Now that we got inputs like in terms of medical care, a lot of information on finance and insurance, as well as what happens in transportation costs. So tweaking that up maybe slightly, maybe modestly, just with the strength bus on in airfares, But it doesn't look like this is a wholesale change in terms of the inflation numbers for December when we look at them in totality, Sarah, we.
Have speaking of looking at in totality, I'd love to kind of look at these data in complement with what we got last week that the jobs data, the FED doing its balanced dance, you doing that as well. How do you see the two of them in complement, and how did it kind of change your perspective, if at all, on what the Fed's going to do here in the months ahead.
Yeah.
So, what I think we've really seen, especially coming out of the December jobs report, is that the scare that we had this summer over the labor market, where we certainly saw it weakening, and I think there was a lot of concern that it was going to deteriorate in a nonlinear way. I think those canerns have been set aside, and so I think that's allowing the FED to shift its focus back more firmly on inflation, to finish this fight to get inflation all the way back down to
two percent. And I think with fewer risks right now being posed to the labor market, that it does point to rates I think staying potentially where they are for for longer than maybe what a lot of folks were expecting in the final months of next year. So I think market's pushing out the timing of that next cut, and you know, the degree to which we even see any further cuts in the near chairament I think is appropriate.
I look, Sarah at the American economy, and you know, Joe Wisenthal had a great tweet out, Yeah, David Gerr, we're deep into twenty twenty five.
Very deeply.
It's like we're two weeks, two weeks. It was like we're in three, four or five six months. Sarah, do you feel like you have to remodel your twelve thirty one model? I mean, is there a are I sure to readjust now?
I don't think there's there's a big pressure. I mean, it has felt like a long first two weeks of the year with everything that's gone on. But I think you're still looking at in an environment where inflation is going to be a bit sticky. It's going to be really hard I think to move the dial a lot further in terms of getting inflation back down to the
FEDS two percent target. So heading into the year, we're looking for inflation to more or less move sideways this year, and I think that's that's still consistent with the data that we've seen over the past few weeks. But I think probably the bigger shift has been I think further firming in the labor market, which again just reduces I think some of the concern on the employment side of the Fed's mandate.
Sarah House, thank you so much for sharing us today with Wills Fargo.
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The front page is a Lisa Matteo moment, Lisa, do you have okay?
I found this story in the Wall Street Journalists because this is usually the time when people tend to quit their New Year's fitness resolution already. They usually last two weeks. Yeah, they're usually about two weeks into the new year. But there's a lot of people who have not been happy. But it's the gym regulars have been very frustrated because they always say it happens every year. The gyms are packs.
They can't get a shower, they can't get a locker, they can't get on a treadmill, the parking lot is full, and they said they don't know the gym etiquette. There is a certain job.
Not wiping off the peloton exactly.
You have to wipe off the palatine.
For those of you that don't know, the Sun Radio, I mean, girl is actually pretty chisel climbs Mount radio every summer. But Lisa, you are the one. What's the number one etiquette that drives your nuts?
He said, Well, I work out from home, but when I do go to the gym, it's the wiping down the equipment you have to do and also putting back the weights. People just leave them.
Yeah, seriously, it's always it's always some guy who's lifting. I'm sitting there going I can I can move this.
Next Yesterday we were talking about dry January. So now we have this story doing this America's bourbon boom. It was big during the pandemic, right, so it seems to be coming to an end. A lot of insiders telling the journal that distillers are cutting back jobs, they're stopping expansion plans, especially the smaller ones, because drinkers are cutting back, right, They're heading to cheaper brands. They also have people drinking less because of weight loss drugs. The popularity of that.
They're thinking tariffs could hurt exports on top of it, and then you had that US Surgeon General warning you remember that saying alcohol should carry cancer wanting labels. So it's it's a big thing. But now they're saying they're starting to cut back. But I don't know. I need my Manhattan. I have to have it.
You're not a bourbon drinker.
I know that to be a fact. On occasion, my father actually cuffed Jack Daniels, Jack Daniels bourbon.
Well, excuse Tennessee whiskey. It's Tennessee whiskey.
It's in the category.
Specialty man the mateo Manhattan.
What is the I like, Yeah, bourbon rye bullet, that's that's next. I don't know if that's a good thing. So we move on from this. So Americans drinking less alcohol. But what's becoming more on top and what's becoming center stage is cannabis. Another especially among the younger generation, they're drinking less alcohol because they're turning to it. But here's the thing, it's not just and this is in you know, Business Insider and also on Bloomberg there's a great BusinessWeek
article about it. Is that it's not just people smoking it, but drinking it. So cannabis infused drinks. A lot of alcohol companies are going to it. And there's this loophole because even though legalization varies state by state, a lot of cannabis products so you can get them in stores and restaurants nationwide. So the loophole is that it's in the Agriculture Improvement Act of twenty eighteen. It legalized the growth and sale of him that contains those low concentrations
of cannabis. So now it's kind of this free for all and people are trying to figure out where is it legal, where is it not legal? But it's being sold yes, stores and restaurants worldwide, and this is the new thing and the cannabis infused.
And I noticed quickly here boy, the sheds are gone in the street.
Oh yeah, thereants, yes here in New York.
You know.
I was talking to a restaurant owner who said they have to build a certain type that the city approves, and it's it's expensive and it's but it was kind of a sad moment in a way to see those.
Disappearable Lisa, tell you, thank you so much. This uh newspapers A Lisa Bruteo. It's watch to you by bullet rye famous Rye.
You want to give your address.
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