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We start strong this morning with Monica the Sense of joins us. Thrilled to have her and hear from JP Morgan. I gotta go over a year to date down, I'm six s and B five hundred ten, NaSTA Composite up twelve percent, and as you say, surprise, it's a great year for equities.
It is a message out there.
I mean, people are still skeptical and nervous, are just funny. It's been an amazing year by any measure from an equity standpoint. That's a yet feel great. So you could argue you just go home and enjoy the rest of the year and call it a day. But I think the challenge for many people I work with they're still sitting in a lot of cash. So it argue not everyone has participated in that equity rally.
Well, not only is everyone participated, but there's a rent here between the retail investors I guess participating and institutions about smarter themselves.
Is that how you see it?
Yeah, I think to a degree, the retail investors tend to overanalyze, right, because there's a fair amount of recency bias that creeps in there and you can't underestimate. Again twenty twenty two, it was a few years ago, but it's still very recent people's minds. That the fact that when volatility happened, nothing worked equities or down. Bonds were down.
And that's the big challenge I've been having to get people to move out of cash and look at fixed income as a real significant allocation their portfolio.
Again, Paul, the Madrid stock exchange in US dollars, I think it's up thirty two percent a year to day.
I guess we miss that again.
My word, Monica, when you talk to some of your largest, you know, clients, your high networth your high networth clients, are.
They fully invested?
Do you feel or do you feel like they're still.
Just kind of still cash balances? They are a bit too high. If you go back over the last ten years, I still see cash balances like thirty forty percent higher and would have seen in the past from their old balances, right, so some you know, I see like fifteen twenty twenty five percent cash balances, which is too high for people with generational wealth, which you would argue they should have.
Almost no cash.
They don't need it, right, they don't need the cash.
So in fixed income you can actually get real returns here today, even like municipal bonds.
I mean, I don't know where you're you're.
A US taxpayer, means are a no brainer. If you write, like me, the privilege of living in New York City, it's especially no brainer. You're talking high single digit tacticle than yields with I would argue you much less risk than you're gonna get in equities, So probably do better than I think you will in US equities over the next twelve months with less risk.
That seems about alternatives, I mean, you know, private equity, hedge funds, private credit, real estate.
I mean, how do you guys talk to your clients about alternatives.
It's a big allocation for large families because again they don't need the liquidity, so you tend to see allocations and alternatives they could be as high as fifty percent of them. Markelia, Yeah, it's not, it's not where we start, but that is what I see for some of the larger families.
Expert have the blue button Detroit Lions blue button. You have a wonderful resume for this question. Forget about family networth JP Morgan Mega hitters. You know eight zero's off to the left of the decimal point. Should people have alternative investments in their four oh one?
Kay?
If for long term money? Yes, because you know data tells me you're going to compound at a rate higher than you would in public markets. Now that's that there is a different risk protofile there, and you always want people to be comfortable with that risk. And so it depends what age you are, right, if you're in your thirties or forties, yeah, that wouldn't scare me. If you're in your fifty sixties seventies, are tapping to that money sooner? That's a different question.
Okay, So let's you mentioned cash earlier.
What's the to do list for Monica Descenzo going into labor day?
People are like, I need to do action. What's the action mandate?
If you believe what the market is telling you, which is the feed is in a cut in September. You need to own more fixed income because your cash is going to earn you less. And it seems so obvious, but people don't believe it because I think they've been hearing people like me say cuts are coming, cuts are coming, and they haven't been coming as fast as people thought.
Do you want to weigh in on NATO?
You know, it's it's a thing I talk about with a lot of clients, but then have to remind them, do not let your geopolitical concerns on the tail wag the dog because generally speaking, over any intermediate term, it doesn't matter for me.
It's just it's a nuts summer. Where were two hundred and forty days in the in the term? Monica, thank you, soone's too short a visit.
Let's do this sooner. Monica Descenzo is with JP Moore. Stay with us.
More from Bloomberg's Surveillance coming up after this.
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 Otto with the Bloomberg Business app, or watch us live on YouTube.
Jim Karen Torstenslack publishes moments ago in Apollo Global Management on what I walked in the building and looked at today, which.
Is a yield curve.
The vanilla curve is comparing the two year yield with a ten year I went out and looked at the two year as compared to the thirty year yield, and they answer, I think a lot of people Jim Karen don't know this. Going back thirty years, the steepness, the difference in yield of the two's thirty yield curve is not even back to normal. We were so negative. We're still trying to get back to normal.
Is that right?
That is absolutely correct. If I look at there are various curves that people look at. Some people look at the three month T bill rate versus the ten year yield,
and some people look at FED funds versus tenure. If you look at the yield curves, right now, we are still below historical averages, so the curve has a lot more it could potentially steepen, and that has a lot of implications, right because in one sense, we're talking about FED rate cuts, and yes, that means that front end rates can come down, but it doesn't necessarily mean that back end rates actually have to come down, and that might actually be not exactly an intended consequence if you're
trying to lower mortgages or longer term borrowing rates.
I mean, within all, this is the basic idea, Paul am I right, A steeper yield curve is evil.
I mean FORBOSEI one oh one, I don't know, Jimkaren.
Is a steeper yield curve bad for our listeners and viewers?
No, not necessarily right.
So it depends on why the curve is steepening and what the conditions are that are surrounding it. So in some cases a steep yield curve is actually really positive for the financial sector and for banks. Why because bends Banks borrow at the short term at a low interest rate, and they lend longer terms. So therefore the spreads get wider, banks can earn more money, and what that means is that banks are more willing to lend into the economy. So that could actually be a positive thing. So usually
a steeper yale curve could be a positive. The other thing that also it creates is some form of easier leverage, meaning if you can borrow at those shorter term rates at those lower rates, and you can invest longer term, then you could actually you can actually generate more potential revenues. But usually the yeal curve steepens when the FED starts to cut interest rates aggressively, and that's usually in response
to something bad happening in the economy. So that's the coincident component of the indicator that you may be referring to.
Tom.
Hey, Jim, Tomorrow, Tom's gonna get on the Gulf stream and head out to Jackson Hole.
What are you.
Looking for from Jackson Hole? Fed Cherirman J pallin Friday.
So I really think that.
He's not going to alert us to a potential rate cut, but I think he's going to open the door. I think what he's going to do his mission is ultimately just to basically say that the risks are more balanced and potentially tilted to the downside, especially as it pertains to the employment situation that gives him the opportunity to cut interest rates. Now, we have a payroll number before the next FED meeting in mid September, and we also
have inflation data coming out. The payroll numbers coming out over the next several months, are not going to be good. I think it's on September ninth, we have a quarterly sensus of employment and wages. This is that downward revision that we're supposed to get in jobs data, So we may actually start to realize that our monthly job's rate of growth over the past six months or so has actually been a lot worse than what's actually been reported
by the BLS. So I think the labor data is sending a very strong signal that the jobs market is not overly strong right now. And I think we know that, and I think that opens the door for the FED to interest rates, and I think that POW will probably allude to something along those lines with respect to the labor market.
Jim, you're the CIO of Cross Asset Solutions. I have no idea what that means, but I guess I'm guessing it means you and your team can look at a lot of different places for value.
Where do you see value these days?
Yeah, So effectively, what we're seeing right now is actually equities look a bit more attractive than fixed income does now let me let me explain that. So clearly, fixed income has a higher yield and has a higher coupon, and it's good.
It's very good, stable place to put.
Your money, and it's a good component a portfolio for diversification. However, we think that within the equity markets, if you look at the broader parts of the market, so not the top flying mag seven, but the other four ninety three, what we're starting to see right now is a broadening out of earnings revisions to the upside. In fact, second quarter earnings which just came out, we're actually very very
strong from a historical standpoint. We're very strong that many of these companies in the second quarter actually beat expectations quite significantly, and that is actually pretending to something relatively strong going into the future. So when we think about the markets and we think about the next six to eight nine months ahead, I don't like to think very short term, but if we think over that period of time, what we have to recognize is that we have some
tower fallout that we're going through right now. Inflation's likely to be higher over the next couple of months. But once we get beyond that, what we're left with is a lot of business investment, a lot of cap x, a lot of companies starting to invest in their own future, and I think what that's going to do is increase private sector jobs growth, and I think that's a positive.
Are you managing for the coupon right now or can you actually make total return forward?
That's a great question. Tom.
What I've been saying in fixed income is I'm managing for the coupon right now.
The reason I say that, do you realize that only.
Twelve percent of our audience Jim Karen has ever done that because there.
Wasn't a coupon.
Yes, well that is true, but well effectively, I think that the duration movement. So what Tom is referring to is if you get this drop in interest rates, you get this increase in price, this total return just in terms of price. I think that interest rates are have already fallen reasonably enough at this point. They may fall a little bit more, but I don't think that's going
to be the majority of the game. I think the majority of the game that you can look for in fixed income is the yield or it's the actual COUPI So for fixed income, it's really a question of that stability, and you can add that to your portfolio for diversification, which is which is what we're doing well.
Sweeney's been lecturing me on a daily basis. Jim Karen, thank you so much. Margan Stanley, stay with us. More from Bloomberg Surveillance coming up after this.
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 Auto with the Bloomberg Business app, or watch US Live on YouTube.
We speak with Douglas Cast a Pinata on Wall Street. People love to go after him, but the fact is it's an esteemed career starting out a kidder peavity, A.
Zillion people started, a lot of people done.
It was great for him. Doug Cast joins US now with Seaberg's partners. He is been cautious on the market and run, Doug. I just looked at a toothpaste company. We'll keep the name out that. Since the Poldic has made four point five percent return, there's basically two markets. Have you been wrong because you missed Meg seven or have you been wrong for another specific reason.
That's a good question.
I just want to warn you that I prep for this interview with one hour of Peppa Pig and Baby.
Shark with my granddaughter Carlin.
Good look.
I'm painfully honest.
I don't go on Bloomberg or any of the other shows to improve my brand or sell a service. I try typically to explain my view in the market's individual stocks without an agenda to promote that view. My view is currently is often a contraryan one it is today. So I'm going to briefly explain how dumb I've been in the market, but how I addressed and managed through a wrong sided market view, effectively managing risk and even profiting.
I think that it's instructive for your viewers. It'll benefit from my transparency and technique because I honestly to be blunt. Few come on market surveillance and say how wrong they've been. The opposite is the case. People usually talk about their successes, the winners in the forum. They want to appear smart and conveniently forget their views and performance during drawdowns like in twenty twenty two. It reminds me of the old Harold arl And and Johnny Mrcy's song. Accentuate the positives,
the emphasize the negatives. So since we first we last met, and with the exception of the fall in February and March, and really since the S and P was fifty eight hundred, I've basically.
Been burish and wrong.
But astonishingly, Lee, my hedge Front Sea Breeze has been net short in almost every month except for the March April sell off since early twenty twenty four. Despite that, our monthly returns have been positive and eighteen of.
The last done that. But Doug, how is you?
I've done it? That's a great question.
We employee good risk management by taking a number of small losses rather than get involved in shurre evaluation AI AI mag seven short of the mundane companies business models we're roading.
Paul wants to get in here.
I want to ask you one question, Paul Sweeney's got to be you can ask me any question in a short time. I on the Bloomberg have Walmart. It's a pe of forty point one six. Can you explain to me by somebody dropping pennies down to the bottom line deserves a forty multiple. You're the only one living who remembers the nifty to fifty?
How do we get here with Walmart?
It is astonishing to me.
We are been short our largest short exposure in the last year and a half have been in consumer stocks. We actually recently showed at Walmart. And I think it's condition of the market. It's what's It's what Warren Buffett wrote in a in a report to his Berkshire Hathaway shareholders in nineteen ninety nine. God's plan basically, people wait up, wake up in the morning, expect stock prices to go
ever higher. So you've seen that this substantial expansion reevaluation in price earnings ratios, and we think that equity is a terribly overpriced against interest rates. The equity risk premium is a two decade low that's typically consistent with the slide in stocks. The S and P dividend yield is at a near record low one point twenty five percent, and spread between that and the ten year treasury has rarely been so wide. As you know, I'm very close
to Coops. Iway was Lee's director of research for a while to make advisors Lee fields bonds or over prices. Stocks may be overpriced against overpriced sixt income And.
That's just real.
Quickly, given that stance, given that conservative outlook on maybe evaluation, how are you positioned here today?
I've been net short between ten and twenty percent, as I said, for most of the last nineteen months, and we are currently considering expanding our next short exposure. Outside of that range, I think current valuations are twenty four times. That's in the ninety eighth percentile. It's a poor launching pad for future investment returns. Bob Barrel, in one of his ten Lessons of Investing, said there are no new eras excesses are never permanent. The SMP index trailing multiple
is twenty six. You take out the twenty three p in twenty twenty one, and it's similar to the valuation of August twenty two thousand, right before two year by bear Mark.
I'm going to pick up on this with Paul jumping here.
So, Doug, how about in the fixed income space? Here are you can you go there and just clip coupons? Here is our opportunity there.
I think that.
If you're a high net worth individual I listened to your prior segment about just earning the coupon, you can get a seven and a half percent pre tax equivalent if you're a high net worth individual in municipals. So I think that four point three percent is thereabouts where the ten year yield is it's a good place to hang out. And if you go a little riskier in credit, you get equity like returns for limited risk and no volatility.
Doug, I got time for one more question. I got eight ways to go here.
Don't ask me about the Yankees. I'm not going to about the Yankees. I hang up.
Well you should, and you know it's a glorious and beautiful thing, Doud Cass, I want you to speak to the people listening and viewing who aren't sophisticates. They didn't have an office next to Julian Robertson. They haven't done what you've done. They haven't been as visible an Opinionata like you. What do you say to our audience about this addiction, this belief in MEG seven.
Well, I'm I'm you know.
No one I know is concerned that there'll be a large drawer down inequities. And I think there's any number of conditions that could bring down the market meaningfully. And the most important one as it relates to MAG seven, is a hiccup and AI. For example, a slow down in AI cap spending could occur. We could see growing evidence of double and triple chip ordering. We could see the failure of AI to improve from its current state. We can see the failure of use sets to develop
for AI. We could see an accounting scandal in AI because companies Hyperscalers are depreciating their massive capital expenditures over ten years well in excess of useful life. I've written over one hundred and five columns on the street about that, called wartales from Navidia. I think Navidia and the Hyperscalers, and on long two of them, Meta and Amazon are over earning.
Right, Derek, quickly, You're an Apple? You long your short? Apple?
No position?
I was short into the move under two hundred and I have no position. I think it's overvalued, but I think they are far better shorts available.
Can the Red Sox make the Wild Card?
Red Sox, I believe are tied with the Yankees five games out. The Red Sox are four and six in the last ten. The Yankees is seven to three. The leading team, Toronto is five and five. The momentum is with the Yankees. There go the Yankees.
Thank you so much. Get back to Peppa Pig with your granddaughter. Mister kass Is with Seabreez Partners. He's been very open about missing a great bullmark.
Greatly appreciate it. Stay with us.
More from Bloomberg Surveillance coming up after this.
This is the Bloomberg serve Balen's podcast. Listen live each weekday starting at seven am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
Joining us out for clarity, Kristin Biddle, It's been wait long, had a welts at work at City Global Markets, and I guess just this has come up this week. Kristin, do you believe in rebalancing?
Like?
Is this like a formula?
I absolutely believe in rebalancing.
I think look like at a very high level, what's the number one question we're getting from our clients is really questioning around like the sixty forty portfolio, and I think it's gotten a little bit of a bad rap because when you look at it over time. Just look at it over the past decade, it's been returning around nine percent perannum. Even year to date, you have nine percent paranum or nine percent total year to date.
Through the sixty forty portfolio.
So I think where the question comes into place though, is really looking at what does cash provide in this market? It should you have an allocation to cash to be a little bit more nimble. And then also the question that everyone's been discussing around the fact that your equity exposure is actually highly concentrated. Is that a good thing or something that you should diversify away for?
We want diversification. I mean my basic thing as I see a lot of portfolio is over diversified, so that if you have a winner, it doesn't matter because you're overdiversified.
So the diversification across let's just say like fixed income, alternatives and equities certainly a case for it. I think there's a case for having some cash. Now within our portfolios, we have about a one percent cash allocation killed in our investors. Well, you know, you have a little bit
just to do some rebalancing on the edges. But if you look at the average client's portfolio, some of those are upwards of twenty to thirty percent in cash, which then you have to ask the question is that really an investment or are you kind of stuck in in inertia.
I love some of this data from the cap Gemini report, which I've seen in so many places. High net worth individual wealth showed strong growth in twenty twenty four, reaching ninety and a half trillion dollars globally.
And this is the number I keep telling.
My number three offspring that works at a big investment from sixty three percent of global wealth is expected to change hands by twenty thirty five.
That is unbelievable, unbelievable.
How is that going to happen?
By the way, is that just I mean, you've got to plan for it now, don't you know?
You have to plan for it now. And this is something so the cap Gemini team, they've been producing this report for the past twenty nine years, and this is really kind of one of the leading publications when it comes to wealth management and the broader kind of spectrum of ultra high networth and high net worth investors. So I was part of the exact steerco this year, and the focus of this is really this great wealth transfer and so that sixty three percent is expected to change
hands by twenty thirty five. I think the more important stat there is not just the movement of wealth, but the fact that whenever you have whether it's like interspousal transfer, whether it's in a state situation, intergenerational transfer.
There's two key insights.
One, within one to two years, close to ninety percent of people change their advisor. So simply because you were advising a family does not mean if you have one of these big life events that you're going to continue being the advisor. I think the other thing is when people talk about next gen, it really is people aged forty to sixty. You hear something like next gen and you think it's someone in their early twenties or in their teens. That transfer is going to happen first and foremost to Gen X.
Here's what I want to know for the listeners and viewers that are doing all this estate planning, etc. And the kids have no visceral interest in the markets. They wouldn't know yield to maturity if it hit them over the head. What do you do if you have all your kids or some of your kids who they just don't care about the material.
So this is this is a really interesting questioned Tom, because I think it's fascinating and almost kind of ludicrous that you can graduate from the best universities in this country without a foundational knowledge of financial planning, estate planning,
and just understanding investments one oh one. So since we're dealing with that as a base case and some people are not interested, the educational component and having a trusted advisor becomes a mission critical and so everyone should have a foundational knowledge of financial planning.
They don't, but they need to.
Okay, they need to. But come on, this is like a huge deal. We have a generation behind us, whether we have you know, the megabucks John Tucker has or you're like me, I can never retire it.
I mean, I mean, Kristen, the kids don't care.
Well, we see them caring, but just in different ways.
Right.
So a lot of the barriers to entry from a technology perspective, hear me out on this time. The barriers to entry from a technology perspective, even accessing financial markets. You've never seen so many people in their twenties and thirties actively trading, and so the democratization in terms of trading is free access to markets. That was a very
different story a decade ago or two decades ago. So a lot of those barriers have been brought down, and I think it's a question of meeting people where they're at. And also with their interests. So where do we see the primary interests of this next generation. It's definitely in terms of digital engagement and the platform in terms of accessing advice twenty four to seven, But it's also interest in other asset classes. And you see a higher tendency
towards alternatives as opposed to public markets. And I'm not just talking about crypto and what you would think. It's actually alternatives because ninety nine percent of the companies in the US market are private companies. And actually, if you say, like, okay, fair enough, but a lot of them are small. Even if you use the threshold of over one hundred million in revenue, you're still talking ninety percent.
So a lot of those themes.
You can meet someone where they're at in terms of what does interest them without it being financial planning one oh one or kind of are the benefits of asset allocation and diversification.
Well, I've told my kids the last check I write, I want it to bounce, So don't plan on anything else. So what are some of the questions you get from your clients? How do I set up the states, how do I set up trust? What do I do with my investments today? What kind of questions do you get from your clients these days?
So I would say the first question oftentimes when we meet with a new client, right, So if it's an existing client, you generally are going to already have a financial plan in place, You're going to have an estate plan in place, and you're going to have an asset allocation and understanding your risk profile. So oftentimes when we
have that initial interaction. And by the way, we cover people in the legal industry, we cover professional services, we cover asset managers, pre ipo post ipo companies, so you're talking about a very diverse set of individuals, but they're very ambitious in terms of their careers and their goals
for themselves personally as well as professionally. One of those common things that we find is people have all their money in a savings account, right, so that they have not actually done a financial plan or that they just simply they've been saving and they start with kind of a traditional path of I'm going to buy my first house, I have my mortgage, then I come into liquidity and I don't even realize and many people think it's too late.
So the question around, like, these are people who are fine from a retirement standpoint, but then really getting an estate plan in place, understanding wealth transfer and then understanding acid allocation.
Yeah, all I can say, Folks, is just on probate alone, get an estate plan in order. Kristin Biddley, thank us so much for Citygroup this morning. There.
We don't do enough for that.
Can you come back anytime. I'll be here.
Kristin, thank you so much early, really well, I appreciate that.
This is the Bloomberg Surveillance podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal