Surveillance: Disputed Convention Possible, Valliere Says

so we're great. Then Mr Belly can give us a little perspective there and look forward and is really important research note this morning, Kevin surreally with us as well? Uh and let us dive in right now Kevin onto Nevada? Who goes to Nevada with up? Is it Clobisher doing better last night? Or is it really Bernie Bernie Bernie as a land in Las Vegas? Bernie Bernie Burnie Look and Clochart now has some new mom Madam. She's had it to New York City to a tom to meet

with her donors. She says, hey, she's got got the checkbook out because she's got some momentum after a strong third place showing she beat Elizabeth Warren. Remember this is a nearby Massachusetts. In New Hampshire, Elizabeth Warren finishing ahead of former Vice President Joe Biden, who had a terrible night last night. He went right to South Carolina. But the big takeaways this is Buona Judge, Buona Judge and Bernie Sanders. I mean, think about it for a second.

No one was even knew who Pete Buddha Judge was a couple of years ago, and now the fact that he finished in second place behind Bernie Sanders. I think we've we've got some data from Iowa and New Hampshire. I'm learning every moment by Kevin Cirelli. Let's go into Nevada, Manushi or Greg you're gonna love this as well. You can put in your research note. Uh, this is office se Really, this is the morning moustid out of Vox. Let's bring it up right now. It's real simple. This

is Saturday. The twenty's really working seven days a week. The idea that the the early voters will not be physically present to Part two some paid in the Nevada Caucus. They will be asked in advance to rank up to five candidates by their Iowa like order of preference. Each precinct location will be given an unopened deck of cards. That deck then has to be shuffle at least seven times by Kevin Seilli, and then each candidates group will draw a card. The high card wins a delegate. Kevin,

You've gotta be kidding me. Well, you know, look, I know my friend Gregg Valley is about to say that we're going to have a broker convention, But I I respectfully, am going to say that that all of my reporting

would lead me to indicate otherwise. And here's why. For as complex as this process is, this is exactly that I know there's differences between the way the Democrats and the Republicans see their business, but this is exactly the conversation that we're about that we had in For as complex as the process is, Bernie Sanders and pet Buda

Jedge are still getting the most votes. And for all of the most America who are not as politically obsessed with this process as people like the three of us are, a win is a win, and you get to those votes, you win, you get momentum, and you go on greg push against us. I mean, Warred's gonna drop out, Biden is going to drop out, Styre is going to drop out. How do you get a brokered convention with only two or three candidates left? I'm not sure Biden drops out

quite yet. He could do okay in the Vada, he could win South Carolina, he could win a plurality of delegates on Super Tuesday. A little too early to write him off, but it's worth noting he has never won a primary in three presidential campaigns, so so moving forward, I do think that there will be two or three serious candidates. Not sure there's going to be a brokered convention, but I do think there'll be a disputed convention where the first ballot winner is not clear when they get

to Milwaukee. Greg, I have like twenty five questions here in like two minutes. So first, why is Biden so much trouble? And how does he get back energy? Doesn't have enough energy, doesn't show enough energy. It's it's as simple as that, right, But you can't, I mean, how do you get that? I mean this is a personality, right, I mean he's you know, Bernie Sanders is an energetic seventy eight year old. Biden there's not an energetic seventy seven year old. And people know this so I I

do think he's pretty much finished. I think Elizabeth Warren is pretty much finished. But you there's one name we haven't mentioned. We've got to mention, and that of course is Michael Bloomberg. I know you have to do a disclaimer, but with his resources, I think Super Tuesday could be really pivotal for him. Okay, the disclaimer is that Michael Bloomberg is the founder and majority owner of Bloomberg News, including of course Bloomberg LP. So, Kevin, what happens next?

What what's the next step that we're actually looking out for? And why is everything swapp in the air. I mean we're talking about broke convention. We're talking about you know, no clear winner. Is there a democratic problem right now? But I mean it's a dysfunctional family, both of the political parties. Are we do we go through this every four years? Frenz, you know, no offense. I mean here in America you know that that we're kind of used to that. But here's what I'll say with regards to

what Greg Valley said about Michael Bloomberg. Joe Biden has competed in Iowa and and lost. He competed in New Hampshire and lost. Michael Bloomberg hasn't competed yet. And as this moves forward to Super Tuesday, you're gonna hear some sharpened political attacks. We've already heard them, and based upon my reporting, point blank, you're going to be hearing aggressively more political attacks against the former New York City mayor. And and that's gonna happen over the next three weeks.

We're gonna have some some new guidance over the next three weeks. But again, Buddha Judge competed, he won. Bernie Sanders competed, he won, And a win is a win. Kevin, thank you so much, big. One final question, with all that you've done for us over the years, Concord, New Hampshire is in your soul. New Hampshire is so so, so different than the rest of the world. Why do we put such a focus on your conquered New Hampshire. Well, a lot of think sensible voters who really get into

it and follow it carefully. I have to think the final point that a lot of these voters are depressed this morning because as one faction or another leaves Milwaukee unhappy, it's a good story for Donald Trump. This has been wonderful and fan scenes right, we had a million questions as well, so Greg Valuer with us and we say thank you so much, and Kevin so really thank you as well. As we come out of the New Hampshire primaries, we send it to Sanders on top. It's on to Nevada.

Johnny us now Kate more ahead of thematic strategy at black Rocks Global Allocation Investment Team. Could mon uchucate, good morning. Just a quick note on politics. I don't know if it's complacency, comfort or otherwise, but on Wall Street, no real worries about Senator Sanders. Either it's too early to start caring. They don't believe he can win the general or they believe if he does, he can't govern and he can't get things done if he's in the White House.

Which one is say it right now, So I'm voting for option three on this one, which is, you know, there is some skepticism that Bernie's second actually make it through to the White House, But the real conversation amongst market participants right now is that even if he does, he won't be able to enact a lot of the policies that he has laid out so you know, we saw this a lot in this administration as well, a lot of talk, a lot of headlines in this case,

a lot of tweets, but you know, much more challenge actually enacting radical policies than would otherwise have been feared or suggested. Within the fear is And I read CBO yesterday the summer on the new trillion dollar deficits modeled up to one point three and I know the president's budgets, a political document, etcetera. Within your thematic investing, do you care about trillion dollar deficits? You know, we have to

think about our time rising on this one. The deficits certainly matters, but over shorter time periods, and by that I mean measured in quarters, not necessarily years or decades, they're much more interesting themes for us to invest around dynamic changes happening across a rye, the of sectors and in consumption patterns. Remember late last year people saying that at the end of this year there would be turmoil volatility heading into elections. Right now, it sounds like everyone

is shrugging off anything. Nothing matters. The elections don't matter because nothing will get done. The deficit doesn't matter. Because in the short term, easy money will cure all what matters. What's the sort of potential uh is sort of downside here that could cause some volatility that people are looking at. Yeah, I mean, I think the big thing to watch here is going to be whether or not companies are able to continue to generate earnings growth throughout a lower growth environment.

I say that because, well, we do expect that there might be a little bit of multiple expansion in the equity market given incredibly low bond yields. I think the majority of the returns from the equity market this year have to come from earnings, and this is going to be the big question mark. Now, I'm pretty constructive on this. I think in sensus actually is more in line and we're not going to see as dramatic of a downward revisions two earnings X by stations as we have in

previous years. And I've been pretty encouraged by the stability in fourth quarter earnings even during a fairly rocky period around trade and concerns around politics. So I don't want to sound Pollyanna, but I do expect that we're going to end the year higher from here, John, are you laughing and I'm smiling because when we talk about earnings, I'm just wondering whose earnings. We're talking about Microsoft as an Apple right now almost ten and they matter. They matter,

I know they matter. They matter a whole lot more than they did a number of years ago. So when we talk about earnings, whose earnings? One sector, A couple of companies, a handful of companies. Yeah, okay, this is a completely fair point. What another thing I've been focused a lot on is what what companies are giving us in terms of guidance, not just for first quarter twenty

but also for full year. And if you look at where guidance has come in the vast majority of the more positive guidance in consensus is coming from technology and communications and technology enabled companies across a variety of different sectors. So you know, you're right to point out some of those big behemoths. They are driving a lot of the

you know, the bottom line growth. That said, I think if we have stability and growth, low interest rates, and people don't really worry so much as we were just mentioning around politics and geopolitics, then there's going to be I think a broader swath of consumer companies that that hold up. We also like things like consumption demand around

home builders, for example, have you done? And this goes to Bed Laylor being with this very bullish the other day and James Bevan and C. C. L a very bullish this morning, and you, I think have a very constructive tone as well. When you take out the five glory stocks, X out the the trillion dollar valuations, what's the actual multiple of growthiness out there right now? It's not as elevated as we think, is it. Well? Look, I think people pay up for the liquidity and the

bound sheet of some of these bohemoths. We know that's the case, but they also frankly deserve the higher multipa. The pe on Amazon is seventy six, and if you take it out presence, if you x that out in eight other stocks like that, you've got a more reasonable valuation, right,

a more reasonable valuation. But Tom, you gotta remember I grew up in emerging markets, and at that time, if you, if you were really valuation sensitive, you would never have owned something like by Do in its early stages, which consistently traded at eight times forward. So you have to be evaluation awhere. What brings that up? I didn't own by Lisa, loaded the boat on by do Off. Oh yeah, clearly,

how's that that regret room going? The regret we're all cash today with the Amazon on its way to done, Cassie. I'm trying to square the picture that you're talking about here, Okate with this sort of developing story that we're seeing reflected by bonds and by oil prices, and we're just seeing OPEC just now slashing forecast for global oil demand, blaming the coronavirus, but oil prices were under pressure anyway. How do you sort of pair these stories of slowing

global growth with robust earnings and earning square? At what point does this dissonance become too much to handle? And one kind of takes the upper weight here. Yeah. So there's a lot of focus, i think, at the headline level around some of the older drivers of the economy or the older signals we would have. We've been talking a lot about what is oil telling us, what is copper telling us? What are all of the base metals

telling us? In this environment where people are worried about the growth impacts of the coronavirus, they're not asking themselves, Hey, how much gaming revenue? Um are the Chinese tech companies getting as a result of everyone being quarantined at home. They're not asking you know, what kind of media spend are we getting as a result of people not being able to go out and spend in retail stores. We

are sometimes asking the wrong questions. You remember how much we used to focus on, say, pre crisis and immediately following the Baltic dry index? Is that even relevant anymore? We fall back into these patterns of looking at these indicators or the pricing around certain old economy um metrics that I just don't think are are telling us where we're going. Larry from Blackrock emails and some still Kate's on today. Kate's not on the Talk markets, folks. She

is the official surveillance Westminster Dog Show critic as well. Indeed, the Retriever, as you have Cora, made the finals like the seven finalist dogs, but the Fu Foo Poodle took the trophy. Again. It's an outrage, isn't it. I don't want to insult the Foo Foo poodle owners, but I will say that Retriever should have taken the prize. Its gorgeous,

good looking dog, beautiful confirmation. Why what has happened to this hundred and forty four year institution that they can't go with Arthur Levitt's labrador Winthrop or vet Bill something normal. Wait a minute, vet Bills foofoo. Oops, here's what can what happened to a retriever winning the trophy? You know, we have a little byes against the popular dogs here.

We need to be conscious of the ser spaniels. I mean things things dogs that are amazing, pets that are very well owned, seem to not really resonate well with the judges. I think that's a little unfair. I'm getting a comment to from Larry from Black Rock. He's writing it right now, and he's he's mentioning that he really likes the analysis and thinks that this really affects the broad investment strategy. It's great. I'm really glad to hear. Did you really buy a Gucci leash? I mean Gucci

put out her rings today and they killed it. Do you have a Gucci lease? The core is not that foo fit. Okay, what I will tell you she's a big fan of up country. For all of you dog owners who know, she has many ribbons, ribbons leashes for a different season. I can't and where we got the hearts we do. Indeed, thank you for your dog ate more a black rock. Right now, let's do this. Let's

get into an important discussion how you find comfort. And just like in the old days owning and stock, James Bevan runs very serious money for c c L a conservative money, boring money, and they're you know, got all the fears and the worries that we all have. And yet he says, stay invested. State the bull case. Now, James,

state why quiet money can become comfortable in equities. I begin with the premise that the benefit from equity ownership is about long term participation in an underlying business, paying a sensible price and therefore in effect expecting an earner. And I look at the price that you receive in terms of the forward rist premium for being in the

extra market. I think we think that's too high. And in the context of the alternative places where one can have one's money, the cash market, the bond market, the real estate markets, I think the valuations of EU are too low. I think valuations should be materially higher though for people should sit with equities. Okay, this is really critical, James. I'm gonna go off c f A on you here right now. In a dividend discount model, there's an exit access and you go out five years, seven years to

a terminal value. Have we extended out our timeline to value equities that are we looking out instead of three years five years or instead of seven years? Are we valium ten years now? Because of this is great disinflation? Tom. What I what I think any investor can do is they can lift the consensus numbers from IBS or any

other entity. Bloomberg runs a very good service of consensus data collection, and take the five year market numbers and then assume that after the first five years companies get linear participational in nominal economic growth. So that's that's been the terminal growth. If you then toss up all those cash flows and say what's the discount rate that takes those cash flows back today's price, Well, that number at the moment is six spot three in excess of the

long government bond yield. Now, that to me is a huge payment for risk. I think that we can also consider what is the fair payment in the content next of lead indicators and current credit spreads, and I think that's no more than five so I would be expecting the discount rate in effect to fall because prices have risen. So I am set and expecting that fair value is materially above You're getting a clinic their folks on institutional equity valuation. Then how can James bevan by the marginal

share of Amazon with a forward pe of seventies six? Well, I I look at the valuation of Amazon, and I look through the price endings multiple to the free cash lay yield and the long term great for that free cash lay yield, and I still see a share price that is below what I calculate to be the their value for the company. That allows me to believe that the citcall very expensive stocks are actually structurally cheap and indeed are cheat in the context of what people have

been prepared to pay in prior peaks of expensiveness. So I've looked at prior periods where growth stocks have done well, so periods of relatively slow growth, low inflation, and low money rates, and I see valuations that are ranged between forty five times and seventy two times. On that basis, Amazon is demonstrably cheap. The second issue is that if you deduct the relatively expensive six stocks that dominate market indices.

The valuation of the residual SMP five falls from eighteen and a half times that many have described as expensive to sixty seven times, which I think looks arguably way too cheap in the context of the growth and so many other world class companies in that market. You John have to translate spot is for point for our American banks. Thanks Tom, Thank you very much, Chimes, I always forget that that it doesn't translate well, sorry, into America. Let's

move on links to everything you've said. How great is the pressure to one US megacaps stocks right now? I think that the short term performance the UK megacaps are

absolutely supported by a following wind. I mean, when one looks at the financial results who came out for the Big five excluding Netflix, I look at a beat against Q four earnings forecasts, that is something in the order of fourteen spot three earning surprise with twenty one and a half percent in round figures year on your earnings growth. That compares with the rest of the index excluding those top names, with surprise of three point nine percent and

earnings growth of zero spot five percent. Now, why would one not want to own fabulous growth companies on valuations which are arguably reasonable. If you subscribe to the view that I do, the bondiles are staying low. Cash rates are only like to get lower in the context of what Jerome Pile has been saying, and that both gross

and inflation again to remain very modest japs. There is a question about whether the FED model still works, whether bonds and stocks can be compared in the same way, And this is a question that is increasingly important as people use the low bond yields to justify their purchase of stocks. I mean, at the end of the day, and earnings yield is not the same as the yield or the coupon that you get on a bond, and there is risk embedded in at the stocks that is

not there for bonds. Yeah, you're absolutely correct, and I do think that there has been a significant shift in the way that the market thinks about debt and sustainable levels of debt interest costs. And if you subscribe to the view as peddled by the central banks that sustainable equilibrium bond yields are lower, it doesn't mean you're going to make more money because those bond yields are stock

at those ultra low levels. So the journey of making the path to those lower yields, which obviously means higher prices, is over. But it does mean that the arithmetic in favor of equities is thoroughly supported and well placed. James always got to catch up the really really thoughtful, insightful stuff on some of the big names in the US econmy market after a monster rally through last year that continues into this year and climbs a wad of worry.

James Bevan the c c L a investment management Chief investment Officer. And Neil Sharing is a Capital Economics just an outstanding group of economic analysis. John, let me bring him in here and you can go what wisdom on him. And what's so importantly is is Neil before he was a Capital Economics was with his Majesty the Treasury, was an economic advisor and worked on the Sussex's finances before they went to Canada. And you're trying to get some

people in trouble something like that. Neil Sharing joins us here on the Economy journe Neil great to catch up with the Capital Economics chief economist. Now let's talk about some data out of America didn't get a whole lot of coverage in the last twenty four hours, but job opening just started to go the wrong way. What do you read into that now, Well, it's obviously only one month data at at this point, and the payrolls, the numbers that we had at the start of this month, Um,

we're pretty strong in the labor market itself. UM seems to be in reasonable shape. And the revisions that we were expecting to the back series of that payrolls and number that that series little bit better than the rather less less than than we had feared. So I wouldn't read too much into it at this point. I still think that we're in this goldilocks period of low but positive growth, no inflation as far as I can see, at least in consumer prices, and therefore low interest rates.

Of course, that continues to bid up asset prices. Uh. And if I was worried about the future, I wouldn't be worried about the labor market. Now, I'll be worried about the long term consequence to continued melt up in a surprise, and you know the political tension that we see frankly in Germany, in Ireland, in Irish elections we've barely touched on and what we saw last night in New Hampshire. You know, and it's a gold Lacks period. But within all of what Roger Boodle and you have

kept economics do, how goldilocks is it? I just don't buy. It's a Goldilocks period for so many Americans. Well, it's a Goldenlocks period. If you're in the market, it's a Goldilocks period. If you're a fun manager managing equities of bonds, we call that an American neil they have, Yeah, what

about your find? But underlying this, of course is the fact that although the pie has been growing, the share of the pie going to labor has been squeezed and the share of the pie going to capital has increased. And that's why it's a goldlock experience. You're right, it's gold loxperience of a surprises. It's less of a goldenlock sperience, far from it for for labor, which is why we've seen this long squeeze on on on labor sharef income

in the US. We've seen real real incomes, real wages in the UK and other parts of Europe struggling to go anywhere. So Neil, At what point does the data that we get shake us out of the Goldilocks period? Which data set really has the pattern shire to do that? Well, if we run with this idea that there's a Goldilocks period for a surprise is not labor. There's two things

I think that go wrong potentially to upset This. One is in the short term, a fear in the markets that inflation is starting to return or is just around the corner, or indeed that central banks themselves may start to try and actually actively target higher, higher inflation. Don't think We've got policy reviews and by the FED but also the ECB this this year. So a fear of the return of a return to inflation would be the short term thing that would be most likely I think,

to to spook financial markets. Don't think it's particularly likely myself, which leads me to the second thing, which is over the longer term you get a continued period of very low interest rates. A commonis monetary policy. You've already ten years into this very very period of over loose monetary policy. At some point we're putting a lot of faith in

markets to allocate capital efficiently. Um and I think at some point something breaks because there's a bubble in Chinese property, in US car loans, in leveraged loans, whatever it is. You know, we all know the familiar uh points of the potential stress. But at some point something breaks and we get another as surprise collapse. And we know from the last two downturns that it's as surprise force that that caused the big, big economic problems. Has no appetite

to do anything with rates to tackle this issue. Are we going to hear a whole lot more about macro podential policy in America? I suspect we will, And I suspect I mean we we're doomed in this In this sense, I think to keep fighting yesterday's battles, macro economic policy will be targeted. Predential policy will be targeted in terms of preventing another houseing bubble. And I suspect the next problems won't be in the house and market. There'd be

somewhere else. Um, just give us an idea, what was the corporate that would be the first place I would look at. Corporate credit spreads are incredibly narrow and eye close to the lows that we saw, and they run up to the eight crisis We've had even the I m F signing off about that MRS average loans. Small part of the market that could go wrong. Chinese Chinese property.

That's the place I mean, if you're looking for black swan events from the coronavirus, property sales in China of collapse, and it's the one part of the economy that's extremely over Leveraged developers in particular look vulnerable. That could be the next black swan. When you talk about the corporate debt market, we did get a warning from the Federal Reserve last week. They said that they were going to increase their stress test parameters, particularly for leveraged loans as

well as corporate debt more broadly. So it does seem like that is an area of concern. But going back to the real economy, I'm wondering what could tip the scales with respect to earnings, with respect to the fundamentals that actually causes some sort of default cycle that we really haven't seen. There's nothing on the horizon at the moment.

If you look at if you think about previous um substantial economic dantas, what's caused them, inflation shops, warranting policy tightening by central banks, as we just discussed, the FED looks like it's happy to set on the sidelines for now big fiscal contractions because as a fiscal a budget crisis, that doesn't look particularly likely. They're bond markets that like the tolerant of higher levels of deaths and deficits at

the moment um. Oil price shocks again, that doesn't look particularly likely on the horizon, and then asset price collapses and at the moment particularly if you look at housing, which is a big one, doesn't it doesn't look cheaper, it doesn't look very expensive. Thing doesn't like a bubble um. So it's difficult when you scan the horizon right now, I think to see the obvious signs that something is

fermenting on the horizon. But I think you run the plot forward twelve eighty months, two years, three years, and I think those risks factors will start to we'll start to return. And Neil, before we let you go, just one quick final question, day two for the Federal Reserve chairman. Anything left for you to ask the FED chair What would you like to hear today? Well, I really want to hear is you know we know the fedest target has this two per cent inflation target and full employment?

How real is that? What are they really targeting? Are they going to tolerate much higher rates of inflation? Because we know that in a world where inflation were interest rates rather are at their effective lower bound, a period of deflation UM is a much bigger risk. So do they trying to tip the balance the other way? Start tolerating or even targeting the higher rates of inflation, either explicitly or implicitly. UM, And that has a big importantion markets,

but also other things, other assets. You know, that's brilliant. Are we going to have an implicit monetary policy guessing future inflation? Yeah, we may well do because of us that I don't This policy review won't change the Fed's mandate, Nor will the Policy Review need c v DCB change

its mandate. UM. I don't suspect, but it could be, like you say, it's implicit, that the fair actually says, you know what, we're gonna allow the economy to run a bit hot for a while ago because we actually want inflation and inflation xtatians to be higher, because we know that if we've got rates at one and a half two percent, there's almost realm for us to cut them um if the economy, If the economy does no

great to catch up with the other. This morning, no share in the capital economics chief economist driving for the discussion on the equity markets? Who do that with Anthony Dwyer of Canicord Jenuity. Right now, state the case, Anthony, what you would do right now? It's been a great bull market you've participated. We've had Ben Ladler with his great call up December of two thousand eighteen. He's ratcheted back, but he's still bullish. Have you ratcheted back the enthusiasm

from the index level time? I have actually adopted back on January twenty. It's a more neutral view because the market had gotten kind of so euphoric and ahead of itself. Now some of that optimism, an excessive overball condition has been warped off. In other words, you know, when it goes up in a straight line, it doesn't do it

forever and it has to pause. And I think internally, although the record the market indicries are making records, I think internally it's kind of going through a correction on the back of global growth fears with a coronavirus. So what am I doing right now? I'm really not doing much. I'm not trying to force it until there's better signals as to what it actually means to the global growth.

So Tony, give us a sense of valuation here. Tom and I we discuss often about you know, we looked at the move of the market equity markets had in ten with little to know earnings growth. Where are we evaluation and kind of how critical is it this for this for the C suite to deliver corporate profits in well, I think it's going to be Obviously, it's always critical. The market correlates most directly to the direction of earnings,

so ultimately he's got to be positive. But Paul, this is one of the most misquoted things I think that exist in finance. When people look at the for example, of price to earnings multiple, the historical average you're meeting is somewhere around fourteen and a half to fifteen times, so twenty times earnings pre nineteen to twenty times earnings. People would say, oh my god, it's so overvalued, But you really have to break that down based on where

inflation and interest rates are. So when you have very high inflation, you have a very low market multiple. You know, eight to nine to ten times. When you have very low inflation and interest rates, you have a very high average market multiple. So when the core inflation rate is where it is today, you know, right around two percent, historically, you trade at nineteen times. So I would I would

say it's fair. Have you figured out ratios? If you take out the you know, all the stocks that you single handedly pulled up the trillion dollar valuations, if you take out the five to six, the eight, whatever it is, stocks that are ginormous, what does the market cheapness look like? Then I don't do that time because that's data mining, because it's sort of like, you know, I got asked the question yesterday, you know, is inflation under or overstated?

And for me, I don't care. It's what I know what the FED uses, right, And it's the same thing with the pe multiple. Then if I do it today, I have to go back over the course of the last bazilion years and figure out what stocks drove it then. And I just don't think it's fair. I just think the valuation of the market is fair. It's not really expensive, it's not really cheap based on interest rates and earnings are unclear because of the global growth environment with a

coronavirus outlook that's being made evidence because what time. What's interesting are these huge mega cap stocks that everybody's you know, watching drive the indices to high levels. They're actually now considered defensive stocks. That's that is a huge When I say that out loud, it stains and sounds insane, but predictable,

strong growth with good liquidity is considered defensive now. So we're in this environment that this could get really weird where the induicries do nothing, but there's an offensive trade underneath it, meaning you know, you're buying the banks, the industrials,

and the non software technologies. Tony, are you concerned that there is a narrative out there that you know, what we're seeing an equity markets where across financial markets in general is really liquidity driven with just so much easy money out there in the marketplace. It is, but it's not. It's you know, people have this perception and it's portrayed in the media like the FED is providing all this liquidity that's buying stocks and it's not. What's happening is

low inflation is equaling lower interest rates. Lower interest rates means that banks not banks, means companies and individuals can borrow money at extraordinarily low levels. So instead of having a you know, I my original mortgage and I know time you know, since you know he's a little bit older than me, just to touch um, you know, my first interest rate was eight percent on my mortgage and I had to pay points to get it. Today, if you're getting three you know, you do three pc on

a bad market. So, you know, the low level of inflation is really driving the liquidity. I think it's it's easy to and it's frankly a little bit lazy to say, oh, the Fed's providing this liquidity. It's really low interest rates. Well, to go back to the first time I did a mortgage, which is you know, you know, I think it was st Is something like that. It was the nifty fifty. Are the six stocks this time are nifty six? Yeah? I think so, Tom, And I think that's really I

think that's the messages that you've gotten this. You've gotten this bump up in the in the S and P five hundred and the other major industries on these mega cap trillion dollar stocks. The rest of the markets just kind of been sitting there right now, you know, from when I beat myself up when I you know, I feel like I've not given the right advice. Right. So when I go newtral you know, I'm thinking, wow, what

had dummy to markets to an all time high? But then when you look at the small cap stocks, to semic conductors, the banks, they're below where that would have been. So the market has been correcting. So there's this real shot that that nifty kind of thought process holds the into she's flat while the underlying stocks that can start to get a little better. Okay, the theme today, Tony away from the equity markets is one did camp get expensive?

Do you remember when camp was cheap? Like, you know, you get through a small check at a camp and said here take you know, junior for two weeks or three weeks. I mean, buddy, don't you remember My camp was my mom and dad saying go out and play in the woods, play your camp, watch out for the snakes. And then you would go to woods and there were no snakes. But Tony Dwyer, thank you so much. Camping as a child in the dangers the weeds of New Jersey,

Anthony Dwyer can courtinuity. Thanks for listening to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio s